What is employee turnover? How to calculate it

Employee turnover

Understanding employee turnover—the rate at which staff members leave a company and are replaced by new hires over a specific period—is vital for business leaders. It offers insights into how often and why workers depart, whether voluntarily or involuntarily, and helps assess employee satisfaction and the overall stability of an organization. It also allows companies to gauge their competitiveness regarding compensation, growth opportunities, and workplace culture.

In this guide, we'll explore voluntary and involuntary employee turnover, the typical reasons for each, how to measure and analyze the frequency of employee departures and arrivals, and strategies to help you retain your top talent.

Voluntary vs. involuntary employee turnover

There are two categories of employee turnover: voluntary and involuntary. 

Voluntary turnover happens when employees leave an organization for more appealing job offers, which might include higher pay, better benefits, or a more suitable work environment that aligns with their professional or personal needs.

Involuntary turnover occurs when the employer initiates the separation due to reasons like inadequate performance or factors beyond their control, such as organizational restructuring or economic downturns that necessitate layoffs or other cutbacks.

Common causes of employee turnover

There are many factors that can influence an employee’s decision to leave their job. Here's a look at some of the most common:

Feeling under-appreciated

When staff members don't receive the recognition they deserve, such as salary increases or promotions, they may become disengaged and look for employment elsewhere. Beware of "rewarding" high achievers with more work without offering them the proper acknowledgment and compensation.

Seeking new challenges

If employees lack opportunities for advancement and development, they might explore better prospects for career growth elsewhere. This feeling of stagnation can lead to dissatisfaction and a reduced sense of loyalty to the company. Prioritize creating clear career pathways to retain talented individuals and maintain a motivated workforce.

A better offer

If an employee has been discreetly interviewing with other companies and receives an offer with higher pay, they’re likely to consider leaving. While retaining such employees with counter-offers is possible, offering competitive salaries initially is much more effective. Doing so helps prevent staff from seeking better pay elsewhere and underscores the organization’s commitment to fairly compensating its workforce.

Lack of benefits

Not offering comprehensive benefits packages, such as health insurance, retirement plans, and flexible working hours, can also deter workers and reduce their job satisfaction. Providing these perks demonstrates a commitment to your employees’ well-being and fosters a supportive and loyal workplace environment.

Work-life balance

Many employers now offer greater flexibility in work hours and location, so requiring staff to frequently work overtime or follow rigid schedules may cause them to become frustrated and search for other opportunities.

Toxic work culture

Many people decide to leave their jobs because of unpleasant or unproductive work environments. If there are significant problems with the work culture, ethics, and management practices, it's common for workers to pursue better conditions elsewhere.

Inefficient payroll processes

Late or incorrect salary and wage payments can significantly erode employees' trust. Workers who don't receive timely and accurate compensation may start doubting the company's financial stability. Investing in reliable payroll systems, such as the Oyster Global Payroll platform, helps prevent such issues and build trust among staff.

How to calculate employee turnover

Monitoring turnover rates offers valuable insights for senior leadership to identify trends and devise strategies to address them. A high turnover rate in a particular department may suggest ineffective management practices, while a general trend of employees leaving for higher salaries could indicate that the organization is not offering a competitive compensation package.

To calculate the turnover rate over a specific period, you’ll first need to determine: 

  • The number of employees at the beginning of the period
  • The number of employees at the end of the period
  • The number of employees who've left the organization within the period

Next, calculate the average number of employees throughout the period. For example, if your company had 230 staff at the beginning of the period and 250 at the end, the average number would be 240.

Then divide the number of people who have left (let's say 20 in this case) by the average number of employees.

In our example, this means dividing 20 by 240, which gives us 0.083. 

Now, to determine the percentage, multiply the result by 100. In our example, this means multiplying 0.083 by 100, which gives us the turnover rate for the period: 8.3%.

What is a high turnover rate?

The benchmark for what constitutes a high turnover rate varies widely by sector. In retail and hospitality, annual turnover rates often exceed 35% due to the nature of the work. Conversely, in many other industries, a turnover rate of 10–20% per year is generally considered normal. These variations reflect differences in job stability, seasonal employment trends, and the varying degrees of skill required across different fields.

Analyzing your organization’s turnover rate

While the above calculation gives an overall perspective on employee turnover rates, assessing this data in more detail provides greater insights. For instance, many organizations distinguish between voluntary turnover and involuntary turnover to better understand workforce dynamics. 

For a deeper analysis of employee turnover, consider looking at stats from these perspectives:

Evaluate data in detail

Looking at turnover statistics by department, role, or specific employee demographics can prompt questions such as, "Are product managers underpaid?" or "Is our work environment appealing to high-performing women?" These inquiries can guide targeted improvements within your organization.

Assess industry standards

Leveraging industry benchmarks allows you to determine appropriate salaries and benefits packages, helping to retain quality staff without compromising the business's financial viability. Partners like Oyster, for instance, provide a detailed overview of competitive salaries for specific roles across various countries, enabling informed compensation strategies.

Conduct exit interviews and surveys

Conducting frank and open exit interviews or asking those who leave to complete surveys allows you to better understand what's driving employee dissatisfaction or their reasons for resigning.

Strategies to reduce voluntary turnover

The costs of replacing staff are often high, which means it's in an organization's best interest to minimize turnover rates. Effective strategies for retaining employees include:

  • Improving onboarding and training: Ensure that new hires are effectively integrated into the company and feel confident about their role and how it contributes to the organization's goals.
  • Enhancing compensation and benefits: Regularly review and adjust compensation and benefits to align with market standards and meet employee needs.
  • Creating a positive work environment: Foster a supportive atmosphere that promotes diversity and encourages open communication.
  • Offering flexible work arrangements: Provide options for remote or hybrid work and flexible hours to enhance work-life balance.
  • Supporting career development: Clearly define career paths and support for professional growth to keep employees engaged and motivated.
  • Giving recognition and rewards: Implement a system to consistently acknowledge and celebrate employee achievements, regardless of how big or small.

Attract and retain top talent around the world

Recognizing and prioritizing workers’ needs, desires, and well-being is not only essential to minimize employee turnover, it’s also the foundation for organizational success. Partnering with Oyster enables you to offer compelling compensation packages that attract and retain top talent in over 180 countries, navigate the complexities of international HR, and streamline payroll processes in more than 140 currencies while ensuring local compliance.

Discover how Oyster’s Total Rewards can help grow your business beyond borders. 

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.