Industry Insights

A closer look at employee turnover

In this guide for employers, we crunch the numbers and share actionable steps for reducing churn in the workplace.

4 minutes

Employee turnover isn't just a number for HR to measure. It's a workplace challenge that affects your bottom line in more ways than one. As a business owner, you're probably well aware of the costs associated with employee departures, from hard, measurable costs...

  • Administrative expenses related to exit procedures, including payout of accrued time off and costs for unused benefits
  • Recruitment and hiring expenses
  • Time and money spent onboarding and training new hires
  • Costs associated with overtime or temporary staffing to cover vacant positions additional soft, hidden costs:

  • Disruption to workflow and scheduling
  • Increased stress and workload for remaining staff members
  • Loss of institutional knowledge and expertise
  • Damage to company reputation as an employer of choice

We know why it matters, but what can we do to reduce it? Let's take a closer look at how to calculate turnover, how it can differ between industries, and what you can do to retain employers longer and strengthen your workforce.

First, let's define turnover.

Employee turnover is the rate at which employees leave a company. Turnover can be voluntary, when employees choose to leave, or involuntary, when they're let go by the company. In most cases, exiting employees need to be replaced in order to avoid a hit to productivity.

Turnover rate is a key metric that measures the churn within your workforce. When turnover is high, it means there's a lot of movement, and that can have big implications for businesses. It's not just about the number of people leaving; it's about the impact on the company's bottom line, its culture, and its ability to operate smoothly.

What's the benchmark?

If you've seen average annual turnover rates ranging anywhere from 3% to 80%, don't be alarmed. The number varies widely depending on industry, company size, location, and economical trends.

For reference, here are the Bureau of Labor Statistics' average annual turnover rates for some common industries, as of 2021:

  • Retail: 65%
  • Hospitality: 85%
  • Healthcare: 39%
  • Construction: 57%
  • Manufacturing: 40%
  • Total: 47%

Again, be aware that the average turnover rate may be different in your industry or location. But having a few basic benchmarks available can help you gauge how you're doing and identify areas for improvement.

Calculating your annual turnover rate

While you can measure turnover rate for any period of time (for example, a month or a quarter), annual or annualized turnover rate looks at churn over the course of a year, and is what we'll be using in this example.

To calculate your turnover rate, take the number of employees who left in the year divided by the average number of employees working during the year. Here's a breakdown of the formula:

1. Take the number of employees who left during the year.
For example, let's say we run a plant nursery, and 10 employees left during the year.

2. Take the average number of employees employed during the year. You can get this by adding the number of employees at the beginning of the year and and the end of the year, then dividing by 2.
In our example, let's say 45 people were employed by our nursery on January 1, and 55 were employed on December 31. We add those numbers and divide by 2 to get an average of 50.

3. Take the number from step 1 and divide it by the number from step 2, then multiply by 100 to get your percentage.
In our example, 10 divided by 50 gives us 0.2, or a 20% turnover rate.

The cost of turnover

Similar to what we saw with the benchmark numbers above, the cost of replacing an employee can also vary widely by industry, title, and location.

  • The Society for Human Resource Management reported in 2022 that the average cost of hiring a new, full-time employee is around $4,700.
  • Investopedia estimates the cost of replacing an hourly worker at about $3,500.

Consider your recruiting costs, training costs, and lost productivity costs when estimating how much it costs to replace an employee. Once you have a ballpark estimate, you can multiply that by the number of employees who left in the year to get an idea of your annual cost of turnover.

Strategies for reducing turnover

So how can you reduce the cost of turnover? Here are a few proactive steps you can take to retain employees and create a more stable workforce:

Improve employee engagement. Engage employees through opportunities for career development, recognition programs, and open communication channels.

Offer competitive benefits. Provide competitive salaries, healthcare benefits, and wellness benefits to attract and retain top talent.

Invest in development. Offer training programs to help employees grow professionally and advance within the company.

Promote work-life balance. Support a healthy work-life balance by offering flexible work arrangements and promoting employee well-being.

Get feedback. Make sure employees have an easy way to give feedback, and conduct exit interviews with departing employees to understand why they're leaving and identify areas for improvement.

TL;DR: Measuring employee turnover and understanding the associated costs is the first step to creating a more stable, productive workforce. By further investing in employee retention, you're not only showing your employees you care, but also creating long-term benefits for your business. 🙌