Generally, "turnover" refers to voluntary employment termination.

When turnover rates are high, it is a signal to an employer that it needs to take a look at its organization to see if it can identify factors that might be contributing to the turnover rate. There are myriad reasons for turnover, including, but not limited to, below-market compensation, lack of flexible scheduling, poor job fit, inadequate training, lack of career growth, poor direct supervision, or poor organizational management. Turnover costs can add up quickly when an employer takes into account lost productivity, costs associated with hiring a new employee, the cost of temporary employees or overtime to cover the workload of the person who left the company, and training. Even more important may be the loss of skill, experience, and customer relationships associated with the resignation of a valuable employee. Employers should do all they can to avoid losing top talent.

Employers often track all employment terminations to evaluate whether a pattern of resignations or firings points to a need for change in the organization.

An employer's rate of turnover is almost always a clue to organizational health—and the news may not be all bad. Depending on when, where, and why employees are leaving their jobs, employers may want to make adjustments in management strategies, benefits, or compensation. Tracking turnover is critical to early discovery of trends, both positive and negative, that impact the productivity and vitality of an organization.

Of course, some degree of turnover is to be expected and is, in fact, necessary, because it opens the way for new workers and deserved promotions for experienced employees. Bringing in new employees can invigorate an organization with new ideas, fresh perspectives, and unique talents. In addition, it is healthy for a company to lose poor performers to turnover. On the other hand, high turnover with lots of satisfactory but dissatisfied employees leaving, generally means a specific or general unhappiness with the job. While pay is one driving force, there are many other important issues, including benefits, scheduling practices, poor job fit, inadequate training, management philosophy, pernicious supervisory behavior, lack of recognition, or better career opportunities.

Depending on the level of the employee, turnover costs can run anywhere from 50 percent to 200 percent of an employee's annual pay. Therefore, it is important for an employer to seek more information as to why employees are leaving, via exit interviews, focus groups, and employee attitude surveys.

How much does employee flight cost an employer in dollars? Direct costs from turnover include:

Separation costs. These include the cost of any severance payment, the increased cost of unemployment insurance premiums, and the costs incurred for administrative functions related to termination (e.g., generating final paycheck and terminating payroll, providing Consolidated Omnibus Budge Reconciliation Act (COBRA) notices, completing exit forms).

Vacancy costs. These include the net cost related to increased overtime or use of temporary employees.

Exit interviews. This includes the cost in time of an exit interview with each employee who is leaving, including the time spent by Human Resources (HR) personnel and by the employee's manager who also will need time to review the departing employee's workload and manage the distribution of the work until a replacement is found.

Replacement costs. These include the cost of advertising or otherwise attracting applicants, time spent by the HR department and the hiring manager in reviewing resumes, making decisions regarding whom to interview, interviewing applicants, testing applicants, drug screenings, moving expenses if applicable, and administrative expenses of new employees.

Training costs. These include expenses invested in the departing employee during their tenure. It also includes expenses required to bring the new worker up to speed. These costs may include time required for management, coworkers, and HR staff to help the new employee, orientation, classroom time or on-the-job time for training, and costs associated with pay and benefits until the employee is completely productive. As the annual salary increases, so does the amount of costs to replace the employees.

In addition to the direct costs of turnover, there are many indirect costs, including the following:

Loss of experience and skill. When an experienced employee leaves, the employee takes with him or her the training, skill, inventiveness, and productivity that has been gained through years on the job. Moreover, there is almost always some negative impact on other employees, and on productivity, when a good worker leaves for what is seen as a “better opportunity.” It makes other good workers wonder what might be out there for them as well. If the departing employee is a manager, there may be a drop in employee morale and a decrease in productivity as employees adjust to a successor's new leadership style.

Special attention. New employees, even exceptional ones, need special attention; they have many questions, and need lots of help. Onboarding the average new employee can take hours of time from HR, supervisors, and other employees. In addition, if a new employee arrives from another city or state it often takes time for the employee and their family members to acclimate to the new location, and often the worker is distracted until the family is comfortably settled.

Customer or client loss. In some cases, customer loyalty is to the person they dealt with, the salesperson, trainer, accountant, attorney, mechanic, etc. Often, when that person leaves, so does the customer.

Moving costs. These costs include any relocation expenses paid for the previous employee's move to the employer's location as well as any expenses paid for the new worker to move.

An important principle to recognize is that not all turnover is necessarily bad. The reality for many organizations is that a certain number of employee separations are healthy. However, an employer may become legitimately concerned when industry turnover data reveal a correspondingly high rate of turnover or a significant amount of “flight” to competing employers. In this case, the employer should seek more information as to why employees are leaving via exit interviews, focus groups, and employee attitude surveys. In this way, the employer may begin to piece together the turnover puzzle and respond accordingly.

Calculating turnover rates. A calculator designed to help employers track turnover and calculate monthly, quarterly, and annual turnover rates is available on hero.blr.com^® at https://hero.blr.com/hr/calculators. Employers may also wish to calculate voluntary turnover, when employees leave by choice, versus involuntary turnover rates, when the employer terminates employees. Average rates of turnover depend upon industry and location.

When a high rate of turnover does exist in an organization, the employer must be concerned with the underlying reasons. Compensation is rarely the sole motivating factor. There are a number of ways to discover some of the issues involved in turnover.

Conduct thorough exit interviews covering:

The departing employee should have an opportunity to discuss any of these topics with a superior within the organization or with HR.

Additionally, the employer may conduct a survey of existing employees about:

The timing of an employee's departure may give an employer insight into which processes or practices are working well and which ones it needs to change. For example, if many newly hired employees are leaving voluntarily within the first year of employment, it is likely that there is a disconnect in one of the hiring processes. Perhaps job descriptions need to be reviewed to ensure that they accurately reflect job duties; or it may be that applicants are not being adequately tested for required skills.

On the other hand, if employees are leaving later in their careers, an employer's retention strategies may be in need of review. Employees may leave because they see no opportunity for advancement, even though such opportunities may exist. Or employees may feel that their contributions are being taken for granted, or that they are otherwise unappreciated or undervalued. Examining retention practices and encouraging ongoing feedback from employees may help an employer avoid losing valuable employees. Using employee surveys to gauge employee satisfaction and using exit interviews to gather data on why employees are leaving will help employers identify strengths and weaknesses in their hiring and retention practices.

The results of surveys or exit interviews should be reviewed, considered, and used as a platform for change.

One of the most challenging issues facing today's employers is how to retain good employees. Because turnover can cut deeply into a company's profits, it is far more cost-effective to keep valued employees on the payroll than to constantly be seeking, interviewing, hiring, and training new employees. In order to avoid costly turnover problems, the following steps are suggested.

Presenting the good, the bad, and the ugly. Probably the best way to improve retention and reduce turnover is to make good hiring decisions. This entails describing the job accurately to applicants and hiring the candidate who can and will meet these requirements.

Before interviewing the first applicant, even before placing an employment ad or hiring a search firm, employers should:

The other side of this equation is to train managers and others involved in the hiring process to conduct interviews that lead to well-informed, appropriate judgments about each applicant.

Most employees want to find their job rigorous enough to be interesting but not so difficult that it cannot be mastered. To a great extent, this depends on realism in describing the job to an applicant (and, of course, the employee's honesty in characterizing their own skills). Applicants or employees seeking a promotion need honest information, both favorable and unfavorable, about an open position so that they have clear expectations about the job in store for them. At the same time, the employer must have a very accurate sense of the employee's ability to do the job as described (e.g., whether the employee is skilled enough to accomplish the tasks expected or has too much ability to find the job at all challenging).

Training. Keep employees motivated and stimulated through good training and development programs. Stress the importance of personal development. Ensure the availability and importance of solid, ongoing training for employees.

Early intervention. Starting with an effective onboarding program, employees should be helped to adjust and get up to speed in the new environment. During the orientation process, employees should be provided with a contact person or mentor who can answer their questions and help them find the tools and resources they need to work effectively.

Enrichment. Allow employees more autonomy and decision making in their everyday work, add responsibilities to the employee's job, and increase the variety of their tasks. Many employers offer employees the opportunity to cross-train in another position. This broadens an employee's skills and makes it easier for employers to find temporary replacements for employees who are on leave or vacation.

Mentoring. Develop a mentor program teaming veteran and new employees, and stress its importance. Reward mentoring employees for doing that particular task well.

To help prevent turnover caused by employees feeling unappreciated or undervalued, many employers have set up employee recognition programs as a way of recognizing exceptional employee performance. One way of accomplishing this might be an employee reward or bonus program, accompanied by a special note of thanks from the supervisor. Expressing appreciation is appropriate any time an employee accomplishes a task well or expends extra effort. Choose an employee of the month and present a small award at an all-employee meeting. Send employees to represent the company at social functions, trade shows, or other meetings, conveying the worth of the employee to the employer.

Room to grow is probably the most important issue for talented and ambitious employees—the kind an employer does not want to lose. Good employees need to know that an organization has room for them to improve their careers; indeed, a leading reason for high turnover in an organization is that there is no career path, or it is not made clear to employees.

Promote from within. Is there an internal posting system for openings, and does it work? Employees are quick to understand a sham posting system, and it can be a major reason for cynicism and resentment in the workplace. Retention depends on an employee's ability to grow and advance in the job, and internal posting is a critical element of providing an opportunity for advancement.

Employers must be sure that their supervisors know what they are doing because incompetent, harassing, or unfair supervisors are a major cause of employee flight. Supervisors need training too, in job skills, leadership, feedback, attention, and fairness. Also, supervisors need the same challenges, job satisfaction, and promotional opportunities as their subordinates.

Open communication. Employer and employee must communicate. Some methods are to open forums in which employees can talk with, and listen to, decision makers, and provide employee newsletters or e-mail in order to share important information. Also, if at all possible, employers should know their employees and spend time just chatting with them, taking an interest in them personally as well as talking informally about their work. This is a valuable way for employers to know more realistically what is going on in the workplace.

While employees may expect the more traditional benefits—health insurance, employer-contribution savings plans, paid vacation—it is often the more innovative benefits that make the difference in retaining employees. Some examples include flexible hours, telecommuting, casual dress codes, education subsidies, day care in the workplace, stress reduction programs, and many more. The benefits an employer chooses to offer depend on the nature and culture of the workplace and on the kind of employees an employer is seeking to attract and retain.

Many experts believe that work/life balance can be a significant factor in employee retention. Types of arrangements to foster that balance include remote work, flex time, compressed workweeks, and job sharing. Employees can become particularly invested in arrangements that they may not be able to find with other employers. Please see the Telecommuting section.

Pay is far from the least important factor, but it is not necessarily first, either. Employees, of course, want good pay and good raises for doing their jobs well. They want bonuses for exceptional performance on important projects. But if employees are paid competitively, it is typically the other factors, such as workload, recognition, or the working relationship between subordinates and supervisors, that have the most impact on whether they stay or go. Employees will often continue to build a career with an employer in whom they have confidence and trust, despite being offered an opportunity to earn additional pay with another employer.

Training supervisors and managers about the causes of turnover, how to reduce turnover rates, and how to increase retention of good employees, may help employers avoid turnover costs. Training materials that include video and audio presentations, handouts, a trainer's guide, and quizzes are available on hero.BLR.com^® at https://hero.blr.com/hr/training.

Last reviewed February 26, 2024.