he employee turnover rate isn’t just a simple percentage, it’s a strong indicator of a company’s overall health. Behind that number (big or small) lie the effects of hiring policies and overall employee management.
But what exactly does employee turnover mean, and what does it look like in practice? In this article, we’ll explain what it is, how to calculate it, and share some tips on how to benchmark your data. This will help you understand how employee retention can become a powerful driver for your business’s success.
What is employee turnover?
To understand the meaning of employee turnover, it is enough to understand that "turnover" refers to rotation or replacement. And that’s exactly what it is: the number of employees who leave a company over a given period.
Turnover is usually expressed as a percentage, which can be calculated with a simple formula (explained below). Typically, companies assess this over at least a three-month period. However, larger organizations may apply the formula only to new hires to evaluate the effectiveness of their recruitment strategies.
In any case, the turnover rate is a crucial metric for assessing the performance of the HR department, and more. A high value suggests something isn’t working and new procedures are needed to retain staff. Conversely, a low turnover rate indicates that employees are satisfied and unlikely to leave.
That said, there are two types of turnover to consider: natural (physiological) and problematic (pathological).
Natural turnover
As the name suggests, natural turnover refers to the normal cycle of employee movement within a company. Like a living organism, businesses evolve with new hires, terminations, and retirements. This doesn’t signal a problem, it simply reflects market adaptation.
Problematic turnover
Problematic turnover, on the other hand, is a red flag. While a certain amount of turnover is expected, constant or high turnover can point to serious internal issues. Employees might be quitting due to dissatisfaction with management, disalignment with the corporate culture or a lack of inclusivity and well-being. Whatever the root cause, it can severely impact productivity and competitiveness.
Why monitoring turnover matters
Company size doesn’t matter: employee turnover should always be tracked and, where needed, corrected. The most obvious reason is cost: replacing an employee is significantly more expensive than retaining them. Recruiting, hiring, and onboarding can take months (sometimes years) and drain valuable resources.
Moreover, high turnover often brings negative side effects:
- Shortage of qualified labor
- Lower morale among remaining staff
- Declining market competitiveness
- Damage to the company’s reputation with clients and partners
These are just a few of the risks posed by poor employee retention, which is why it's smart to act early and focus on employer branding, before the numbers climb.
How to calculate employee turnover
To calculate the average number of employees, use this formula:
Average employees = (employees at the beginning of the year + employees at the end of the year) ÷ 2
For example, if your company had 50 employees at the beginning of the year and 60 at the end, that means 10 left during the past 12 months. The average would be (50 + 60) ÷ 2 = 55.
Once you have that, calculate turnover like this:
Turnover rate = (number of employees who left ÷ average number of employees) × 100
Using the example above:
Turnover rate = (10 ÷ 55) × 100 = approx. 18%
Whether that rate is good or bad depends on your industry. To benchmark your performance, compare your numbers to official data published by the EU or other relevant institutions.
How much does turnover cost a company?
A high turnover rate can be costly, and not just financially. Let’s break it down into two types of costs:
- Direct costs: These include recruiting, hiring, and onboarding new employees.
- Indirect costs: These cover lost opportunities and productivity during the training phase of an employee who ends up leaving too soon.
Exact figures are hard to pin down due to the many variables involved. Still, the takeaway is clear: instead of waiting for turnover to rise, act early to improve your team’s experience at every stage of their journey with the company.
How to prevent and reduce problematic turnover
One of the most effective ways to avoid complex problems later is to regularly collect and analyze data across departments and time periods. A turnover rate of zero is neither realistic nor healthy, but a low rate is desirable.
Be proactive by revising your management strategies. Improve recruitment processes, adjust salaries, and offer attractive benefits that encourage loyalty and overall well-being, both at work and at home.
When it comes to benefits, a modern welfare plan can make a huge difference in reducing or even preventing problematic turnover. For example, with Coverflex Wallet, you can reward employees with a wide range of perks, from shopping vouchers to leisure and insurance. From childcare services to skill development, employees gain access to valuable resources in just a few clicks.
