What Is Employee Turnover & How to Reduce it?

By Cam Velasco

CEO & Co-Founder
Published: Feb 21, 2024
In this blog, we explore effective strategies to minimize employee turnover, emphasizing the importance of a positive culture, competitive compensation, and ongoing development. By focusing on continuous feedback, data-driven insights, and a commitment to diversity and innovation, organizations can cultivate a supportive environment that encourages employee retention and fosters a thriving workplace.
A series of wooden blocks with blue silhouettes falling like dominoes, with one distinct block with a purple silhouette standing, representing employee turnover.

Reducing employee turnover is critical for any organization’s success. Most managers would agree that losing good employees negatively impacts productivity and profits.

The good news is that there are proven strategies to dramatically decrease turnover rates. By optimizing your hiring process, boosting engagement, and investing in professional development, you can foster an environment where employees want to stay.

In this post, we will define employee turnover, analyze its causes and impacts, provide step-by-step instructions for calculating turnover rates, and outline actionable tactics to improve retention.

Let’s begin!

Key Takeaways

  • Employee turnover is costly due to recruitment, hiring, and training expenses, impacting productivity and institutional knowledge.
  • Common causes of turnover include insufficient compensation, poor management, lack of engagement or career development, and company culture mismatch.
  • Strategies to reduce turnover involve optimizing hiring processes, boosting engagement, investing in professional development, and offering competitive compensation.
  • The most common cause of employee turnover is dissatisfaction with compensation and benefits, highlighting the importance of fair pay and quality benefits for retention.

Understanding Employee Turnover

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Defining Employee Turnover in the Workplace

Employee turnover refers to the rate at which employees leave an organization and need to be replaced by new hires. 

It is calculated as the number of employee departures over a set period of time, divided by the average number of employees over that period.

High turnover can be costly for companies due to expenses related to recruitment, hiring, onboarding and training new employees. 

There are also impacts on productivity and institutional knowledge when experienced employees leave.

Identifying the Primary Causes of Turnover

Some of the most common reasons employees choose to leave an organization include:

  • Insufficient compensation and benefits
  • Poor management and company leadership
  • Lack of engagement, recognition, or career development opportunities
  • Unclear expectations or role ambiguity
  • Minimal autonomy over one’s work
  • Unhappiness with company culture or values

Often turnover is preventable if companies identify and address issues causing employees to voluntarily resign.

The Detrimental Impacts of High Turnover

High turnover negatively impacts organizations in various ways:

  • Financial costs related to continually recruiting and training replacements
  • Loss of productivity as new hires learn and get up to speed
  • Lower employee morale and engagement
  • Loss of institutional knowledge and expertise
  • Strain on remaining staff who must cover open roles

Maintaining high retention saves companies money and protects critical intangible assets.

How can employee turnover be reduced?

A close-up view of a professional setting where two individuals are engaged in a discussion with documents, a calculator, and a laptop on the table, suggesting a the calculation of the cost of employee turnover

Retaining employees and reducing turnover is crucial for companies to maximize productivity and reduce costs associated with hiring and training new staff.

Here are some effective ways to decrease employee turnover:

Identify a Clear Career Path

Don’t allow your employees to feel like their position is stagnant. Otherwise, they may start to pursue other opportunities. 

Encourage managers to schedule regular meetings with their team to discuss their goals and how the company can help them achieve their goals.

  • Provide training and career advancement opportunities to show employees they can grow within the company.
  • Create an internal job board listing open positions employees can apply for.
  • Offer rotational programs so employees can gain experience in different departments.
Improve Company Culture

Focus on fostering a positive and engaging work environment. Employees who feel happy and connected at work are less likely to leave.

  • Encourage open communication between leadership and staff.
  • Plan regular team building activities and events.
  • Solicit employee feedback through surveys and open discussions.
Offer Competitive Compensation

While salary isn’t everything, ensuring pay is fair and aligned to market rates helps retain staff. 

Analyze compensation plans annually and make adjustments as needed.

  • Benchmark salaries to industry standards.
  • Consider offering bonuses and incentive programs.
  • Highlight the full compensation package, including benefits.

Following these tips can significantly reduce employee turnover over time by showing employees their value and providing opportunities to advance their careers. 

The focus should be on creating an engaging culture and work environment that makes employees want to stay.

What is the most common cause of employee turnover?

a man in a white shirt and a computer thinking

The most common cause of employee turnover is dissatisfaction with compensation and benefits. 

When employees feel they are underpaid or do not receive adequate benefits, they will often start looking for new job opportunities that offer better pay and perks.

Here are some key things to know about how compensation impacts turnover:

  • Salary is usually the top factor. Employees want to feel they are earning a fair market-rate salary for their role and experience level. If salaries stagnate while the cost of living rises, it can drive good employees away.
  • Lack of raises is problematic. Even if the starting pay is fair, employees want to see their salaries increase over time to reflect their growth and expanding skillsets. Going too long without a raise can demotivate top talent.
  • Benefits play a role too. Compensation isn’t just about salary. Quality benefits like health insurance, retirement plans, and paid time off also weigh heavily in employee satisfaction. Weak or expensive benefits can push them towards other opportunities.

To reduce turnover related to pay and benefits, some effective strategies include:

  • Benchmarking salaries every year to keep compensation competitive
  • Establishing transparent raise/bonus structures so employees understand their growth trajectory
  • Surveying staff to identify new benefit offerings that would increase satisfaction
  • Getting creative with non-monetary perks like remote work options or professional development stipends

Keeping up with industry norms around pay and benefits is crucial for retaining your best and brightest employees over the long haul. 

Putting time into compensation planning is an investment that pays off through lower turnover rates and talent continuity.

Example of how to calculate Turnover Rate

a close up view of a hand doing calculations on a calculator

Companies can utilize several methods to measure current employee turnover rates and track turnover over time. 

This provides valuable data to identify issues driving resignations and develop targeted retention strategies.

The employee turnover rate formula is:

(Number of employees who left during time period) / (Average number of employees during time period) x 100

For example, if a company had an average of 100 employees during the year, and 10 employees resigned, the turnover rate would be 10% (10/100 x 100). 

The resulting percentage provides context on the scale of resignations. A higher rate indicates greater retention issues.

Nowadays, HR software and analytics systems can track employee status changes like resignations. This allows companies to monitor turnover in real-time across the organization or by department, location, role, etc. 

Strategies for Reducing Employee Turnover

A focused woman working on a laptop in a well-lit office or home space with a blurred background, suggesting a professional or remote work environment.

Reducing staff turnover requires a multi-pronged strategy focused on both enhancing the employee experience and strengthening hiring practices. 

Here are some of the most effective approaches:

Optimizing the Hiring and Recruitment Process
  • Craft accurate and appealing job descriptions to attract qualified candidates.
  • Use structured interviews to assess cultural fit beyond just skills.
  • Set realistic expectations during onboarding to support new hires.
  • Solicit feedback after 3 months to address any issues early.
Boosting Employee Satisfaction and Engagement
  • Offer competitive compensation and regular salary benchmarking.
  • Provide development opportunities like skills training and mentorship programs.
  • Support work-life balance with flexible schedule options.
  • Conduct anonymous surveys to identify areas for improvement.
Cultivating a Strong Company Culture
  • Foster open communication and transparency from leadership.
  • Promote diversity, equity and inclusion initiatives.
  • Organize team building activities to facilitate social connections.
  • Celebrate wins and milestones to boost morale.
Investing in Training and Career Advancement Opportunities
  • Subsidize continuing education and professional development courses.
  • Create clear paths for internal mobility and promotions.
  • Assign stretch assignments to help employees gain new skills.
  • Implement mentorship initiatives and job shadowing.
Designing a Competitive Compensation Plan
  • Benchmark salaries and adjust based on market rates.
  • Offer performance bonuses and profit sharing opportunities.
  • Provide comprehensive health/dental insurance and retirement savings plans.
  • Review regularly and get feedback to ensure the plan meets needs.

Implementing combinations of these tactics can demonstrate to employees their value and cultivate loyalty to support retention over the long-term.

In Conclusion

A woman in a stylish orange blazer is seated at a desk, smiling as she looks at her calculator, with a laptop and documents in front of her, suggesting she's happy after learning how to improve the employee turnover rate

Understanding and mitigating employee turnover is crucial for maintaining a productive, engaged, and stable workforce

By recognizing the primary causes of turnover and implementing targeted strategies to address these issues, organizations can significantly reduce the rate at which employees leave. 

This not only saves on the costs associated with recruiting and training new hires but also preserves institutional knowledge and fosters a positive work environment

Ultimately, reducing turnover is about investing in people, demonstrating their value to the organization, and creating a culture where employees feel motivated to stay and grow.

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Cam Velasco

CEO & Co-Founder

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