Employee turnover – how to calculate and reduce it?

Every departure from a company costs money, and not only the time needed to recruit a replacement, but much, much more. You also have to factor in onboarding the new person or group of people, the drop in team productivity and the risk of a position or department standing idle. That is why employee turnover is one of those metrics that should not be ignored. We explain what staff turnover actually is, how to calculate employee turnover step by step and what you can realistically do to limit it.

What is employee turnover?

Employee turnover, also called staff turnover, is the phenomenon of employees leaving an organization and being replaced by new people. A certain level of it is natural – people often change industries, relocate, retire or fall ill. The problem begins when the rate rises to a very high level, which signals that there is something in the company that is not working entirely as it should.

There are three types of employee turnover.

• Voluntary turnover – the employee leaves the company on their own initiative.

• Involuntary turnover – the departure results from the employer's decision, e.g. during restructuring.

• Dysfunctional turnover – the best, hardest-to-replace people leave the company. This is the most costly variant for the business owner.

How to calculate employee turnover?

How do you calculate employee turnover? The basic formula is simple. Just divide the number of people who left the company by the average number of employees and multiply the result by 100%.

[TABLE omitted]

The average number of employees is calculated as the sum of the headcount at the beginning and at the end of the period we are interested in, divided by two. The employee turnover rate itself can be calculated monthly, quarterly or annually; the longer the period, the less the result is distorted by random fluctuations.

It is also worth reaching for supplementary indicators, e.g. the stability index, which effectively excludes people with less than a year of tenure, or separately calculated voluntary turnover – because these show whether it is random people who are leaving or experienced staff.

Which employee turnover rate is worrying?

There is no single universal value, because a lot depends on the industry. According to data from the Polish Economic Institute, over the last two decades, on average roughly one in ten employees ends their job on an annual basis. The rate for the Polish market in 2021–2022 was around 7.5%.

It is generally accepted that the employee turnover rate becomes alarmingly high when it exceeds 15–20% per year. However, you have to keep the context in mind: in catering, call centers or seasonal employment, high turnover is often a natural feature of the market rather than a symptom of an internal crisis in a given company. So sometimes excessive staff turnover does not have to mean anything strange and cannot serve as a reason for restructuring the entire enterprise.

High employee turnover – causes

Before you start acting, you have to understand where the source of the problem lies. High employee turnover usually has complex causes, but the same ones tend to recur most often. What are they?

• Pay and benefits that are inadequate to the market.

• A lack of development prospects and a clear promotion path.

• A failed onboarding – the employee is left to fend for themselves.

• Poor relationships within the team, conflicts, organizational chaos.

• Mistakes already at the recruitment stage – a wrong assessment of how well the candidate fits the position.

Importantly, when analyzing high employee turnover, the causes are worth examining separately for different groups. The most departures are usually recorded among staff in lower positions and people with short tenure – we will draw different conclusions from the departures of newcomers than from the resignations of long-standing specialists.

How to reduce employee turnover?

Effectively limiting turnover is not a single action but consistent work on employment conditions. A few directions work particularly well. Some of them can be used on their own, while others are worth combining with one another.

• Well-matched recruitment – an accurate selection of the candidate for the position reduces the risk of a quick departure.

• Solid onboarding – a well-onboarded employee reaches full productivity faster and resigns less often.

• Competitive pay – regularly benchmarked against the market.

• Real development paths – development conversations, training, the possibility of promotion.

• Satisfaction surveys – responding to signs of dissatisfaction before they turn into a resignation.

It also helps to monitor the effects: if the employee turnover rate drops after introducing a change, you know the initiative is working. If, on the other hand, the rate does not react at all or, worse, rises, you have to rethink your actions at their root and definitely take different ones.

Employee turnover rarely has one simple cause and can just as rarely be beaten in a single move. Literally everything counts: regular measurement, analysis of the sources of departures and consistency in action. And in periods when staffing gaps need to be filled quickly, the support of an experienced partner makes it possible to maintain continuity of work without hasty, random decisions.