Employee turnover is something every company experiences, but how much is too much? Whether it’s a few employees leaving for new opportunities or a constant stream of departures, it’s important to understand what turnover rates are considered normal and when they might signal deeper issues within the organization. In this post, we’ll break down what’s typical, what’s problematic, and why keeping an eye on turnover can help you create a healthier, more stable workplace.
Key Concepts in Employee Turnover Analysis:
Voluntary and Involuntary Turnover:
Voluntary turnover occurs when employees decide to leave the company for various reasons (better opportunities, relocation, dissatisfaction, etc.).
Involuntary turnover occurs when the company dismisses employees or terminates contracts for operational reasons.
Turnover Rate: The turnover rate is typically calculated as the percentage of employees who leave the company during a specific period (usually one year) relative to the total number of employees at the beginning of that period.
Common formula for calculating the turnover rate
What is Considered "Normal"?
Studies and HR consultancies such as Gallup, SHRM (Society for Human Resource Management), and others have identified certain ranges for annual employee turnover, which depend on the industry and type of company. However, the general guidelines are:
Low Turnover Rate (less than 10%): A low turnover rate can indicate organizational stability and employee satisfaction, though there may be limitations in innovation if new talent is not introduced.
Moderate Turnover Rate (10%-20%): This rate is common in many industries and is considered healthy in terms of talent renewal. However, higher rates in this range may indicate areas for improvement in the work environment, such as culture or growth opportunities.
High Turnover Rate (above 20%): If a company's turnover rate exceeds 20%, this is usually a sign that there are serious issues, such as poor management, low wages, unsatisfactory working conditions, or lack of professional development opportunities. A high turnover rate is seen as a problem and can be costly for the company.
When is it a Problem?
Although every industry and context can be different, in general, a turnover rate above 20% can indicate that something is not working well within the organization. Studies suggest that when turnover is excessive, particularly in key or specialized sectors, it can:
Significantly increase recruitment and training costs.
Reduce the morale and productivity of remaining employees.
Indicate problems with corporate culture or leadership.
Cause a loss of valuable knowledge and experience.
Examples of Relevant Studies:
Gallup Studies: Gallup points out that companies with high turnover rates tend to have problems with culture and leadership. In particular, their research highlights that "bad" managers are one of the main causes of unwanted turnover.
SHRM: According to a SHRM report, the average employee turnover in the U.S. ranges between 15% and 20%. Companies exceeding this threshold should investigate the underlying causes of turnover and work to address them.
The Work Institute: In their 2019 report, they mention that companies with a turnover rate above 15% are in the "risk zone," and above 20%, turnover is considered concerning and can result in high costs for the company.
In the end, understanding your company’s turnover rate is key to creating a positive, thriving work environment. While a bit of turnover is normal, consistently high rates might be a sign that it’s time to take a closer look at what’s going on—whether it’s management, culture, or opportunities for growth. By addressing these areas, you can not only reduce turnover but also build a more engaged and loyal team. Remember, it’s all about creating a place where people want to stay and grow.
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