Employee Retention: What Does Your Turnover Rate Tell You?

What is employee turnover?

Employee turnover refers to employees leaving a company over time due to resignations, retirements, layoffs, terminations or other separations. You may have heard the terms “employee turnover” and “employee attrition” used interchangeably, but there’s an important distinction. 

Employee attrition generally describes a gradual reduction in staff through resignations, retirements, deaths or positions that are eliminated and not immediately filled. Turnover casts a wider net, covering both voluntary and involuntary departures, including positions a business may need to fill again. The two overlap, but turnover can become costly and disruptive, especially when you’re regularly replacing departing employees.

There are two standard types of employee turnover:

• Voluntary: This type of turnover occurs when an employee chooses to leave, whether for a new job, retirement or personal reasons.
• Involuntary: This occurs when the employer initiates the separation, such as through a layoff, termination or employment contract expiration.

Turnover isn’t always bad for a business, however. Marc Prosser, co-founder of Choosing Therapy, said it’s helpful to distinguish between good and bad employee turnover and offered the following examples:

• Good employee turnover: Some turnover can actually benefit your business. This may include an employee leaving for a significant promotion or the departure of someone who has been on a performance improvement plan. You want to be a company where people can learn and advance their careers. Building a reputation as a place where employees develop new skills and become attractive to future employers can even strengthen your recruiting efforts.
• Bad employee turnover: It’s more concerning when moderate- or high-performing employees leave for lateral positions elsewhere. This could point to problems with your work environment or below-market compensation. If this type of turnover starts to rise, take a closer look at your employee compensation packages and consider whether it’s time to change your workplace culture.

How do you calculate your employee turnover rate?

To determine whether you have an employee turnover problem, you first need to calculate your turnover rate over a defined period, such as a month or a full year. Sue Andrews, a senior human resources (HR) professional and fellow of the Chartered Institute of Personnel and Development, explained that you’ll need three key figures:

1. The number of employees who left during the period, both voluntarily and involuntarily.
2. The number of employees at the beginning of the period.
3. The number of employees at the end of the period.

Start by finding your average number of employees. Add your employee count at the beginning of the period to the count at the end, then divide that number by two.

Once you have your average employee count, calculating your turnover rate is straightforward:

Turnover rate = (Employees who left ÷ Average number of employees) × 100

Turnover calculation example

Say you want to calculate your business’s turnover rate for July. During the month, two employees retired and two quit. You’ll use the following figures:

1. Employees who left in July: 4 (two retired and two quit).
2. Number of employees at the beginning of July: 180.
3. Number of employees at the end of July: 176.

First, calculate your average number of employees:

(180 + 176) ÷ 2 = 178

Then, plug those numbers into the turnover formula:

Turnover rate = (4 ÷ 178) × 100

That gives your business an employee turnover rate of about 2.25 percent for July.

Tracking your turnover rate

Your internal HR department can track turnover manually by keeping accurate records of employee departures and headcount. If you’d rather automate the process, many of the best HR outsourcing services and HR software platforms include tools that calculate and report turnover for you.

Bob Teasdale, former relationship manager at Agilio Software, explained how the calculation can be automated: “For example, [the] system generates an exportable staff turnover report that automatically calculates staff headcount at the end of each month and provides a turnover percentage.”

What is the average employee turnover rate?

According to the latest annual data from the Bureau of Labor Statistics (BLS), U.S. employers recorded 62.8 million employee separations in 2025. That included 38 million employees who quit and 21.2 million who were laid off or discharged. The annual average total separations rate was 3.3 percent, unchanged from 2024. The average quit rate was 2.0 percent, while the layoffs and discharges rate was 1.1 percent.

Although BLS reports these as annual averages, the percentages represent average monthly rates. In other words, the 3.3 percent figure reflects separations in a typical month, not the percentage of employees who left over the entire year.

Still, there’s no universal turnover rate that’s considered healthy for every business. Rates can vary considerably by industry, so comparing your company with similar employers gives you a more useful benchmark than looking at the national average alone.

BLS data shows just how wide those differences can be. In 2025, finance and insurance businesses had an average monthly total separations rate of 2.1 percent, while arts, entertainment and recreation businesses had a rate of 6.1 percent. The accommodation and food services category was also well above the national average at 5.5 percent.

Why should a company track its employee turnover?

Tracking employee turnover can tell you a great deal about what’s happening within your workforce, helping you spot potential problems, understand why employees are leaving and determine where your retention efforts may need more attention. 

Here are three reasons why tracking employee turnover is crucial. 

1. Gauge your company’s internal health.

Your turnover rate can be a useful indicator of how employees feel about working for your company. If that rate starts climbing, particularly among strong performers, it may point to problems with compensation, management, advancement opportunities or your workplace culture.

High turnover can also make it harder to attract and retain talented employees, especially if frequent departures start to affect morale or your reputation as an employer. Low turnover, meanwhile, can be a good sign that employees are happy to stay, particularly when you’re also seeing strong engagement and performance. Building a happy and productive work culture can help keep employees engaged and give them more reasons to stick around.

2. See whether your compensation is competitive.

Tracking turnover can help you see when pay or benefits may be part of the problem. If employees keep leaving for similar jobs that offer better compensation, take a look at how your own packages compare with employers in your industry and region.

Don’t assume compensation is always the problem, however. Employees leave for many reasons, including limited advancement opportunities, poor management, workplace culture and work-life balance. Looking at your turnover data alongside exit interviews and employee feedback can help you identify what’s actually driving people to leave.

3. Stay on top of the costs of employee turnover.

Employee turnover can get expensive quickly, especially when you regularly need to recruit, hire and train replacements. Tracking your turnover rate helps you anticipate these expenses and budget for them rather than being caught off guard by frequent departures.

Ellen Mullarkey, vice president of talent advisory solutions at Messina Talent Advisors, emphasized the importance of planning for those costs: “If you know that you have to hire several times a year, you should set aside enough time and money to do so. It’s not cheap, so you have to plan.”

The true cost of losing an employee varies by position, industry and how long it takes to find and train a replacement. However, the Work Institute’s 2025 Retention Report estimates that replacing an employee costs about 33 percent of their base salary. For an employee earning $50,000, that’s at least $16,500 in turnover costs. 

Those expenses include both direct and indirect costs when someone leaves:

• Direct costs: These include expenses associated with finding and hiring a replacement, such as job advertising, recruiting, background checks, onboarding and training.
• Indirect costs: These costs can be harder to measure but still affect your bottom line. You may lose productivity, institutional knowledge or valuable client relationships when an employee leaves. Managers and other team members may also spend time covering the vacant position or helping a replacement get up to speed. There are also administrative tasks associated with a departure, including final paperwork, unemployment documentation and terminating employee benefits.

How do you analyze your turnover rate?

Your turnover rate tells you how many employees are leaving, but it doesn’t tell you what’s driving those departures. To understand what’s happening in your company, look at the employees who left, when they left and what may have prompted their decisions. This can help you identify problems that could affect your company culture and your ability to attract and retain top talent.

Consider the following questions:

• Who left? Were most departures seasoned, tenured employees or relatively new hires? Pay particular attention to whether you’re losing top performers or employees in hard-to-fill roles.
• When did they leave? Look for patterns in the timing. For example, did turnover increase after employee bonuses were awarded? Do new hires frequently leave shortly after completing the onboarding process?
• Why did they leave? Once you’ve identified patterns, look for possible explanations. A spike in departures after bonuses, for example, could indicate dissatisfaction with compensation or how bonuses were distributed. If new hires routinely leave within their first few months, it may be worth taking a closer look at your hiring, employee training and onboarding processes.

What are the top reasons for employee turnover?

Employees leave for all kinds of reasons, and not every departure is within an employer’s control. However, many are preventable. According to the Work Institute’s latest report, 74.69 percent of the reasons employees gave for leaving in 2025 fell into categories the organization considers preventable. 

Some of the most common issues include:

• Lack of career opportunities and advancement: Employees may start looking elsewhere when they don’t see a future with your company. In fact, career-related issues were the most commonly cited reason for leaving in Work Institute’s 2025 data. Offering professional development opportunities, training and clear paths for advancement can give employees opportunities to build new skills and grow within your organization.
• Poor management: An employee’s relationship with their manager can have a significant effect on whether they stay. Micromanagement, poor communication, a lack of support or a discouraging leadership style can all make employees more likely to look elsewhere.
• Heavy workload and poor work-life balance: Employees who are consistently overworked or expected to put in long hours may eventually decide the job isn’t sustainable. An excessive workload can also contribute to poor work-life balance and employee burnout, particularly when employees don’t have enough flexibility or time to recover.

How can you improve your employee turnover rate?

Once you understand your turnover rate and why employees are leaving, you can start addressing the issues within your control. The right approach will depend on what you’ve uncovered, but these strategies can help improve employee retention:

• Open communication: Good communication can improve job satisfaction and prevent small problems from becoming bigger ones. Regular one-on-one meetings and feedback sessions give employees a chance to raise concerns and help managers stay connected to what’s happening on their teams.
• Recognition: Make sure employees know when they’re doing good work. Recognition can range from simple praise and constructive feedback to performance awards, bonuses and other incentives.
• Professional development: Give employees opportunities to learn new skills and advance their careers. Certifications, outside training and tuition reimbursement programs can benefit employees while helping your business build a more skilled workforce.
• Flexibility: When possible, give employees some flexibility in when and where they work. Flexible schedules and remote or hybrid work options can make it easier for employees to balance their jobs with responsibilities outside of work.
• Strong onboarding: A strong onboarding process can help new hires get off to a good start. Provide thorough training, set clear expectations and make sure employees know where to turn when they have questions.
• Regular employee feedback: Regular employee surveys, one-on-one conversations and other feedback channels can help you spot concerns with your workplace culture and address them earlier.
• Manager training: Give managers the training they need to lead their teams effectively. Strong management training can help supervisors improve communication, provide useful feedback, handle conflict and support employees’ development. Don’t assume someone automatically knows how to manage people just because they excelled in their previous role.

Sean Peek contributed to this article. Source interviews were conducted for a previous version of this article.