Understanding Employee Turnover: What is a Good Turnover Rate?

Employee turnover is an important metric for just about any business today, as it directly impacts the overall employee experiance and operational efficiency. Especially companies in industries that may face retention challenges, such as retail, food services, hospitality, construction, and even some subsets of healthcare like nursing. Insight into turnover – and what might be causing it – is valuable since high turnover can lead to higher costs, disrupted operations, and low levels of employee morale, engagement, and production.

But before we attempt to define what is considered a good or even acceptable turnover rate, it may be helpful to take a closer look at this trend and how the metric is calculated. 

What is Employee Turnover?

Employee turnover, also known as staff turnover, is the rate at which employees leave a particular company and are replaced by new workers. Turnover includes resignations and any other type of voluntary departure as well as involuntary examples, such as layoffs or terminations.

| To calculate your exact turnover rate, divide the total number of departures your company experienced in a specific timeframe (e.g., one year) by the average number of employees.

What is a Good Turnover Rate?

Turnover Rates by Industry

According to the U.S. Bureau of Labor Statistics, the overall turnover rate for all industries was 3.3% as of November 2024.

It is important to note that turnover rates can vary significantly from industry to industry. This is the result of many different factors, including compensation, the type of job, its specific job responsibilities and requirements, and even daily working conditions. 

As a result of these factors, certain industries tend to experience higher turnover rates on an ongoing basis:

• Healthcare: Nursing and related healthcare positions face higher turnover, which is usually caused by high-stress work environments, demanding work schedules, and a current nursing shortage that makes it easier for employees to jump from job to job. 

• Construction: The construction industry also tends to experience higher-than-average turnover rates. These are most likely driven by tough work conditions, project-based work that may not offer the stability workers are looking for, and even larger economic conditions, such as high interest rates and their impact on new construction projects. 

• Hospitality: Another industry that typically faces high turnover rates is hospitality. Most companies in this industry offer low but competitive pay, part-time work, or even seasonal employment, all of which may force employees to seek better options elsewhere. 

• Retail: Similar to hospitality, retail positions usually offer low wages, limited career advancement opportunities, inconsistent schedules, and mostly part-time work. This leads many retail workers to look for better paying jobs in different industries. 

Understanding industry-specific turnover trends is important since high turnover presents real challenges for businesses in these sectors. Any success they may have in improving retention can help companies increase employee morale, enhance operational efficiency, and achieve their most important business goals. 

Challenges Associated with High Turnover

Or to put it another way: Companies should do all they can to minimize high turnover since it can have many negative effects on the business. These include:

• Low levels of employee engagement, morale, and productivity: Ongoing turnover affects employees and team dynamics. If unchecked, persistent turnover can reduce employee morale, which can then create a spiral of even more retention challenges. 

• Higher costs: Companies also face higher costs relating to posting jobs, hiring the best candidates, and training new workers. Recent research has shown that turnover for hourly-based staff can be as much as $1,500 per employee. 

• Disrupted operations: Excessive turnover can result in employee productivity losses that eventually impact product and service quality. This can be especially damaging in industries such as hospitality and food service, where good employees can make all the difference. 

Given these challenges, companies should do all they can to improve their retention strategies. 

Best Practices to Minimize Turnover

What can companies do to improve overall retention? While there are many creative approaches to the challenge of high turnover, many companies have achieved some version of success by focusing on the following best practices:

• Offering more competitive compensation: Many companies – even those in industries facing high turnover – have improved retention simply by increasing employee pay and total compensation packages. Competitive pay, combined with fostering a positive workplace and providing career development opportunities, is key to retaining employees.

• Creating a more positive work environment: Changing the workplace to give employees a more supportive, welcoming environment can go a long way to increasing employees’ job satisfaction. 

• Providing more career development opportunities: Giving employees clearly defined advancement opportunities can help them envision a more permanent, and more rewarding long-term future with the company.

• Recognition and rewards: Speaking of rewards, recognizing employees’ hard work and giving them small rewards can significantly boost overall engagement and retention. 

Take the Right Steps to Minimize Turnover

While there's no one-size-fits-all answer to what constitutes a good turnover rate, small businesses should do all they can to keep their rates below their industry average. By constantly monitoring employee turnover, seeking to understand its root cause, and implementing new and more effective retention plans can be critical in maintaining a more consistent and productive workforce.

FAQs

1. What is employee turnover? How is it defined?

Employee turnover is the rate at which employees leave a company and are replaced by new hires. Turnover includes resignations and other voluntary departures as well as involuntary events such as employee terminations or layoffs. 

To calculate turnover, divide the total number of departures in a specific period by the average number of employees. 

2. Why is high employee turnover so bad? 

High turnover increases hiring and training costs, disrupts daily operations, and reduces employee engagement, morale, and productivity. Externally, high employee turnover can disrupt customer service, reduce product/service quality, and threaten client relationships. This can lead to lost sales, missed growth opportunities, and lower profitability. 

3. What industries face higher turnover rates?

Companies in retail, healthcare, hospitality, food services, and construction tend to face higher turnover rates. These are caused by factors such as low pay, high stress, seasonal work, thankless roles, and limited career development opportunities.

4. What are examples of best practices for minimizing high turnover rates?

To minimize high turnover, businesses in any industry should do all they can to offer competitive wages, clear career growth opportunities, and a positive work environment that values employee engagement and recognition. 

Author:

This article is written by a marketing team member at HR Cloud. HR Cloud is a leading provider of proven HR solutions, including recruiting, onboarding, employee communications & engagement, and rewards & recognition. Our user-friendly software increases employee productivity, delivers time and cost savings, and minimizes compliance risk.