The retention rate complements the turnover rate, offering a fuller picture of employee movement. While often confused, they are opposites—employee retention tracks those who stay, while employee turnover measures those who leave. We will take a closer look at both and how they impact a company.
What is the cost of a high turnover rate or a low retention rate?
- Productivity. High turnover throws work off balance. When people leave, the workload piles up on those who stay. They take on additional responsibilities, burnout rises, and productivity drops sharply. New hires need time to get up to speed. When turnover is high, teams are stuck in an endless cycle of training instead of making real progress.
- Organizational culture and services. Constant turnover weakens company knowledge, making it tough to keep projects steady and customer service smooth. Not to mention the impact on company culture. High turnover creates instability, lowers morale, and weakens trust in leadership. When employees see continuous departures, doubts about job security and the company’s future grow. This uncertainty breeds disengagement, drops motivation, and pushes rates even higher.
- Budget. Low retention rates increase hiring and training costs, draining resources that could be better spent on business innovation. It also harms employer branding, making it harder to attract top talent who value stability and a positive workplace culture.
Employee turnover meaning
Employee turnover is the rate at which people quit or are let go from their jobs over a certain period of time. High turnover means a lot of employees are leaving, while low turnover means most employees stay.
Attrition vs. turnover
Both attrition and turnover refer to workers stepping away—but the why and how make all the difference.
- Turnover is when employees leave, and the company intends to replace them. Dismissals, resignations, and bad job fits fall into this category. High turnover points to disengagement, lack of growth, or management issues.
- Attrition is when employees leave, but the role isn’t refilled right away (or at all). Unlike turnover, attrition is gradual and can even be strategic. It’s often due to retirements or restructuring.
Turnover disrupts teams and drives up hiring costs. Smart attrition, on the other hand, helps companies refine roles and allocate resources wisely. The goal is to retain the right people and create teams that last.
How to calculate the employee turnover rate?
The basic formula for calculating turnover: {Employees who left in a year / [(Beginning number of employees + Ending number of employees) / 2]} x 100 = Annual employee turnover rate.
For example, a company had 500 employees at the beginning of the year and 420 employees at the end of the year. 120 employees left the company. {120 / [(500 + 420) / 2]} x 100 = 28.57%. This means the employee turnover rate for the year was about 28.57%.
What is a healthy employee turnover rate?
Turnover rates vary by industry, company size, and location. Though excessive turnover usually exceeds 20%, industries with high-demand, low-barrier jobs, such as retail and hospitality, tend to have higher turnover rates, while more stable sectors like healthcare and technology usually aim for lower rates. Eurostat provides statistics per industry and location you can refer to.
Plus, not all turnover is bad, or more precisely, attrition. Some employees leave as a natural step in their careers, while others retire after years of service. Layoffs and terminations happen, too. But the real problem? Losing top talent because they are unhappy. When high performers walk out due to burnout, lack of growth, or feeling undervalued, it’s a red flag. The focus isn’t to stop turnover entirely—it’s to keep the kind you can’t afford to lose at a minimum.
Employee retention rate meaning
Employee retention is the percentage of employees who stay with a company over a set period. A high retention rate indicates a stable, long-term workforce, while a low rate suggests frequent turnover.
How to calculate the employee retention rate?
The basic formula for calculating retention of employees: (Number of employees at the end of period − Number of new hires) / (Number of employees at the beginning of period) × 100 = Employee retention rate. The period can be monthly, quarterly, or annually. Let’s measure the annual retention rate.
For example, a company had 230 employees at the beginning of the year. Over the year, they hired 40 new employees, and by the end of the year, the total number of employees was 250. Employee Retention Rate = (250−40) / (230) × 100=91.3%. This means the employee turnover rate for the year was about 91.3%.
What is a good employee retention rate?
According to Gallup, 52% of employees globally are watching for or actively seeking a new job. There is no one-size-fits-all number when it comes to healthy retention rates, according to SHRM research. A retail chain won’t have the same retention patterns (average of 63%) as an insurance company (average of 84%). A tech startup might see more turnover than a law firm. The key is to benchmark against your industry and look at why people stay or leave. A high retention rate can signal stability, but if employees stay out of a lack of options rather than engagement, it’s not quite a win.
Improve your turnover rates and retention rates with Amy
What matters most is the reasons behind the numbers. Retention should mean commitment, not just longevity. Similarly, some turnover is natural if it clears room for new talent and fresh ideas.
As a result, the focus should be on industry benchmarks, tracking trends over time, and keeping the right people engaged. This is where Amy human potential platform can assist you. We support employees’ well-being and growth, directly impacting retention. Your employees take actionable self-assessments and gain valuable insights through 1:1 coaching. You monitor their progress, analyze the patterns, and reduce turnover.