Employee Attrition vs. Turnover: Essential HR Definitions

When it comes to measuring employee retention, attrition and turnover are essential metrics to track. However, companies often overlook attrition and turnover because they either don’t understand the difference or fail to recognize the impact. Research from Gallup found that 42% of employee turnover is preventable but often ignored.

The risk of turnover is at its highest point in a decade, but to tackle this challenge, you need to know what you’re dealing with.

Attrition and turnover are more complex than they appear—and to make matters even more confusing, the two terms are often used interchangeably, even though they refer to different metrics.

Below, we'll break down the differences between attrition and turnover. We'll also guide you through easy-to-understand examples of how to calculate attrition rates and turnover rates so you can assess how your organization is performing.

What does employee attrition mean?

Employee attrition refers to the strategic decision not to replace employees who leave an organization voluntarily.

Employees may leave for a number of reasons, such as:

• Recruitment by another organization
• Seeking growth opportunities
• Embarking on a new career path
• Retirement
• Relocation
• These reasons may also be described as "natural attrition," which simply means employees are leaving on their own ("naturally") without any action from the company.

What does “attrition rate” mean?

A company's attrition rate describes turnover over a set period. It’s the key metric that gives HR professionals insight into employee retention.

In general, companies should strive for a low attrition rate. According to experts, healthy organizations have an attrition rate of 10% or less. At this attrition rate, your workforce is stable, and you’re unlikely to risk shortages or other disruptions.

A high attrition rate shows that many employees are leaving your company in the same period. Over time, this can lead to major losses of institutional knowledge, a lack of stability, and negative impacts on morale.

What is meant by unwanted turnover?

Unwanted turnover occurs when employees voluntarily leave the company, as opposed to resignations or dismissals. This metric in human resources should be carefully monitored, as it can indicate problems that the company might be able to address in order to prevent further employee losses.

When an employee resigns voluntarily, it is advisable for the HR department to conduct an exit interview. Departing employees can provide open feedback during this process, such as dissatisfaction with their compensation or aspects of the company culture.

If unwanted turnover is not addressed, a high rate of unwanted turnover can have serious consequences for the company, including loss of revenue, damage to reputation, and high costs for hiring and training new employees.

Why should turnover metrics be recorded?

Employee turnover metrics provide insight into why employees stay with or leave a company. For HR managers, it is crucial to continuously monitor turnover and employee changes and align these insights with the overall company strategy. If turnover and employee changes are not kept in check, recruitment can quickly become a risk rather than a well-considered measure.

Strategic HR decisions start with understanding turnover rates. However, to optimally shape the employee skills and collaboration necessary for your success in your industry and achieving your goals, simply knowing the number of employees is not enough. You need the full context – both at the organizational and employee level – to correctly assess each individual case of employee turnover. Only then can you make the right decision about the appropriate response.

What is meant by employee turnover?  

Employee turnover is often mistakenly defined as the number of employees who leave a company within a year. In fact, employee turnover more accurately describes the rate at which a company replaces employees within a certain period.  

Only vacant positions that are filled again count towards employee turnover. If an employee leaves the company and their position is not filled, this is either due to natural turnover or targeted downsizing.

What is meant by regrettable turnover?  

Similar to regrettable attrition, regrettable turnover occurs when an important employee voluntarily leaves the company.  

However, this term has a slightly different meaning. It describes the negative impact the company experiences when a high-performing employee decides to take another position.  

While it is important to manage turnover and attrition across the company, it should also be considered that some employees have a greater impact than others. For example, an employee may possess unique skills, deep expertise, or relationships with key customers.  

It is important to recognize the contributions of these employees and reward them with incentives that convey appreciation and recognition.

Turnover Rate vs. Employee Replacement Rate

Simply put: employee replacement means that employees leave the company and are replaced; turnover, on the other hand, means that employees leave the company and are not replaced.

Both turnover and replacement rates provide insight into why employees leave the company – whether voluntarily or involuntarily. To achieve optimal results, analyze turnover and attrition rates over time to identify patterns related to leadership, company culture, benefits, or other possible reasons for employee departures. You will likely notice trends or patterns in the reasons and timing of employee departures.

How to Determine Your Turnover Rate

First, you should decide how often you want to calculate turnover in your company. Most companies opt for an annual analysis, while others prefer quarterly or even monthly reviews. The more frequently you conduct the analysis, the more accurate a picture you will get of your workforce structure.

Step 1: Calculate the Average Number of Employees

You should calculate the average number of employees over a specified period. First, choose a period and stick to it.

Add the number of employees at the beginning of the period to the number of employees at the end of the period, and then divide the result by two.

Example: Suppose you had 95 employees on January 1 and 87 employees on July 1. Your average number of employees would then be:

• 95 + 87 = 182
• 182 / 2 = 91

Your company employed an average of 91 employees between January 1 and July 1.

Step 2: Determine your turnover rate.

Next, calculate your turnover rate. Divide the number of employees who left your company during the given period by your average number of employees and multiply the result by 100.

Example: Suppose that between January 1 and July 1, 10 employees left your company. With an average number of 91 employees, the calculation is as follows:

• 10 / 91 = 0.110
• 0.110 x 100 = 11%

In this example, your turnover rate is 11%

Step 3: Calculate the turnover rate

The calculation of the turnover rate builds on the previous two steps. First, determine the average number of employees over a specific period as well as the number of employees who have left.

Next, you need to know who resigned voluntarily and who was terminated involuntarily.

Then, divide the number of voluntarily departing employees by your average number of employees. To express the result as a percentage, simply multiply it by 100.

Example: In our previous scenario, your company had an average of 91 employees between January 1 and July 1. Of the 10 employees who left, eight left the company voluntarily and two were dismissed by the company.

Your calculation is:

• 8 voluntary departures / average 91 employees = 0.088
• 0.088 x 100 = 8.8%

What is the turnover rate in this case? The answer is 8.8%.

Regularly track your turnover and retention rates and compare them with industry benchmarks. This way, you can identify potential anomalies in the company and better understand what standards apply to comparable companies.

Is employee turnover always negative?  

The simple answer is: No, employee turnover is not always negative. Turnover and staff departures can be expected or unexpected, planned or unplanned. The context and overall consequences determine whether these changes are positive or negative for a company. Sometimes, it can even be a mix of both.  

For example, a sales team might have a high turnover rate because younger team members move up to more experienced teams within the same company. Or a fast-food restaurant might experience high turnover because employees leave for better-paying jobs.

As long as these departures are expected and the labor market for new employees remains strong, both companies will stay healthy. A turnover rate that deviates from expectations or the budget—whether higher or lower—could be a cause for concern. The same applies to the attrition rate.

What is a healthy turnover rate?

In general, a turnover rate of over 10% is considered high. A higher rate indicates that employees are not staying loyal to the company. This number includes both voluntary resignations and terminations for other reasons. Persistently high turnover can indicate underlying problems that discourage employees from staying long-term.

In other words: the opposite of the turnover rate is the proportion of employees who remain with the company. The higher this number, the more likely it is that employees are engaged and satisfied with their work.

Achieving an Optimal Turnover Rate

Even if you do not expect unrestricted insight into your employees' lives or can guarantee one hundred percent stability, there are ways to better understand and support your team.

Here are three ways to stay informed:

One-on-one meetings between managers and employees

Proactive managers regularly give their employees direct feedback and take the time for formal one-on-one meetings, which strengthen the so important trust relationship with their employees.

In these meetings, employees can ask their managers for explanations about recent team changes, and managers can inquire about the employees' career plans and life events.

Regular Staff Meetings

These meetings provide managers with a good opportunity to explain complex issues and provide context. Examples include employee turnover, the company's financial situation, and future strategy.

This direct top-down communication reduces the risk of information being lost or distorted when passed through multiple people. It also helps employees make decisions based on facts rather than rumors or market trends.

Executive-level meetings  

Once leaders talk to their employees and they receive accurate information from management, the only thing left to do is understand the connections.  

Executive-level meetings allow team leaders to openly discuss observed trends and the impact of corporate decisions on their employees. This gives HR and talent managers the opportunity to critically review their onboarding strategy.

Decisions about whom to hire and when are crucial for the health and growth of a company – and finding the right balance is not easy. Hiring too quickly risks the financial and cultural consequences of a bad hire. Hiring too slowly leaves teams understaffed. This can also increase the risk of burnout – something everyone naturally wants to avoid.

Effectively managing employee retention requires distinguishing between attrition (non-replacement) and turnover (replacement) and constantly tracking these metrics against industry benchmarks. High turnover, particularly regrettable turnover of high-performing employees, signals underlying issues that need addressing through better management, communication, and culture. To achieve an optimal rate and improve retention, managers must prioritize proactive communication—through one-on-one meetings, staff meetings, and executive-level discussions—to understand employee concerns and career plans. IceHrm is strategically positioned to support this goal by providing the essential data for the calculations (average employees, departures) and facilitating the recommended communication methods through its Performance Management and Communication modules, allowing HR and managers to track trends, conduct formal check-ins, and build the trust necessary to reduce preventable employee departures.