Employer’s Guide to Reduce Staff Turnover [Free eBook]

If you’re looking to grow your business, then it’s important to get employee retention right. Staff turnover can cost your business big-time: the costs of hiring, onboarding and losing institutional knowledge all add up. 

To help you tackle the problem, we’ve put together a complete guide. Our guide includes:

• What employee turnover is
• What most often causes employees to leave
• The impact of high turnover
• Proven strategies you can use to reduce staff turnover and retain employees for longer.

Understanding employee turnover

Let’s start with the basics. Here’s what you need to know about employee turnover.

What is employee turnover?

Employee turnover is the rate at which employees leave your company over a specific period. These departures can be voluntary or involuntary and they are typically replaced by new hires. A high turnover rate often signals underlying issues within an organisation. However this isn’t always the case. Understanding the nuances of turnover is the first step toward managing it effectively. 

Types of staff turnover (voluntary vs involuntary)

Turnover is generally categorised into two main types: voluntary and involuntary. Each has different causes and implications for your business.

Voluntary turnover happens when an employee chooses to leave the organisation. This could be for many reasons such as accepting a job at another company, retirement or pursuing further education. High voluntary turnover is often a red flag indicating problems with job satisfaction, company culture or compensation.

Involuntary turnover occurs when the employer initiates the separation. This includes terminations for poor performance misconduct or redundancies where a role is no longer required. While necessary at times, high rates of involuntary turnover might point to issues in your hiring process or performance management systems.

How to calculate employee turnover rate

Calculating your turnover rate is straightforward and gives you a clear metric to track over time. You can measure it monthly, quarterly or annually. The formula for employee turnover rate is:

Number of employees who left / average number of employees x 100%.

The average number of employees is calculated by adding the number of employees at the start of a period and the end of a period and dividing that number by 2.

For example if you started the year with 50 employees and ended with 54 and 5 employees left during that year the calculation would be:

• Average number of employees = (50 + 54) / 2 = 52
• Turnover rate = (5 / 52) x 100 = 9.6%

Tracking this figure helps you spot trends and measure the impact of any retention strategies you implement.

Is low staff turnover always good?

Generally low staff turnover is a positive sign. It suggests employees are happy, engaged and committed to your business. This stability leads to stronger teams, better institutional knowledge and lower recruitment costs.

However a very low turnover rate isn’t automatically a sign of a healthy organisation. If underperforming employees are staying put it can drag down productivity and team morale. A lack of new hires can also lead to a shortage of fresh ideas and perspectives which can hinder innovation and growth. The goal isn’t just to keep people but to keep the right people and manage out those who are not a good fit or are holding the team back.

The true cost of employee turnover

If you’re looking to manage employee turnover, then there are a range of visible and hidden costs you should be aware of. Here’s how employee turnover can impact your business.

Direct recruitment and replacement costs

The most visible costs are the direct expenses associated with finding and hiring a replacement. These can include:

• Advertising the vacant position on job boards
• Fees for recruitment agencies
• Time spent by managers and HR screening CVs and conducting interviews
• Background checks and other pre-employment screening
• Onboarding and training costs for the new employee

These costs can add up quickly, often amounting to a significant percentage of the departed employee’s annual salary. For a small or medium-sized business in New Zealand, this financial hit can be particularly challenging to absorb.

Hidden costs of lost productivity

What’s less obvious but often more damaging is the cost of lost productivity. When an employee leaves their work doesn’t just stop. The remaining team members often have to pick up the slack which can lead to burnout and decreased efficiency.

A new employee also takes time to get up to full productivity. This learning curve can last for months during which output is lower than that of an experienced team member. If you lose a high performer their unique skills and deep knowledge of your processes can be irreplaceable creating a productivity gap that is difficult to fill.

Impact on team morale and performance

High turnover can have a ripple effect on the morale of your remaining employees. Seeing colleagues leave can create a sense of instability and uncertainty. Team members may feel overworked and undervalued as they take on extra responsibilities. This can lead to a decline in engagement and a drop in overall team performance. A negative atmosphere can be hard to reverse, damaging your company culture and making it even harder to retain top talent.

When departures trigger more departures

Sometimes one person’s resignation can set off a chain reaction. When a respected team member leaves others may start to question their own futures at the company. This is especially true if the departing employee was a key leader or a central part of the team’s social fabric. It’s important to communicate openly with your remaining staff, address any concerns they may have and reinforce your commitment to making your workplace a great place to be.

Key warning signs you should monitor

If you’re looking to keep an eye out for employees that might leave, then you’ll want to monitor:

• Changes in engagement survey results: A sudden drop in an employee’s survey scores or negative changes in their feedback can signal disengagement.
• Increased absenteeism: A noticeable increase in sick days or unexplained absences can be a sign that an employee is disengaged or actively interviewing for other roles.
• Dips in performance: A sudden decline in work quality or productivity from a previously consistent performer is a major red flag.
• Reduced participation: An employee who was once active in meetings and company activities becoming quiet and withdrawn. They may be mentally checking out.
• Negative attitude: A shift towards a more cynical or negative attitude towards work colleagues or the company can indicate deep dissatisfaction.

Root causes of high employee turnover

If your business is experiencing high employee turnover, then it’s important to understand why. Here are some of the common root causes that cause employees to leave your business.

Lack of career development opportunities

Employees want to see a future for themselves within your company. If they feel stuck in a dead-end role with no clear path for advancement they will naturally start looking for growth opportunities elsewhere. This is particularly true in New Zealand’s tight labour market where skilled professionals know they have options. Providing clear career pathways training and development can make a huge difference.

Toxic company culture and poor management

People don’t leave jobs, they leave managers. A toxic work environment characterised by poor communication, a lack of trust or micromanagement is a primary driver of turnover. A negative culture can quickly erode morale and make even the most engaging work feel unbearable. Investing in leadership training and fostering a positive supportive culture is essential for retention.

Insufficient compensation and benefits

While money isn’t everything, it’s still a major factor. If your pay and benefits packages are not competitive with the market rate you risk losing your best people to higher-paying competitors. With rising cost-of-living pressures in New Zealand, fair compensation is more important than ever. Regularly benchmarking salaries and offering attractive benefits can help you stay competitive.

Lack of meaning or purpose in work

Modern employees want more than just a paycheck. They want to feel that their work is meaningful and contributes to a larger purpose. If employees don’t understand how their role fits into the company’s mission or feel that their work lacks impact their motivation can wane. Connecting daily tasks to the bigger picture helps foster a sense of purpose and engagement. Download our career progression plan template to help build career and purpose at the same time. 

No flexibility or remote work options

The demand for workplace flexibility has grown significantly. Businesses that insist on rigid 9-to-5 office schedules risk losing talent to more flexible employers. Offering options like remote or hybrid work flexible hours or compressed work weeks shows that you trust your employees and respect their need for work-life balance.

Poor hiring and onboarding practices

Retention starts with recruitment. Hiring someone who is a poor fit for the role or the company culture almost guarantees a short tenure. Similarly, a disorganised or unwelcoming onboarding experience can make a new employee question their decision from day one. A thoughtful hiring process focused on cultural fit and a structured onboarding program are critical for setting new hires up for long-term success.

Proven strategies to reduce employee turnover

Thankfully, there are ways of reducing employee turnover and keeping employees happy. Here are some of the ways you can start reducing employee turnover today.

Retraining bad managers and improving leadership

Invest in your leaders. Provide regular training for managers on topics like communication feedback coaching and emotional intelligence. Strong leadership creates a positive environment where employees feel supported and valued. Read our leader’s guide to company culture.

Implementing flexible work arrangements

Embrace flexibility. Whether it’s remote work hybrid models or flexible hours, giving employees more control over their schedules can significantly boost satisfaction and loyalty. Under the Employment Relations Act 2000, employees have the right to request flexible working arrangements.

Hiring the right cultural fit

During the hiring process, assess candidates not just for their skills but also for their alignment with your company’s values. Look for individuals who will add to your culture – not just fit into it. A diverse team with shared values is often more innovative and engaged.

Offering competitive pay and benefits packages

To retain your employees, your pay and benefits packages need to be competitive. This is especially true for high performers, who may be able to get better compensation elsewhere if raises or promotions have been off the table for a while. 

Creating effective reward and recognition programs

Everyone wants to be recognised at work. Building effective reward and recognition programs, both financial and non-financial, are great ways of ensuring your employees feel seen and appreciated in your workplace.

Industry-specific turnover solutions

Different industries have different turnover challenges — which need to be addressed in their own ways. Here are some of the different industries where turnover can have a particularly big impact.

High-turnover industries (hospitality, retail)

Industries like hospitality and retail are known for being high-turnover spaces. To mitigate the impact of turnover, you should always have a few people trained up in each aspect of the business at any one time.

Professional services and corporate environments

In professional services or corporate environments, turnover is often driven by a desire for better pay or career development. You can decrease turnover by making sure you’re matching market rate for your high performers and giving them ample opportunities to push their career forward.

Healthcare and essential workers

It’s easy for healthcare and essential workers to burn out. Having programs in place to provide the right mental and physical health support, like a robust Employee Assistance Program, can help employees with any work or personal issues that may impact their engagement.

Technology and remote-first companies

It can be easy for employees at remote-first companies to check out, especially if there’s no face-to-face time. Regular one-to-ones and performance reviews, as well as virtual team bonding events, can help improve employee engagement (and therefore retention).

HR software for managing employee engagement

The right HR software can help you monitor employee engagement, so you can get things back on track before it’s too late. Employment Hero’s HR software measures employee engagement through functions like surveys, so you can really understand how your employees are feeling about work and what you can do to help.

Download the full guide

Whether you’re experiencing high staff turnover, or you just want to get ahead of the problem, our retention guide can help. It’s full of helpful tips and tricks that you can start implementing immediately, so you can hold onto your high-performers for longer.Take control of your turnover rate and drive lasting business success.