How Does Employee Turnover Affect a Company?

How does employee turnover affect a company
Reading Time: 5 minutes

Employee turnover can help measure the effectiveness of the HRMS and the management of an organization. Employee turnover issues can negatively impact the company culture. Therefore, it is significant for companies to keep track of their staff turnover, identify its reasons and make strategies for staff retention.

It is crucial to understand why is employee turnover important. How does employee turnover affect a company? What are some staff retention issues? This blog will address these questions and present reasons and solutions to staff retention issues. 

Why is employee turnover important?

Employee turnover includes the total number of employees leaving the organization during a specific period. The employee turnover rate is applied to an organization, but it can also be applicable to teams or departments.

To a small business owner, a high employee turnover rate can be an alarming factor as it can bring a high cost to the company. An employee turnover problem can arise due to multiple reasons.

Some of the reasons may include an employee getting a better offer from another organization, losing interest in the current profession, or getting fed up with the culture of the business. Every employee working in an organization has a specific part to play.

Losing an employee can result in additional costs in hiring new staff. For the latest team, the cost will come in conducting interviews, checking references, training them according to the company’s needs, and retaining the staff.

Reasons Behind Employee Turnover Issue

High employee turnover can occur due to multiple reasons. Some of the common reasons behind this issue include low salaries, unachievable work-life balance, lack of opportunities for growth, bad company culture, and employee termination.

Being unhappy in the current job will lead to employees eventually leaving the organization. However, if the employee acquires the skills that are in demand, that employee will be hired by another company.

Substandard Pay Structure 

One of the major reasons for employee turnover problems is low salary or unequal pay structure. Therefore, it can create dissatisfaction among the employees.

Lack of Growth Opportunities 

Employees who want to excel in their careers look for opportunities to help them grow and achieve specific goals. However, employees not correctly being trained in the company and feeling stuck in a dead-end position might leave employees looking for other opportunities.

Burnout or Over-Workload 

Employees are expected to put in extra hours when the company’s project deadline is near or in times of economic pressure. But when the employees are constantly put in a situation where they are expected to sit extra hours and be on their best game all the time. It may leave them overworked and over-stressed.

Also, the company not having proper employee management and health programs can lead to the employees feeling over-stressed and worked out.

Lack of basic facilities like daycare can also affect women leaving the company.

Lack of Recognition 

If the manager is coming in contact with the team only when they require a report on the project, then it is a major red flag. Lack of open communication between employees and those in higher authority can make employees feel overwhelmed and leave the company.

Negative Company Culture

Suppose the company culture includes strict rules, including close monitoring of the activities of the employees, no freedom of speech, and lack of open communication, to name a few. In that case, it can drive the employees away from the company.

Negative Impact of High Employee Turnover on Company Culture

Expensive Process

A high employee turnover problem can create a negative impact on the company. In the short run, the company will have to go through the process of hiring new employees, conducting interviews, and training them. This process is expensive.

Bad Reputation of the Company

Another negative impact of constant employee turnover will be your company’s bad reputation in the industry. If the company fails to retain the staff, fresh graduates or the employees in the sector will hesitate to join your company.

This will lead to the loss of experienced employees from within the organization. Employees with certain skills and experience will also not be attracted to an organization with a bad reputation.

Low Productivity 

Disruption in daily operations due to a low number of employees or inexperienced employees without complete training can lead to high employee turnover. This often happens in industries where repetition and comfort level play a stronger role than innovation.

Profit Loss

The cost of settlement of employees’ benefits and the cost of litigations may result in legal disputes impacting the company’s performance. This will eventually affect the overall profit of the company.

Anything that tends to reduce productivity or revenue will lead to a reduction in profit. A small company or startup may take years to build profits, and high turnover can increase the time it takes a startup to make a profit or break even.

Loss in ROI 

Losing return customers due to inexperienced staff or lower-quality products will lead to lower return on investment. The cost of a one-time customer is increased, which in turn lowers the marketing return on investment.

The Solution to the Staff Retention Issue

Some of the strategies can help in solving the staff retention problem.

  • By increasing communication with the employee by conducting surveys for feedback, HR can shed light on the company’s vision.
  • By introducing employee health programs, and training programs, employees will feel important.
  • Giving employees perks that are perceived by them as benefits will help in the retention of the staff.
  • Flexible hours and provision of basic facilities will also help in a situation like this.
  • Check whether the issue persists in a specific department. If the problem keeps occurring in a specific department, it could be linked to the nature of the role within the team.

Right human resource management software can help in reducing employee turnover. It allows HR to collect and critically analyze the data and track the KPIs. HR software will help in giving answers to HR professionals rather than providing spreadsheets full of numbers.


Employee turnover issue is one of the major problems that can negatively impact the productivity of the organization. It is crucial to understand some of the reasons behind this issue to help in avoiding them. Proper strategies and the right HR automation software can reduce employee turnover.