All businesses want to reduce their labour turnover. You want your people to be happy and productive and stay at your company for years to come. If you have high labour turnover, you’ll find yourself constantly recruiting, onboarding and training new employees. This can eat up time and money. To replace an employee on the average UK salary, it could cost up to £12,000. Read on to understand what labour turnover is and how to calculate it for your organisation.
Table of Contents
- Key Facts
- What Is Labour Turnover?
- What Is Employee Retention Rate?
- How Do You Calculate Labour Turnover and Retention Rates?
- Example Calculations for Labour Turnover and Retention Rates (Step by Step)
- How Do You Analyse Your Labour Turnover Rate?
- Why Is Labour Turnover Important?
- What Is a Good Labour Turnover Rate?
- How to Reduce Your Labour Turnover Rate: A Checklist
Key Facts
- Labour turnover is the percentage of employees who leave an organisation over a given period, calculated as: (number of leavers ÷ average number of employees) × 100.
- According to analysis of the ONS Annual Population Survey, the average UK labour turnover rate is approximately 34%, with hospitality exceeding 50% and public administration sitting at around 25%.
- Replacing a mid-level employee earning £25,000 or more costs an average of £30,614, factoring in recruitment, training, and lost productivity.
- The CIPD’s 2026 Resourcing and Talent Planning Report found that 41% of organisations reported new recruits quitting within the first 12 weeks− underscoring the cost of poor onboarding and hiring practices.
What Is Labour Turnover?
Labour turnover, also called employee turnover, refers to the percentage of employees who leave an organisation during a given time frame. Labour turnover is different from employee attrition; however, they are closely related.
Although it is normal for companies to experience turnover, employers should be aware if the rate increases, which could indicate problems within the workplace. This could end up being costly for your organisation as high turnover rates mean:
- More resources spent on the employee journey (hiring, onboarding, training, and offboarding)
- Loss of senior employees who hold critical knowledge and experience
- Decreased employee morale, which can create a hostile workplace environment.
Labour turnover types
Employee turnover is generally divided into four categories:
- Voluntary labour turnover: When someone leaves of their own accord, normally by resigning and working their notice period.
- Involuntary labour turnover: When a team member is asked to leave by the company, whether for disciplinary reasons or due to redundancy.
- Retirement: This is a type of voluntary turnover, but companies often look at it separately because the staff member has only chosen to leave due to reaching retirement age.
- Internal movement: When someone moves to a different role within the organisation, either through promotion or moving to another area of the business. While you might not include this in your overall labour turnover calculations, it’s worth including it in some aspect of your analysis since you will need to fill the role with a new hire.
How to calculate average headcount
To ensure your turnover formula is accurate, calculate your average headcount by adding the number of employees at the start of the period to the number at the end, then dividing by two. Using month-end headcount alone — without averaging — can distort your figures, particularly if your workforce fluctuates seasonally or includes temporary staff.
Most companies calculate labour turnover on a monthly and annual basis to give them an overview of how well the business is retaining staff.
What Is Employee Retention Rate?
Employee retention rate is a metric that shows a company’s ability to retain people over a given period of time. It’s similar, but not the same as labour turnover. Turnover is about those who leave, whereas retention is about those who stay. It also doesn’t take new hires into account.
If you have a high employee retention rate, it’s likely that you have happy, productive people in your team. If you have a low retention rate, you could have problems with morale and productivity, and no doubt high recruitment costs.
How Do You Calculate Labour Turnover and Retention Rates?
It’s pretty easy to calculate employee turnover and retention once you know the formula. The staff turnover formula is straightforward once you have your headcount data.
Let’s start by reviewing labour turnover:
Labour turnover formula:
(# of leavers/average # of employees) x 100 = turnover rate
So a company with an average of 200 employees and 10 leavers over a given period would have an employee turnover rate of (10/200) x 100 = 5%.
Now let’s take a look at retention.
Retention rate formula:
(# of employees who stayed for the period / # of employees at the start of period) x 100 = retention rate
Most companies calculate retention rates on an annual basis, so the defined period would be from January 1st to December 31st. However, you can define any period you like.
So a company with an average of 200 employees over the year that lost 10 staff members retained 190 employees. Their retention rate would be (190/200) x 100 = 95%.
According to CIPD’s analysis of the ONS Annual Population Survey, the average UK labour turnover rate is approximately 34%, with around 27.4% of employees moving to a new employer each year and 6.6% leaving the labour market entirely. Rates vary significantly by sector: hospitality exceeds 50%, while public administration and defence sit at around 25%. This means a “good” turnover rate depends heavily on your industry. Benchmarking against your sector average is more meaningful than chasing a single national figure.
Example Calculations for Labour Turnover and Retention Rates (Step by Step)
Formulas can be a little hard to digest, so let’s look at a couple of examples to help us understand the labour turnover and employee retention formulae.
Labour turnover rate example
A Leeds-based company, Top Paper, had an average of 100 employees during the calendar year. Throughout the course of that year, 10 people left the company (voluntarily and involuntarily) and had to be replaced. Consequently, Top Paper retained 90 employees.
Top Paper’s labour turnover formula would be as follows: (10/100) x 100 = turnover rate of 10% (low). Nothing to worry about here.
Retention rate example
Bouncy Castles Ltd. had an average of 25 employees during the calendar year. Throughout the course of that year, 17 people left the company (voluntarily and involuntarily) and had to be replaced. Consequently, Bouncy Castles Ltd. retained 8 employees.
Bouncy Castles Ltd.’s retention rate formula would be as follows: (8/25) x 100 = retention rate of 32% (very low). This suggests there is a serious issue preventing the company from retaining talent, which needs to be addressed.
How Do You Analyse Your Labour Turnover Rate?
When you’re analysing your labour turnover rate, you need to ask 3 questions: ‘Who?’, ‘When?’ and ‘Why?’
Who is leaving?
Who is leaving your company? If it’s your top performers, you need to take action and ensure you’re nurturing your high-potential employees.
If it’s low performers, don’t be tempted to just sit back. Make sure you look at your training and development plans and see whether you can make improvements to your employee engagement programmes. Is it possible they were low performers because they weren’t happy with your company culture?
When do they leave?
When do team members leave your organisation? If new hires are leaving soon after joining, review your recruitment and onboarding process. Consider whether your job descriptions are accurate and whether new hires get enough support when they’re settling into their roles.
If staff are leaving after a few years, consider whether you’re offering the right people the right progression opportunities.
Why are they leaving?
If you know the answer to this, you can make changes.
A great way to find out why your team members are leaving is to conduct exit interviews. If you hear that staff felt like their hard work wasn’t appreciated, look at your performance appraisal process. Ensure that good performers are rewarded for their efforts. You can use our free performance improvement plan to help here.
If you hear that employees leave because they struggle with their work-life balance, take a look at your engagement programmes for benefits such as flexible working or enhanced parental leave.
Exit interview data is most valuable when aggregated across multiple leavers. The CIPD’s 2026 Resourcing and Talent Planning Report found that 41% of organisations reported new recruits quitting within the first 12 weeks, and 27% said selected candidates failed to turn up on their first day. These figures suggest that problems often begin before the employee even settles in. The quality of your recruitment and onboarding process is a primary driver of early turnover.
Why Is Labour Turnover Important?
Labour turnover and retention affect every area of your business. When you keep track of your labour turnover rate and retention rate, it’ll help you to continuously improve these rates and keep top talent working for your organisation for years to come.
Helps you measure the success of new initiatives
Tracking your labour turnover means you can see how well your new programmes and initiatives are doing. If you’ve added flexible working conditions to your employee engagement programme and you’ve seen a lower staff turnover, this initiative could be working.
However, if you’ve made a change such as restricting the times of year that staff can take annual leave and you notice a high labour turnover rate, you might want to see if your business can cope with re-thinking this policy.
Can show you where to make changes
Analysing your labour turnover rate will help show you where you need to improve. If new hires leave quickly, you know you need to invest time in perfecting your onboarding process to reduce your recruitment costs.
Helps save time and resources
Measuring employee retention and labour turnover helps you to save both time and money. This is particularly important for small businesses where you have fewer resources, so you need to ensure you’re investing in the right places. You at least want team members to stay long enough for you to recover your investment.
When you have a low labour turnover, that usually means your company values its team and your staff feel appreciated, so they’re more likely to go the extra mile.
High labour turnover can ripple throughout the whole business. There’s likely lower morale and employee experience, and the more people notice others leaving, the more it drags down the atmosphere. Research published in BMC Public Health confirms that workforce stress contributes to higher turnover rates, so it is worth investigating whether workload, management quality or working conditions are placing undue pressure on your team.
What Is a Good Labour Turnover Rate?
When calculating labour turnover, benchmarking against your industry average is essential. According to CIPD’s analysis of the ONS Annual Population Survey, the average UK labour turnover rate is approximately 34% across all sectors, but this masks significant variation: hospitality exceeds 50%, while public administration and defence sits at around 25%. As a general rule, a rate of 10% or below suggests strong workforce stability. A rate above 20% may warrant investigation. However, the most meaningful comparison is always against organisations of a similar size and sector.
It is also worth noting that not all turnover is harmful. CIPD research highlights that very low turnover can prevent fresh ideas from entering the organisation, while very high turnover signals deeper retention problems. The goal is a rate that reflects a stable, engaged workforce, not zero movement.
According to a 2026 Compensation Trends report, the average UK attrition rate in 2026 was 19%, above the European average of 17.4% and representing an 11% increase from 2026. This upward pressure makes it more important than ever for UK employers to track their turnover rate consistently and act on the data.
How to Reduce Your Labour Turnover Rate: A Checklist
The following best practices should help you increase your retention rate and, as a consequence, reduce your labour turnover rate:
- Benchmark and track your employee retention rate, employee turnover rate and attrition rate.
- Invest more time in finding the right person for the job from the onset.
- Monitor and research the market on a regular basis so that you are offering fair salaries and compensation plans in line with industry averages.
- Conduct structured exit interviews with every leaver and aggregate themes quarterly. The CIPD’s 2026 Resourcing and Talent Planning Report found that only 31% of organisations that know their turnover figures actually calculate the cost of labour turnover, meaning most businesses are flying blind on the financial impact of churn.
- Offer a solid onboarding process to ensure a positive employee experience from the start.
- Gather employee insights through regular appraisal meetings and feedback surveys. The more valued and heard your employees feel, the longer they will stay at your company.
- Establish clear goals and expectations in terms of employee performance.
- Create a positive work environment based on trust and transparency.
- Provide your employees with training and support so that they understand and are able to perform their duties.
- Offer clear career development paths to your employees.
- Recognise and reward employee contributions.
How Factorial can help you track and reduce labour turnover
Tracking labour turnover manually across spreadsheets is time-consuming and error-prone. Factorial’s HR software centralises your people data — headcount, leavers, starters, and tenure — so you can calculate your turnover rate automatically and spot trends before they become problems. With built-in performance management, onboarding workflows, and employee engagement tools, Factorial gives you the operational visibility to act on your turnover data, not just report it.
Book a free demo to see how Factorial can help your organisation improve retention.
FAQs
What is labour turnover and how is it calculated?
Labour turnover is the rate at which employees leave an organisation over a specific period. It is calculated by dividing the number of employees who left by the average number of employees during that period, then multiplying the result by 100 to get a percentage.
What is good labour turnover?
A good annual labour turnover rate is generally considered to be 10% or less. However, this can vary significantly by industry, so it’s important to benchmark your rate against similar companies in your sector to get a more accurate picture of performance.
What does 40% turnover mean?
A 40% turnover rate means that four out of every ten employees left the company over a specific period, such as one year. This is typically considered a very high rate, often indicating significant problems with employee satisfaction, company culture, or retention strategies that require investigation.
