What is Annual Turnover?

Malcolm Tatum

Annual turnover is a term that is used to describe the degree of change that takes place within a calendar year. Generally presented as a percentage, a turnover may be calculated to describe change within an employee force, then holdings within an investment portfolio, or shifts with the investments held by a mutual fund or some type of exchange-traded fund. In each application, identifying the annual turnover ratio and the reasons behind the changes that took place are invaluable when it comes to planning for the future.

The restaurant industry typically has a high voluntary turnover percentage.
The restaurant industry typically has a high voluntary turnover percentage.

When it comes to annual employee turnover, most businesses seek to keep the ratio as low as possible. When an employee is hired, the employer makes an investment in that employee, most commonly by training the employee to perform tasks that he or she may not have handled in the past. Since it costs money to train new employees, holding on to current employees who are fully competent in their positions is in the best interests of the company. For this reason, companies will often offer incentives to remain with the business over the long-term. As a bonus, keeping the annual turnover low also increases the perception that the business is stable and likely to be around for many years.

The telemarketing industry typically has a high occurrence of voluntary employee turnover.
The telemarketing industry typically has a high occurrence of voluntary employee turnover.

As it relates to investment activity, an annual turnover is the ratio or percentage of changes that take place within an investment portfolio over the course of a calendar year. With this application, a higher annual turnover is not necessarily a negative thing, if that turnover actually enhanced the value and diversity of the portfolio. For example, if an investor began the year with a portfolio that was overwhelmingly composed of stock options associated with a single industry, the need to diversify would be apparent. Assuming that over the year the investor took steps to secure stocks related to other industries, purchased a few bond issues, and eventually decreased his or her market exposure in that one industry, there is a good chance that the portfolio will generate a higher return. At the same time, the portfolio will be positioned to protect the investor from a sudden downturn within any one industry.

Annual turnover is also used to describe the rate of change within a mutual fund or some type of exchange-traded fund within a given year. As with diversifying a portfolio, the managers of a mutual fund will constantly evaluate new investment options for inclusion in the fund. This may involve selling investments that are not performing up to par, and are not projected to improve in performance for some time. When this is the case, a higher annual turnover is considered a positive event, since making those changed protected the best interest of investors in the fund, and allowed the rate of return to be as high as possible.

An employer makes an investment in a new hire by training the employee to perform tasks that he or she may not have handled in the past.
An employer makes an investment in a new hire by training the employee to perform tasks that he or she may not have handled in the past.

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Discussion Comments


Crispety -I could not agree more. Whenever I exercise I always feel better. I think that if there were a grievance policy instituted in which the employee could air out problems with a supervisor in a nonthreatening manner it might encourage more dialogue with the supervisor.

This is what is done in union shops like AT&T.

At AT&T an employee can file a formal grievance with the supervisor and if it is not resolved a team above the supervisor will discuss the merits of the problem and come up with a solution.

For example, if an employee requested time off because they made travel arrangements for their vacation, but the vacation request was denied, the employee could file a grievance with the immediate supervisor indicating the problem.

If the employee handbook did not mention that the time off request would be a problem such as a blackout date then the supervisor has to grant the request otherwise the grievance will be overturned upon appeal.

This gives the employee a chance to air out what is bothering them instead of keeping it bottled up and later quitting which raises the attrition rate even more.


Greenweaver- Those are really great ways in which a company can reduce the rate of attrition significantly.

I think that offering personal days off and an employee wellness program involving an onsite gym or a free gym membership can go a long way in reducing employee stress and improving the employee’s overall disposition.

Exercise is a natural stress reducer because when you exercise you release endorphins that actually relax you. This will also make the workforce healthier and reduce the need for taking sick days.

This will reduce the employee turnover cost significantly.


Cupcake15 -I wanted to add that I know of many companies that offer counseling like that.

They realize that employees may not be as productive for a number of reasons and some of those reasons might be related to a boss, but other problems might be more personal.

Talking to a counselor in a confidential manner does help the employee feel better and the company hopes this will get them going in the right direction.

I know that some companies try to reduce the attrition rate by offering substantial benefits that will make it harder for the employee to walk away.

For example, the use of pension plans were designed in the 1950’s for this very purpose. Companies wanted to hold on to employees long term so they instituted a guaranteed annuity upon retirement known as a pension.

The pension payments were based on a certain amount of years of continuous employment and would be paid during the employee’s retirement.

Companies like UPS offer pension plans for its workforce along with employee discounted stock purchase plans.

This is another benefit designed to reduce attrition because employees can only purchase the stock at a discount if they remained employed by the company.


Absenteeism is a problem for many companies. I think that the reason why many employees miss work so often is related to stress on the job.

The stress can involve the direct supervisor or it may involve a coworker that they have continuous conflicts with.

Problems with communication and lack of cohesion within a department really increase levels of absenteeism.

This is why companies offer cash outs for sick days that were unused.

Some even offer gift certificates or small prizes for the employee that has not missed any days. If the absentee rate of a company is not closely monitored it could lead to a higher attrition rate because many of these unhappy employees that continually miss work will find other employment or the company may choose to fire them.

Either way it will cost the company money in lost productivity and training costs to hire another person in place of the fired employee.

I think that it is easier to work with the unhappy employee and try to motivate them then it is to start over.

Some companies have even instituted toll free hotlines that employees can call to speak with a therapist regarding any issues that might be disturbing the employee.

This outlet also relieves stress that may be work induced or a personal problem that will still affect their productivity.

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