Employees leaving your company are unavoidable, but each time one does, it costs you important time and money. So you need to know how many of your employees are leaving.
It is critical to assess the turnover rate correctly in order to determine how many employees are departing your organization. Measuring turnover can help you improve employee retention in the future.
This guide will explain what employee turnover is, how to assess staff turnover rate, and how to improve yours.
What Is Employee Turnover?
Employee turnover is the percentage of employees who leave your company in a certain period of time. Annually or quarterly, organizations often calculate their turnover rate. They can also quantify turnover for new workers to evaluate the effectiveness of their recruitment strategy.
Employee turnover is an important indicator for assessing the effectiveness of human resources departments or human resource management systems.
Why Is Employee Turnover Important?
Replacing an employee is more expensive than retaining them. The entire recruitment process must be restarted, which takes time and resources. If your turnover rate is large, i.e., several individuals leave at the same time, it might lead to:
- Extra costs associated with finding a replacement
- Lower morale among those who remain
- A scarcity of trained and knowledgeable workers
- Loss of faith in the team’s ability
When employee turnover has such major repercussions, it makes business sense to keep track of it so that you can take appropriate action when it becomes excessive.
What Factors Influence Employee Turnover?
There are various reasons why employees leave a department or an organization, and while some of the reasons for employee turnover are unpleasant, others reasons for employee turnover are expected and entirely acceptable. What’s terrible is when turnover occurs for unfavorable reasons and/or occurs at an unanticipated rate. The following are some of the most common reasons for turnover:
- A lack of opportunities for advancement or career development
- Natural career advancement
- Internal advancement or transfer
- Overworked/burned out
- Negative attitudes against the employer or management
- Toxic working conditions
- A family or personal event
- An offer that is competitive
- Inadequate work-life balance
- Unwilling departure
Understanding the factors that contribute to employee turnover can assist firms in making the required changes to keep their workforce at the optimal level.
Types Employee Turnover
Turnover includes both voluntary and forced separations, as well as those who are terminated or part of a reduction in force or a round of layoffs. Separations due to retirement, death, or disability are also included. Turnover differs from attrition in that it accounts for all corporate departures, whereas attrition solely includes voluntary turnover.
Is employee turnover beneficial or detrimental? It is dependent on the type.
| Turnover | |
| Involuntary | Voluntary |
| Performance Related = Desirable | Retirements = Desirable |
| RIFS = Undesirable | Quits = Undesirable |
Involuntary vs Voluntary Turnover
Employees who leave the company voluntarily do so for a variety of reasons, including new work opportunities, educational opportunities, personal reasons, or retirement. This is known as voluntary employee turnover. Employees who are terminated for failing to fulfill performance standards and job expectations have committed misconduct, are part of a seasonal layoff, or are part of a company-wide layoff are considered to have had an involuntary turnover.
According to a recent Mercer survey, the average annual turnover in the United States is around 20%, with roughly two-thirds of that voluntary.
Desirable vs. Unwanted Turnover
Those who are fired from their jobs, excepting inevitable layoffs, are considered desirable turnover since newer, more conscientious, and skilled employees can replace them. When it comes to voluntary turnover, it is regarded as bad to lose workers who left the organization for other responsibilities rather than those who retired.
How To Calculate the Employee Turnover Rate
Before you begin calculating employee turnover rates, you must first determine the time period for which you wish to compute. It could be done on a monthly, quarterly, or annual basis.
In three simple stages, here’s how to calculate the employee turnover rate:
Step #1. Gather Required Information
You will need three pieces of information to determine employee turnover. First, the number of employees your company had at the start of the time period (e.g., a year). Second, the total number of employees in your company at the end of the time period. Third, the number of employees who departed your company throughout the specified time period.
To determine the turnover rate, you’ll need three pieces of information:
- At the start of the era, the number of staff
- At the end of the era, the number of employees
- Total number of departing employees throughout that time period
- Proceed to the following stage once you have gathered this information.
Step #2. Determine the Average Employee Number
To calculate your employee turnover rate, first, determine your typical number of employees. To do so, add the number of employees at the start of the time period (for example, the beginning of the year) to the number of employees at the end of the time period (for example, the end of the year).
Here’s how to figure out your typical employee count:
Avg. # of employees = [(number of employees at start + number of employees at end)/2]
For example, suppose your company had 42 employees at the start of the year and 62 at the conclusion. In addition, 13 employees left during the same time period. Simply add 42 and 62, then divide the amount by two to get your average number of employees.
62+42/2 = 52 is the average employee count.
Step #3. Determine the Turnover Rate Percentage
Next, multiply your average employee headcount by your turnover rate. Divide the number of employees who left by the average number of employees to arrive at this figure. Then divide the result by 100 to get your turnover rate percentage.
Here’s how to figure out your turnover rate percentage:
Annual turnover = [(number of employees who left/average employee number)100] Using the same example, divide 13 (the number of employees who departed during the time period) by 52 (the average number of employees) and multiply by 100 to obtain a 25% employee turnover rate. annual turnover percentage = 13/52100 = 25%
How to Determine Your Employee Turnover Rate
Your industry will determine how excellent or bad the turnover rate you estimated is. If we continue with our example, a 25% turnover rate is nothing if you work in manufacturing or retail. However, if you work in education, you should look into the reasons behind the high turnover rate.
The turnover rate is more than just a number. To better understand the information hidden behind that number, you need to examine it from many perspectives. To begin, consider the following:
- Who are the departing employees? Is it the new hires or the senior ones who are leaving?
- Why are employees quitting? Is it the new hires who are departing because there is a disconnect between what they expected and what they are actually doing? Do you need to train them more or revise your job description to attract the best candidates? If senior staff is departing, perhaps you could create an upskilling or career management program to keep them.
- Is there a pattern to their exit? For example, if more employees leave either before or after the yearly appraisal, it is possible that they are dissatisfied with the process or your usual increment rates.
Employee Turnover Cost
The cost of replacing staff is a major motivator in businesses’ efforts to prevent both involuntary and voluntary turnover. According to Gallup, the cost of replacing an employee ranges between one-half and two times the worker’s wage.
Using the calculations, losing an employee earning $80,000 per year can cost the company up to $160,000. A 100-person company with a $50,000 average compensation and a 20% turnover rate may spend $2 million each year replacing 20 people at a cost of $100,000 each.
Turnover caused by employing the wrong individual and then having to rapidly locate a replacement is costly both financially and in terms of lost productivity, morale, and work quality.
Industry Employee Turnover
All of this raises the question of what constitutes a reasonable level of attrition.
Turnover, like other standards, must be seen in context. What is unusual in one vertical industry may be totally normal in another. According to the Mercer report, retail and wholesale have the highest yearly voluntary turnover rates at 37%, whereas the national average is 20%. Contact center/customer service (17%), manufacturing and operations (15%), and sales (14%), according to Mercer, have the largest yearly voluntary turnover.
Monthly turnover is common in industries; HR teams can look to industry sources and analysts for trends in their verticals. The US Department of Labor monitors job openings and turnover data on a regular basis.
What Is an Appropriate Employee Turnover Rate?
As previously said, turnover rates vary greatly per industry and must be understood in that context. HR professionals estimate that the national yearly turnover average is roughly 20%, with a monthly average of 3.2%. They must next enter data from their human resource management systems, which should be coupled with financial systems and therefore capable of providing insights into salaries and other hard workforce expenditures.
Tracking overall turnover rates can help businesses understand if turnover has reached troublesome levels and allows them to delve into specifics. Are turnover rates consistent across age groups, genders, ethnicities, and tenure? What about by role, department, and manager? Is the workforce management team aware of patterns that may suggest a lack of essential roles?
Preventing Employee Turnover
The good news is that excessive turnover is a resolvable issue. And, in many cases, the remedy begins with departmental managers.
Here are some recommended practices for human resource teams.
#1. Codify requirements for people managers:
Don’t assume that front-line supervisors are routinely checking in with their reports or discussing the variables that drive employees to quit, such as remuneration, career path, and improved work-life balance. Remember that what is important to one high performer may be irrelevant to another. Managers must unearth individual motivations and understand what will drive a person to not only continue to perform but also become genuinely interested in carrying out the company’s mission.
#2. Be proactive in publicizing corporate openings
When it comes to career growth, those who leave are frequently looking for opportunities to grow and develop new abilities that they perceive are unavailable within the organization. HR may reduce recruitment expenses and improve retention by promoting opportunities to transition to new roles and ensuring that there are no negative consequences for applying.
#3. Examine attrition data in depth
If one department is losing personnel at a faster rate than others, investigate why. It could be because of the nature of the positions within that team, or it could be because departing employees desire more communication and assistance from their supervisors, whom they expect to treat them professionally.
#4. Communication
Increase communication with employees through town halls and surveys to showcase company goals as well as practical but significant matters such as employee appreciation programs, professional development opportunities, and additional benefits.
HR Software Can Help You Improve Tracking and Reduce Employee Turnover.
For various reasons, full-featured human capital management software is critical in reducing employee turnover.
For starters, it makes it easier for HR to acquire and analyze data, as well as track KPIs that aid in attrition reduction—including turnover measurements itself. HCM software makes it very simple for HRIS analysts to provide answers to leaders and managers rather than handing them spreadsheets full of numbers and leaving them to their own devices for analysis.
When deciding on workforce management software, seek solutions that:
- Allow firms to identify absenteeism issues and implement the more flexible and predictable schedule that employees require.
- Set up alerts based on predefined triggers. Surprisingly, research reveals that the one-year milestone is critical. Employees may believe that they should stay in a role for at least a year in order to avoid being labeled as “job hoppers.” Something as easy as sending an alert to a manager and the human resources department on an employee’s one-year anniversary can serve as a reminder to check-in.
- Connects performance data to specified goals, such as sales targets in the CRM system, so that success can be acknowledged in real-time. With succession planning tools, the business can visualize bench strength and prepare high performers for critical jobs by providing training opportunities and clearly defined career routes.
- Simple factors like getting paid correctly and on time, tracking accurate vacation accruals, seamless onboarding, ensuring ease of benefits enrollment, and getting answers from HR when they need them are important to the employee experience.
- The software enhances the experiences that drive high employee engagement, which correlates with lower turnover rates.
Who Is to Blame for Employee Turnover?
While various variables might drive an employee to voluntarily or involuntarily leave a position, the former is most directly related to the boss. Poor management is a key cause of employee turnover, whereas effective management contributes to the creation of work conditions that encourage people to stay. HR is responsible for tracking employee turnover and providing insight into trends, but a manager has the most influence to avoid voluntary turnover inside the firm.
Why Should I Be Concerned With Employee Retention?
Employee turnover can cost businesses millions of dollars each year. Turnover rates that exceed industry standards might indicate severe issues with culture, management, salary, and benefits, as well as a negative influence on customers.
What Is the Return on Investment for Retention?
Companies should recognize that, in addition to avoiding the costs of replacing personnel and the possibility of lost revenue, every aspect of life is now subject to extremely public ratings. Just as a bad Yelp review can diminish a restaurant’s income, when employees criticize your company on social media or job sites like Glassdoor, you’ll have to spend more to attract top personnel.
Is a High Employee Turnover Rate Desirable?
A high turnover rate indicates that you are not interacting with your employees effectively. Your human resources department must create rules and frameworks to keep employees engaged and satisfied in order for them to stay with the firm for a long time.
Is a Low Employee Turnover Rate Desirable?
A low turnover rate indicates that your employees are engaged, satisfied, and motivated enough to stay with you for an extended period of time. It also implies that your HR policies are sound and that the HR department is performing as expected. As a result, it benefits your organization’s overall growth.
Conclusion
That’s all there is to it! A concise reference that leads you through all you need to know about employee turnover, including the factors that influence its rate and strategies for retaining top personnel in your company.
As you can see, turnover is not always a bad thing as long as it is kept to an appropriate level and weak performers are replaced with top employers and abilities.
- Turnover Rate: Definition, Rate, and How To Calculate It
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- WHAT IS EMPLOYEE TURNOVER: Meaning, Types, And Benefits
- How To Calculate Employee Turnover Rate
- WHAT IS INVENTORY TURNOVER: Examples, Turnover & Complete Guide
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