Employee turnover is a normal occurrence in a company. Read this article to learn how to calculate an improve your turnover rate
Having a high employee turnover rate can be a huge problem for any business. As many companies are going through the Great Resignation, it is crucial for employers to calculate the company’s turnover rate and understand how it is affecting business operations.
In this article, HRD explores why employee turnover is an issue, what causes it and how businesses can reduce their turnover rate.
Generally, in business, employee turnover describes the rate at which employees leave an organization and are replaced by new hires. It is typically expressed as a percentage of the total number of employees in a given time period.
It is an important measure of organizational health because it indicates how well employers are able to retain and satisfy the needs of their employees.
Employees leaving can be caused by various reasons. Generally speaking, HR professionals look at four different types of employee turnover:
This is the most common type of turnover seen in businesses. It refers to when an employee leaves a company willingly out of their own choice. It is usually either because they have found a new job or for personal reasons.
Voluntary turnover can be either positive or negative for a company, depending on the circumstances.
Conducting exit surveys or exit interviews help shed a light on the true reason an employee is resigning. It also helps employers better understand whether the employees are leaving due to a negative reason against the company or not.
Involuntary turnover refers to the situation where a company lets go of an employee rather than the employee choosing to leave of their own accord. This can happen for a variety of reasons, such as:
Involuntary turnover can be disruptive for a company, as it may require the organization to find and train a new employee to replace the one who left. It can also be costly, as it may involve severance pay or other expenses associated with terminating an employee's employment.
While it may be hard to ignore the need of an involuntary turnover, employers can make the layoff smoother for employees by giving them adequate time to transition out of the company and to begin their job search. This reduces the risk of creating bitter ex-employees that could damage the image and reputation of the company for its clients and future employees.
Internal turnover refers to the movement of employees within a company or organization, rather than the loss of employees through departure. This can include:
This type of movement can be a positive development for an organization, as it can provide opportunities for employees to develop new skills and advance their careers within the company. It can also help to fill vacancies and address staffing needs within the organization.
However, if internal turnover is too high, it can negatively affect the company and may require the organization to invest time and resources into training new employees to take on new roles. High levels of internal turnover can also lead to a loss of institutional knowledge and expertise, as experienced employees leave their current positions.
Retirement refers to the situation where an employee leaves a company or organization due to reaching the age of retirement. Retirement is a normal stage in an employee’s professional career. It does not cause that many problems compared to the other three types.
Retirement age varies by country and can be influenced by factors such as:
It may seem intimidating for many but, in reality, it is easy to calculate the employee turnover rate. To calculate the monthly turnover, you should divide the number of employees who left in a month by the average number of employees the company has in the month. From there, the subtotal is then multiplied by 100.
To find the average number of employees, add the number of staff a company has at the beginning of a month to the number of employees remaining at the end of the month. The subtotal is then divided by two.
For the annual turnover, divide the total number of employees who left in a year by the average number of employees in a year. It is then multiplied by 100 to reveal the percentage of the annual turnover rate.
It's important to note that the turnover rate can be calculated for a specific period, such as a month or a year, or as an average over a longer timeframe. It can also be helpful if turnover rates are calculated for specific departments or job roles within your organization to get a more detailed understanding of your employee retention patterns.
Ideally, business and HR leaders want to keep the employee turnover rate in their organization as low as possible. According to industry insiders, a 10% turnover rate is considered good, especially if the attrition comes from bottom performers.
But some experts say that because different industries have varying degrees of employee turnover, it is often difficult to come up with “one-size-fits-all” magic number. For organizations that want to determine the overall healthiness of their turnover rate, the best way to start is to compare the rate to their industry’s average. Apart from the industry, staff turnover rates change month to month and year to year.
Recent modelling by the employee engagement platform Reward Gateway revealed the following stats:
One thing to note, however, is that employee turnover rate is not the only measure of success in retaining staff. Quality is still more important than quantity. Your business is on shaky ground if there is a revolving door for high-performing employees. This can also indicate management issues. On the flipside, it can be beneficial for your company is you lose poorly performing staff. However, too much bad performers can likewise reflect problems in the recruitment process.
In the end, a healthy employee turnover rate is one that allows your organization to continue running smoothly and presents your business a lot more opportunities than headaches.
There are several reasons that can push employees to voluntarily quit their jobs:
In terms of involuntary turnover, it can be a result of poor employee performance and organizational restructuring. Here are some of the most common causes of employee turnover.
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A deep understanding of the reasons for employee turnover is an essential part of talent management. Because of this, it is best for you to encourage departing staff to participate in an exit interview. This can help your organization find ways to fix addressable issues.
However, it is equally important for HR leaders to get honest responses in these interviews. This can be done by assuring all leavers that their responses will be confidential and will in no way impact how the company will respond to requests for references or confirmation of employment.
While organizations across all industries are experiencing some level of employee turnover, there are certain sectors and roles where staff are more likely to leave. A 2022 year-end report found that employees who have the highest probability of quitting are those who went remote during the pandemic but are now being forced to shift back to in-office arrangement.
The report adds that workplace flexibility has become “intrinsically tied to employee satisfaction,” especially following the height of the COVID-19 pandemic when workers had more autonomy on where and when they conducted their jobs. But when businesses start to roll back this flexibility by requiring employees to go back into the office, this has resulted in higher attrition.
The table below details the top 10 jobs where employees were most likely to say, “I quit,” according to the report.
Employee turnover is a costly issue that many organizations constantly face. Industry figures show that the cost to replace an entry-level staff is between 30% and 50% of their annual salary, a mid-level employee at least 150% of their salary per year, and a high-level or highly specialized worker about 400% of their yearly wage. This is why it is imperative for businesses to do whatever it takes to attract and retain top employees.
Here are some of the most effective ways your organization can prevent employee turnover.
Are there other measures that you think companies should consider to reduce employee turnover? What do you think is the best way to attract and retain top talent? Share your thoughts in the comment section below.