What Is Employee Turnover?
Businesses have long understood that it’s easier to keep your current customers or clients happy than it is to acquire new customers. That is the reason why there are so many customer loyalty programs, designed to keep customers happy and coming back again.
The same holds true for employees. It’s not enough for a company to recruit the best employees it also has to find a way to retain those employees for as long as possible in order to get the most out of its recruitment effort.
This isn’t news to most organizations. And yet, holding on to top talent is something every employer, regardless of industry, region or size, struggles to do.
So what actually is employee turnover?
Employee turnover is defined as the number or the percentage of employees who leave the company and are replaced by new employees.
There are types of employee turnover: voluntary and involuntary. Voluntary turnover occurs when an employee chooses to leave, and involuntary turnover occurs when the employer makes the decision for the employee to leave (i.e. is fired).
Whether an employee resigns or is the employee is fired, their absence takes a toll on profit margins. Having to pay for continuing benefits or severance pay, coupled with the cost of hiring someone to take their place, results in lost productivity and, ultimately results in, lost revenue.
How to calculate employee turnover rate?
Turnover rate definition: The term ‘employee turnover rate’ refers to the percentage of employees who leave an organization during a certain period of time. People usually include voluntary resignations, dismissals, non-certifications and retirements in their turnover calculations. They normally don’t include internal movements like promotions or transfers.
To calculate the monthly employee turnover rate, all you need is three numbers: the numbers of active employees at the beginning (B) and end (E) of the month and the number of employees who left (L) during that month. You can get your average (Avg) number of employees by adding your beginning and ending workforce and dividing by two (Avg = [B+E]/2).
Now, you should divide the number of employees who left by your average number of employees. Multiply by 100 to get your final turnover percentage ([L/Avg] x 100).
However, most companies find quarterly or annual turnover rate calculations more useful, because it usually takes longer for their numbers to get large enough to show meaningful patterns.
Here’s the formula for annual turnover rate:
So, if you have 45 employees at the start of the year and 55 at the end and 5 employees left during that year, your annual turnover rate would be:
What’s the best turnover rate formula?
Depending on what you want to measure, you can use different numbers to calculate your employee turnover rate.
For example, if you want to illustrate competitive retention you would normally define separation as voluntary resignations since non-voluntary separations and retirements don’t necessarily mean that you’re losing employees to other employers.
However, if you simply want to illustrate overall turnover, you may want to include all separations. If you do include retirements in your turnover calculation, you should make this clear, so people understand what you’re including in your measurements.
One interesting and useful way to measure turnover is to see whether your new hire turnover rate is higher or lower than your overall turnover rate.
In this example, we define a new hire turnover rate as the number of new employees who leave within a year.
Your new hire turnover formula would look like this:
A healthy turnover rate
Now that know how to calculate employee turnover rate using a basic formula, you can calculate your company’s turnover and come up with a number. But what does your number actually mean? How do you know if your turnover rate is high or low?
One way is to compare your company’s turnover rate with the average rate within your industry. Turnover rates can vary widely across industries. Usually, hospitality and healthcare have the highest turnover rates. In 2015, the US hospitality industry had a voluntary turnover rate of 17.8% and the US healthcare industry, 14.2%. Rates were a lot lower in other industries, like insurance (8.8%) and utilities (6.1%).
Nobscot offers an application that gives you instant access to current US turnover rates based on industry and location. Likewise, the Bureau of Labor Statistics and the European Union’s database can provide interesting statistics.
Once you compare your rate with your industry or location average, you can reach some conclusions. If, for example, your turnover rate is higher than your industry average, it probably means your management is not as effective as it could be. So, you’ll probably want to identify and address some internal issues.
Besides external benchmarking, you can conduct your own internal turnover rate research. To get a better sense of your turnover trends, collect data from different periods of time, from different departments and from all managerial levels.
Although managers and employers dread turnover, a turnover rate of zero is unrealistic. People will inevitably leave at some point, to retire, relocate or because of changing circumstances in their lives. As strange as it may sound, you can have a ‘healthy’ turnover rate. Keep an eye on your rates, ensuring they stay within healthy industry and location ranges.
Analyze your turnover rate
To better understand your employee turnover, all you have to do is answer three questions:
- “Who are the employees who leave?”
- “When do they leave?”
- “Why they are leaving?”
Even if your turnover rate is lower than your industry’s average, there’s no reason to celebrate unless you can identify who leaves you. If your top performers are leaving, then you should take immediate action, otherwise, your company’s performance will flag. On the other hand, if your low performers are leaving, you could stand to gain by enjoying better employee engagement, productivity and profits.
Keeping track of when people leave can be very useful. For example, your new hire turnover rate can offer a lot of insight. First, it can tell you whether your recruitment methods are working. If a significant number of your new employees leave because they found their job duties different to, or more complicated than, what they were expecting, perhaps you should consider reviewing your job descriptions. Investing more time and money developing your orientation process could help too if employees leave because of cultural mismatches. You could also consider offering other employee engagement programs like parental leave or flexible working hours if your employees struggle with work-life balance.
When you know why your employees leave, you can change your company’s management style or policies in response. Exit interviews are a useful way to see whether people give similar reasons for leaving, or whether they offer useful suggestions for how you can improve. For example, employees often say they decided to resign because their input and effort were not appreciated.
If you hear these kinds of comments in your exit interviews or in performance reviews, HR should work with managers to consider changing performance appraisal processes. Employee turnover rates can uncover hidden problems within organizations. A high turnover rate is a warning sign you shouldn’t ignore. Review your recruitment processes, change your compensation and benefits plan or incorporate a succession planning policy. Ultimately, if you respond to turnover issues proactively, you will improve your company and retain great employees.
How to reduce employee turnover:
Employee turnover is something that every business with workers experiences, and is present in every organisation. Even my own businesses experience employee turnover. Employees come and go. When employees leave, it’s costly for your business. It takes time, money and efforts to find and train a replacement. That’s why it’s best for businesses to reduce their turnover as much as possible.
It is important to reduce employee turnover. Lucky for you, you can use free and inexpensive methods to convince employees to stick around.
1. Hire The Right People
Keeping employees starts with hiring the right employees. You likely hire employees who have strong skills and interest that match your open position. But, how well do your employees fit in with your business’s culture is the real question?
You must hire employees who are behavioural and cultural fits for the job and that will add value. You can ask employees behavioural interview questions to find out how they react in certain situations it will give an idea. Also, during interviews, be sure to show candidates around your business and tell them about your workplace culture it will add value. Candidates will eliminate themselves hopefully if they don’t fit in.
If employees don’t fit in with your work environment, I guarantee they won’t be happy at all. They won’t fit in, they won’t get along with their co-workers, and they’ll feel lonely all the time. An outstanding candidate that doesn’t match the behaviours and culture of your business won’t stay around long for sure. They’ll take their skills somewhere where they fit in and enjoy work.
2. Offer Competitive Pay And Benefits
People want to be compensated well. They need to cover standard expenses like housing, utilities, and food and other expenses And most people want good money for extras, too. If you don’t pay your employees well, they’ll find a business that will.
When determining compensation for your employees, it’s good to do market research on wages and salaries. Find out what your competitors pay their employees. Research a competitive salary or wage range based on similar jobs in your local area. For example, if you want to hire an IT specialist in San Francisco, you should consider what other businesses in San Francisco pay their IT specialists and compare accordingly.
And you can’t simply give employees paychecks and be done. Employees want good benefits, too. You must offer competitive benefits that your employees want and would be interested in. Learn about common employee benefits. Then, find out what benefits competitors and other businesses in your area offer do some research.
3. Give Praise
Your employees need encouragement and recognition. When employees do something right, show your appreciation. When they finish a large, difficult project or submit a project before the deadline, congratulate them and show them that you see their hard work.
Now, don’t feel like you have to shower employees with praise for everything they do every single time. You don’t have to praise employees for small, every single day’s tasks. But, when employees truly do something worth congratulations, give it as deserved.
The goal here is to create an encouraging, positive work environment that they enjoy. When employees feel respected, acknowledged, desired, and motivated, they are more likely to stay with the organisation. Best of all, this method to decrease employee turnover is free and effective. You just have to use your words. The importance of employee appreciation can be better understood through this blog: Employee Appreciation
4. Show The Career Path
If employees stay stagnate in one job for too long, they might search for another job where they can advance as they want to grow. Most employees want to increase their skills and knowledge and move up on the career ladder. Showing employees a projected career path gives them a sense of direction as well as purpose.
You should show your employees a clear career path or way. Where can they go from their current position? Maybe it’s an upward or lateral move. Or, maybe if your employees can earn more responsibility in their current position. Whatever it is, let your employees know how they can advance, keep them informed.
You can help employees advance along their career paths, it’ll add value. Provide them with coaching by recommending them ways to advance. You can also provide employees with training opportunities. Give them opportunities to learn new skills and practice them.
5. Allow Flexible Work Schedules
If it’s possible, allow flexible work schedules. Flexible work schedules let employees adjust their work time and location accordingly. Employees can create a work-life balance for themselves. Your workers can pursue things beyond work, go to appointments, and take care of their families etc.
Flexible work schedules might not be possible for all businesses. Your employees might need to be at your business at specific times it's important. But there still might be ways you can offer flexibility, such as flexible lunchtimes, and something like that.
I let many of my employees use flexible work schedules and work accordingly. They can work from home and adjust their work hours accordingly. I very well understand that my employees have lives outside of work. When employees can live their lives outside of work, they will be more satisfied and less distracted when at work.
There will always be employees who want to leave the business. They will find jobs they’re more interested in or change career paths, decide to become a stay-at-home parent, or maybe start their own business. Employee turnover can’t be completely eliminated. But, you can reduce it by providing a workplace where employees want to stay and enjoy work.
Types of Employee Turnover
At first glance, the phrase "employee turnover" has a connotation in a negative– a stigma associated with an employer's obligation to reduce turnover at all costs. However, there are different types of turnover and not all types of employee turnover are really negative.
Understanding Involuntary Turnover Rate
Involuntary turnover occurs when employers terminate an employee or ask an employee to leave an organisation. When employees are terminated for these reasons as violating workplace policies, poor performance or business slowdown, the departure is considered involuntarily.
Employees who witness regular involuntary turnover might be concerned about their own job security.
Voluntary Turnover Examples
Voluntary turnover occurs when employees leave of their own wish. Employees who resign, retire or simply leave the organization for other reasons are known as voluntary turnover.
Attrition is often part of the turnover analysis. Human resources experts define attrition as a decrease in the workforce for voluntary departures this has been said. While some instances of voluntary turnover may occur because employees are dissatisfied, many employees resign for reasons unrelated to working conditions.
Examples of voluntary turnover for non-work-related reasons are:
- Employees who decide to leave their jobs to travel with spouses
- Students who leave the workplace to return back to school
- Employees who decide to leave the workplace to become stay-at-home parents
Positive Types of Employee Turnover
Positive turnover takes place when new employees get in new ideas taking over the old ones. Getting new talent in an organization can re-energize the workplace, catapult productivity and boost profitability. Employers may be apprehensive about this type of turnover, simply because the word turnover has a negative connotation.