What is employee turnover?
Employee turnover (also known as staff turnover) is a measurement figure which tells you how many employees have left your organization over a set period of time. It is expressed as a percentage of the total number of employees in your organization.
The turnover noun is commonly expressed as a percentage of total employees per month or year. It should not be confused with the terms 'attrition' and 'separation'. Turnover represents any movement (engagement or disengagement) within an organization; attrition only signifies a permanent departure from the organization; separation refers to both permanent leaves and departures due to non-misconduct reasons.
Turnover can vary widely depending on which part of the organization is being analyzed, but it is often reported at the organizational level to help determine overall workforce stability and productivity.
You can review turnover for the entire organization but may occasionally review it for smaller segments – such as by department.
How to calculate employee turnover rate?
To calculate the employee turnover rate, you divide the number of employees that leave within a set period of time by the average number of employees who work in the same time frame. You then multiply that number by 100 to provide a percentage.
For instance, if you have 200 employees working for you over a year and 10 employees leave during that period, then you would have a turnover rate of 5%.
(10÷200) x 100 = 5%.
Turnovers matters because they have many costs associated with them. The cost of losing an employee is the direct financial loss that results in having to replace that worker.
In addition, it can also be expensive when you consider indirect costs such as the time spent recruiting, interviewing, and training new hires. Which can cause disrupted productivity, too; customer service issues; negative impact on team morale; and lost knowledge, experience, and institutional knowledge.
It also directly impacts your bottom line and can be challenging to manage because it is frequently presented as an HR problem involving operations, finance, marketing, and other business areas.
The turnover noun is not just about the loss of company productivity or customer service problems – organizations also lose market share when they lose valued employees and the lack of investment in training and recruiting. Turnover can also result in high replacement costs, increased insurance premiums, and additional expenses due to severance pay.
When should I calculate the turnover rate?
You should be reviewing turnover rates whenever you want to understand the stability of your workforce. This includes times when business is booming or not performing well so that you can assess the effectiveness of existing HR programs by using HR tech and consider other possible solutions.
Turnover rates can also help with workforce planning and forecasting. Turnover means your company is spending more on attracting new employees than keeping the workers it already has. Turnover also makes recruiting expensive because you need to spend time and money finding and hiring new staff.
Why is it important to calculate the turnover rate?
Turnover rate is an essential calculation because it can help you understand the management effectiveness of an organization. It is also helpful in understanding future recruitment needs.
Trends in turnover rate and comparisons between departments or periods can help HR professionals analyze situations that have occurred and take steps to change how the organization is measured.
Turnover rate is often used to compare the performance of similar positions and teams within an organization. The turnover rate can also help identify problem situations and gain support for initiatives that improve organizational stability.
Because employee turnover is a lagging indicator, it can be less useful at measuring concepts such as HRIS employee engagement – only workers who are already unhappy in their roles are likely to leave.
What factors impact turnover?
Many of the factors below can be affected by an effective turnover reduction plan :
- Company culture (a strong sense of purpose and high levels of engagement drive turnover)
- Employee experience (how employees interact with the organization)
- Employee turnover (amount of turnover within the organization)
- Manager turnover (has an impact on turnover, as a manager is often the primary reason employees leave, and turnover reduction plans may need to focus more on managers)
- Suitable compensation (the amount of turnover can be affected by compensation. Turnover can increase due to 'lack of pay')
- Employee turnover (turnover reduction plans may need to focus more on recruiting or hiring new employees, managing the productivity and engagement of existing staff)
- Industry turnover (turnover reduction plans must consider what turnover is like in their industry)
What is a high turnover rate?
Typically, organizations should aim for a turnover rate of 10%, so anything above this could be viewed as high. However, it’s important to review your organization’s turnover against the broader picture, including industry norms.
The average inventory turnover is often expressed as a percentage of the number of employees in an organization.
To add more examples, turnover can be calculated at various levels:
- Turnover for each department (or section, workgroup) within an organization
- Turnover for each pay grade or job family
- Turnover across the entire workforce
- Turnover based on distinct time period (such as each year)
You should also consider trends within your own organization – is employee turnover going up or down, and why might that be? What do the trends look like by department or demographic? Tuning into these factors may give you more insight.
What costs should I consider when measuring turnover?
There are direct and indirect costs associated with turnover. The inventory turnover basically means that you are losing the financial resources invested in recruiting and training new employees, along with the time and money spent on replacing them.
A high turnover can be expensive for each business because it affects the financial ratio. It diverts staff from their actual work to deal with an issue that is not directly contributing to profit-making activities. Turnover also causes disruption in work processes, results in poor morale, and can be responsible for declines in productivity.
Turnover also includes the impact of lost knowledge when workers leave. It does not only mean losing an employee who performs tasks; it also means losing another to pick up the work that person has been doing.
How can you reduce turnover in a company?
Reducing turnover in a company is down to a combination of factors. These include:
Hiring the right people
As an employer, you will reduce turnover by making sure you hire people for your business who are definitely right for the job instead of taking the first person who applies. Turnover will be reduced by having a good recruitment process in place, and using it to ensure that you hire the right people.
Once a worker has been recruited, their chance of leaving your company will likely increase if they don’t feel valued or recognized for their work. To avoid this situation, you can reduce it by having a rewards and recognition program for your staff to integrate them based on good assets.
Effective disciplinary process
Turnover through negative discipline. An effective disciplinary process is a key to reducing turnover within an organization. Turnover can be minimized when management disciplines poor performance early, constructively, and consistently without resorting to the threat of termination. A fair and objective approach in dealing with poor performance or misconduct can reduce turnover.
Strong company culture
Focus on building company culture and improving the employee experience. Culture and employee experience go hand in hand. Building a strong culture and focusing on a positive employee experience will make employees less likely to depart in favor of other roles in your industry.
As a business owner, you need to ensure that your workforce is motivated to come to work and perform their tasks efficiently and effectively. Turnover will be reduced when workers are encouraged to stay within the organization by being given access to opportunities for training and development.
Develop employee engagement
Develop managers to be great managers. Poor managers create poor employee engagement. Gallup found that managers affect as much as 70% of the difference in team engagement. By training managers to improve their behaviors, coaching skills, and EQ, you can build engagement and reduce turnover.
The turnover noun will no longer be heard within your company if the managers work with their teams and develop them to reach their full potential.
Solid career path
Develop employees and build a meaningful career path with them. By supporting employees with their career development, you are showing them that you care about them as individuals and that you see them as part of your organization’s success. You can reduce employee turnover by helping your workforce to find a job within the company that will suit their skills and aspirations.
Provide a competitive salary structure
Employee satisfaction is not only about providing a good work-life balance, but also ensuring that you provide competitive salaries for industry roles.
Turnover can be reduced by offering a competitive salary structure that employees will want to stay within. If you help your employees feel valued and included, they’re less likely to move on to other jobs.
Let employees work flexibly. As many as 63% of employees would stay with an organization that offered flexible working. It is a simple change to working practices but can have a significant impact on retention figures.