Learn how to calculate turnover rate: a comprehensive guide for HR
“When leaders throughout an organisation take an active, genuine interest in the people they manage, when they invest real time to understand employees at a fundamental level, they create a climate for greater morale, loyalty, and, yes, growth.” – Patrick Lencioni
Employee turnover is a pivotal metric that holds significant implications for the success and sustainability of any organisation. HR professionals and hiring managers must be well-versed in this crucial aspect of workforce management to navigate the challenges and opportunities presented by employee turnover.
In the following comprehensive guide, we explore the concept of employee turnover. We’ll not only provide a clear and concise definition but also explain how to calculate your turnover rate.
To ensure a complete understanding, we’ll illustrate these concepts with real-world examples, making them tangible and applicable to your organisational context. We’ll also shed light on the factors and considerations that determine what is considered ‘healthy’ for your particular industry, company size and objectives.
What is Employee Turnover?
Employee turnover refers to the rate at which employees leave an organisation and are replaced by new hires. It’s a crucial metric for HR departments as it reflects the organisation’s ability to retain talent and maintain workforce stability.
High turnover can indicate underlying issues within the company, such as poor working conditions, lack of growth opportunities or management problems. On the other hand, low turnover can signify a stable and satisfied workforce.
How to Calculate Employee Turnover Rate
Calculating the employee turnover rate involves a straightforward formula:
Employee Turnover Rate (%) = (Number of Employees Who Left / Average Number of Employees) x 100
Here’s a step-by-step guide on how to calculate your employee turnover rate:
Step 1: Determine the Time Frame
First, decide the period for which you want to calculate the turnover rate. This could be monthly, quarterly or annually, depending on your needs.
Step 2: Count Departures
During the chosen time frame, count the number of employees who left the company voluntarily (resignations) or involuntarily (terminations or layoffs). These are often referred to as separations.
Step 3: Calculate the Average Number of Employees
To find the average number of employees during the same period, add the number of employees at the beginning and end of the period and divide by two. This accounts for any fluctuations in workforce size during that time.
Step 4: Apply the Formula
Now, use the formula we provided earlier:
- Number of Employees Who Left (Step 2) / Average Number of Employees (Step 3)
- Answer x 100
- Equals Employee Turnover Rate (%)
How to Calculate Employee Turnover Rate: Example
In this section, we’ll provide a practical step-by-step example to calculate an organisation’s employee turnover rate. In this example, let’s say we’re calculating the turnover rate for an organisation for the year 2022:
- Number of employees at the start of 2022: 300
- Number of employees at the end of 2022: 350
- Average Number of Employees = (300 + 350) / 2 = 325
- Total separations in 2022: 45
- Turnover Rate (%) = (45 / 325) x 100 = 13.85%
So, the turnover rate for 2022 is approximately 13.85%.
What is a Healthy Employee Turnover Rate?
Determining a healthy turnover rate can be somewhat subjective, as it varies by industry, job market conditions and the company’s specific circumstances.
However, there are some general guidelines to consider when calculating an employee retention rate:
Low Single-Digit Percentage (0-5%)
Typically, a turnover rate within this range is considered excellent. It suggests that the company has a stable workforce with minimal disruptions.
Mid Single-Digit Percentage (6-9%)
This range is also considered healthy for most organisations. It allows for some natural turnover, often due to career progression or retirement.
Low Double-Digit Percentage (10-15%)
While this range may still be acceptable for some industries, it should raise concerns if the rate consistently exceeds 10%. It may indicate underlying issues that need addressing.
High Double-Digit Percentage (16% or higher)
A turnover rate in this range is generally considered unhealthy and suggests serious problems within the organisation. High turnover can lead to increased recruitment costs and reduced morale among the remaining employees.
To get a better sense of what’s healthy for your industry, research industry benchmarks or consult with HR associations. Different sectors may have varying norms.
It’s important to note that the turnover rate alone doesn’t provide the full picture. Analysing exit interviews, conducting employee surveys and considering the reasons behind departures are crucial for understanding and addressing turnover issues effectively.
Strategies to Improve Employee Retention
To reduce turnover and maintain a healthy turnover rate, organisations can implement various strategies:
1. Competitive Compensation
Offer competitive salaries and benefits to attract and retain top talent. Regularly review and adjust compensation packages to remain competitive in the job market.
2. Employee Development
Invest in employee development and career advancement opportunities. Providing training, mentorship programmes and pathways for growth can motivate employees to stay with the organisation.
3. Work-Life Balance
Promote a healthy work-life balance by offering flexible work arrangements, paid time off and remote work options when feasible. A balance between work and personal life is essential for employee satisfaction.
4. Employee Engagement
Through strong leadership and effective management practices, create a positive work environment where employees feel valued and engaged. Recognise and reward employees for their contributions and provide opportunities for feedback and improvement.
5. Transparent Communication
Maintain open and transparent communication channels. Keep employees informed about company goals, changes and challenges. Address concerns promptly and honestly.
6. Employee Benefits
Offer a comprehensive benefits package that includes healthcare, retirement plans and other perks. Strong benefits can be a significant factor in employee retention.
7. Employee Surveys
Conduct regular employee surveys to gather feedback and identify areas for improvement. Act on survey results to make positive changes within the organisation.
The Cost of High Turnover
High employee turnover can have several negative consequences for an organisation, including:
1. Increased Recruitment Costs
Constantly hiring and training new employees can be expensive. High turnover leads to higher recruitment and onboarding costs. This includes expenses related to job advertisements, interviewing, background checks and training materials.
When employees leave shortly after joining, their initial investment in recruitment and training goes to waste. Companies must start the hiring process anew, incurring the same costs repeatedly.
2. Reduced Productivity
Frequent turnover disrupts workflow and reduces overall productivity. Existing employees may need to pick up the slack when positions remain vacant or new employees are not yet fully productive. This can lead to burnout and decreased job satisfaction among those who take on the extra workload.
New hires typically require time to acclimate to their roles. During this transitional period, they may not perform at their optimal level, further impacting productivity.
3. Negative Impact on Morale
High turnover can negatively affect employee morale and engagement. Remaining employees may feel uncertain and demotivated when they see their colleagues leaving. They may worry about their job security or the stability of the company.
Low morale can result in decreased employee engagement, which, in turn, can lead to lower productivity and increased absenteeism. Organisations need to address these concerns to maintain a positive workplace culture.
4. Loss of Institutional Knowledge
When experienced employees leave, the organisation loses valuable institutional knowledge. This knowledge encompasses the expertise, skills and insights that long-term employees accumulate during their tenure. Losing this knowledge can hinder innovation and growth.
To mitigate this loss, some organisations conduct exit interviews to understand departing employees’ insights and experiences. This information can be used to improve processes and retain future talent.
5. Damage to Reputation
Excessive turnover can harm an organisation’s reputation as a desirable employer. Job seekers often research a company’s turnover rate and employee reviews before accepting job offers. A consistently high turnover rate can deter potential candidates from applying.
A tarnished reputation as an employer of choice can make it harder to attract top talent in the future. It may also impact the company’s relationships with clients and customers who value stability and reliability.
Employee turnover rate is a vital metric for HR professionals and organisations. By calculating and monitoring this rate regularly, companies can identify and address workforce issues, improve retention strategies and ultimately create a more stable and satisfied workforce.
Remember that a healthy turnover rate is not a one-size-fits-all concept and should be evaluated in the context of your industry and organisation-specific circumstances.
Reducing turnover and retaining talent should be a priority for any organisation, as it can lead to cost savings, improved productivity and a more positive workplace culture. Implementing effective retention strategies can help achieve these goals and contribute to the organisation’s long-term success.
Managing turnover is not just an HR concern; it’s imperative to the business. Organisations prioritising retention and creating a supportive and engaging work environment are likelier to thrive.
If you’re looking to enhance your organisation’s recruitment strategies, contact Joss Search, a specialised recruitment agency with expertise in business support roles. Our team can provide tailored solutions to meet your specific recruitment needs. Your journey towards a more stable and satisfied workforce begins with the right talent, and Joss Search is here to help you find it.