Introduction
Employee turnover rate is a measure of the number of employees who leave an organization in a given period, typically expressed as a percentage of the total workforce. Although some degree of turnover is natural and even desirable, excessively high turnover can be costly for organizations, disrupting business operations, lowering morale, and increasing recruitment and training expenses.
Therefore, calculating and analyzing turnover rate is essential for organizations to understand and address underlying issues that may cause high turnover rates. Measuring turnover rate can also help organizations identify the reasons for employee departures, such as low job satisfaction or inadequate compensation, and take corrective actions to address these issues.
Step-by-Step Guide
Calculating employee turnover rate is a straightforward process that requires collecting data and applying the following formula:
Turnover rate = (Number of employees who leave during the period / Average total number of employees during the period) x 100
For example, if a company had 100 employees at the beginning of the year and lost 20 employees during the same year, the turnover rate would be calculated as (20 / 100) x 100, which equals a 20% turnover rate.
It is important to consider the time period, which may range from a month, quarter, or year, depending on the organization’s preference. If the timeframe is too short or too long, it could result in inaccurate or misleading results.
Another relevant consideration is to distinguish voluntary from involuntary turnover. Voluntary turnover occurs when an employee decides to leave due to reasons such as resignation or retirement, while involuntary turnover occurs when an organization decides to terminate an employee’s contract, such as for underperformance or budget constraints. By separating these types of turnover, organizations can better understand the root cause and subsequently direct strategies to improve the situation.
Visual aids such as graphs or charts can be useful for presenting and communicating the results more effectively. This can also include comparing different time periods or departments to identify if there are any patterns in terms of high or low turnover.
Finally, it’s important to gather accurate data, which may include HR records, exit interviews, or employee surveys. This data should also be analyzed with appropriate statistical methods to ensure the validity of findings.
Industry-Specific Tips
While the process of calculating turnover rate remains the same across industries, the benchmarks and strategies for addressing high rates may vary depending on the context.
For example, the retail industry may have a higher turnover rate compared to the healthcare industry due to retail workers’ transient nature and limited career paths. Some industries may also have higher seasonal fluctuations that require special accounting methods, or they may have a high proportion of contract workers, which may require different calculation methods.
Therefore, it is important to compare your organization’s turnover rate with industry averages to obtain a more accurate interpretation of the results. This can be found through industry associations, government statistics, or surveys. Once you have done so, creating industry-specific retention strategies can enable your company to attract and keep top talent.
Avoiding Common Mistakes
While calculating turnover rate can provide valuable insights, it is not always a straightforward process. It’s easy to make mistakes that lead to inaccurate findings. The most common mistakes are:
1. Confusing and mixing voluntary and involuntary turnover: As mentioned earlier, distinguishing between voluntary and involuntary turnover is essential to identify which initiatives to undertake.
2. Using inappropriate methods to calculate the total number of employees: Multiply the average per day or use the net method instead. The same goes for excluding contract workers or part-time employees, as they can also contribute to the overall turnover rate.
3. Using inconsistent or arbitrary timeframes: As mentioned earlier, the timeframe must be relevant and standardized for the accurate comparison of results. It could also be useful to divide it into quarters or months and then compare to identify specific periods of concern.
4. Including temporary employees: Temporary or seasonal employees should be excluded unless they’ve been with the organization for an extended period. Still, the employment period may be different according to sector or role.
To avoid such pitfalls, HR departments should ensure that they follow industry standards and use appropriate software to calculate their turnover rate.
Why Turnover Rate Matters
The reasons behind a specific turnover rate can be vast and varied. Calculating turnover rate can help company leaders better understand what’s happening and assist employers in taking the steps necessary to address issues. Here are some reasons why turnover rate matters:
1. Cost implications: High turnover rates mean an expenditure that includes lost talent, recruitment, and training expenses. A high employee turnover rate can pollute essential knowledge, skills, and productivity while burdening the organization with the cost of hiring replacements. For instance, Glassdoor states that it costs around $4,000 to hire a new employee.
2. Employee Retention: Employers can use the results of the turnover rate analysis to instigate measures that will encourage employees to work in the company for a longer time period. One such measure could be to improve workplace culture, salaries, and benefits. Employees appreciate transparency, fair treatment, and opportunities to grow in the organization.
3. Productivity: New employees go through a “settling in” period where productivity and efficiency are lowered. Frequent employee churn means more settling-in periods, which amounts to more reduced productivity. Calculating and monitoring employee turnover can assist in combating reduced productivity and improving overall workforce productivity.
Factors That Impact Turnover Rate
Employee satisfaction and employee turnover rate are inversely proportional. Low employee retention rates may reflect employee dissatisfaction, as unhappy employees are more likely to leave their jobs. It can be due to several factors:
1. Salary: Organizations should consider offering competitive salaries to employees. Salary is often the first thing that employees consider when looking to change jobs and companies who provide a well-compensated workforce experience lower turnover rates.
2. Job duties: An employee’s job responsibilities should be in line with their skills, qualifications, and interests. Otherwise, the employee may lose their motivation and interest, leading to poor performance or resignation. Additionally, a repetitive task may lead to boredom, while high-pressure workloads can lead to burnout or demotivation.
3. Culture and Management: Employers should work to create a positive work environment to retain employees. Factors that determine workplace culture include communication, flexibility, and empathy. Employees are attracted to a friendly and supportive atmosphere and feel an emotional attachment to the company. Regular feedback, opportunities to develop, and social events will enhance emotional attachment to the company, and in turn, increase employee retention rates.
Benchmarking and Comparison
Employers may compare their own rates of retention to industry-specific benchmarks or even benchmarks set by other companies in the same sector. The benchmarks may vary depending on demographics, industry, or size of the company. Moreover, employers can leverage employee turnover data to make informed decisions about business strategy and allocation of financial and personnel resources. If the employee turnover rate is high, an organization may develop employee retention programs, including training, career planning programs, job redesign programs, performance improvement programs, and improving the selection process.
Analyzing Results
Once you have calculated the turnover rates, you can diagnose the reasons for high turnover and develop targeted metrics to address employee retention. Factors that cause high turnover rates may include limited opportunities for career growth, inadequate compensation, or poor workplace culture. Organizations should take corrective actions to address these issues that may lead to increased retention rates and a more engaged workforce. For instance, if employees are resigning due to a lack of growth opportunities, the company can create a career path for them.
Conclusion
Calculating and interpreting employee turnover rates is an essential part of tracking employee retention rates. By understanding relevant factors and creating industry-specific benchmarks, an organization can better understand their employee turnover rates and develop strategies to address them. By fostering a culture where employees feel valued and supported, organizations can create a more engaged and productive workforce that is productive and loyal over the long term. With the help of accurate data and wise analysis, companies can make changes that benefit both individual employees and the company as a whole.
Key Takeaways:
- To calculate the turnover rate, use the formula: (Number of employees who leave during the period / Average total number of employees during the period) x 100
- Visual aids can help present and interpret data more effectively.
- Industry-specific benchmarks will give more context while making proper benchmarking.
- Factors including salary, job duties, and culture can have a significant impact on employee retention rates.
- Accurate data, statistical methods, and considering voluntary/involuntary separations aid in avoiding mistakes while computing turnover rates.
- The outputs from the turnover calculations may offer insights into why employees leave, indicating where corrective measures could be put in place.
