What is employee turnover and why companies should track it?
8 minute read
Employee turnover is a significant concern for every company, especially in today’s highly competitive global market. Employee turnover can affect the overall health and success of any organization regardless of its size. A high employee turnover rate may be an indicator of poor management and low employee satisfaction and engagement, but it may also be a larger issue in company culture, salaries, or benefits.
What is employee turnover?
Employee turnover can be described as the total number of people who leave your company over a specific period. So this includes all departures, such as layoffs, terminations, retirements, location transfers, resignations, and even deaths. No matter why your employees leave the job or what the reason for employee departure is. A term similar but different to staff turnover is employee attrition. Unlike turnover, attrition includes only the number of persons who leave voluntarily.
High turnover can significantly hurt your business, as it means increased costs for recruiting, hiring, training, and onboarding new employees. Also, it can harm your company’s reputation and typically leads to low employee morale and job satisfaction among existing staff. They often have increased workloads and responsibilities, creating a vicious cycle that negatively impacts employee retention.
How to calculate employee turnover?
To make a turnover calculation, you need to include dismissals, voluntary resignations, and retirements. This process is pretty simple.
All you need are three numbers:
- 1. the number of employees who left that month ( L ),
- 2. the numbers of active employees at the beginning ( B ) and
- 3. the number of active employees at the end of the month ( E ).
The next thing you need is an average number of employees, which is calculated by adding your beginning and ending workforce and dividing it by two:
Avg = [B+E]/2
Average number of employees = [# of active employees at the beginning of the month + # of active employees at the end of the month]/2
Finally, you need to divide the number of employees who left by your average number of employees and multiply by 100 to get your turnover percentage:
[L/Avg] x 100
Turnover rate = [# of employees who left that month/average # of employees] x 100
Some business leaders and companies like to calculate the Annual Turnover Rate.
So, if you have 45 employees at the beginning of the year and 55 at the end of the year, and if 5 employees left during the year, this is how your annual turnover rate would look like:
First, we calculate the average number of employees per year :
AVG = [45+55]/2 = 50
When we get this number, we can calculate the annual turnover rate :
Annual turnover rate = 5 / 50 * 100 = 10%
Types of employee turnover
Turnover can cost organizations large amounts of money. Any company that is committed to addressing employee turnover is more likely to stay engaged and retain its employees. So, companies that are willing to gather feedback from employees who want to exit the company will be ahead of the game.
However, you need to keep in mind there are different types of employee turnovers and different scenarios that may lead to an employee’s exit. Knowing the types of turnover can help you find out the main factors that contribute to turnover and develop a strategy for retaining employees and improving employee satisfaction.
Voluntary employee turnover
When an employee leaves the company because he or she wants to, it’s called voluntary turnover. The reasons why they decide to leave are different. Some of them find better-paid jobs or they are relocating to a new area, or having some personal issues they are unable to cope with at work. Once an employee decides to resign, he or she will give verbal or written notice to the employer explaining that they have decided to leave the company.
Involuntary employee turnover
The involuntary turnover rate is when an employee is discharged or fired because of poor job performance, absenteeism, or violation of workplace policies. It is called involuntarily turnover because it wasn’t the employee who decided to leave the company. Layoffs can also be considered involuntarily terminations, although they are handled in a different way than actual termination.
External turnover
External turnover refers to the rate at which employees leave an organization and start a new job in another company or organization. This could include resignations to accept positions at other companies or any other reason that is initiated by the employee rather than the employer.
Internal turnover
When employees leave their current positions in the company and take new positions within that same company, this is called internal turnover. This type of turnover can be controlled by the human resources department and is also called an internal transfer.
Internal transfers are usually considered as an opportunity given to employees to grow in their careers while minimizing the external turnover rate. Also, if there is a large number of external transfers from a certain department, this may signal that there are some issues in that specific department that need to be taken into consideration.
Desirable turnover
When we hear the phrase “employee turnover,” we almost instantly think of something negative and bad. However, turnover does not necessarily have to have a negative connotation. For instance, a desirable turnover happens when an employee whose performance is lower than the company’s expectations is replaced with a new employee whose performance is acceptable or goes beyond expectations. This is considered to be a desirable turnover because of the new employee’s performance, willingness, and ambition to contribute to the company and improve the company’s profitability.
Undesirable turnover
On the other hand, undesirable turnover is when employees who are proficient at what they do and have exceptional skills and knowledge to handle their job decide to leave the company. In other words, the company starts losing employees who are valuable sources and who can help the company grow in so many ways.
Why should companies track employee turnover?
Although employee turnover is a common thing in most companies, there are many reasons why people leave organizations. To discover the main reason why some of your employees decide to quit their jobs, you need to take many factors, as well as the existing circumstances and trends, into account and do an in-depth analysis. The next step is to measure the turnover rate and compare it with your industry or location average. In this way, you can come to some conclusions and act on the results on time.
Companies must track employee turnover and manage it effectively, as it has multiple negative effects on business operations. High turnover directly impacts your bottom line. Consider this: when an employee leaves, you don’t just lose time and money invested in hiring, training, and administration but also experience reduced productivity from the remaining employees. This also leads to losses in terms of output and employee morale.
In essence, employee turnover incurs both hard costs and soft costs.
Hard costs
- Administrative tasks following an employee’s departure
- Recruitment process to find a new employee
- Interviews with potential candidates
- Training of new employees
Soft costs
- Time spent on training new employees
- Decreased productivity among current employees
- Damage to company morale and reputation
- Reduced job satisfaction and employee experience for a person covering the vacant position until a replacement is found.
However, the costs associated with losing an employee vary depending on their position. The higher the salary of the former employee, the greater the cost of replacement. For example, replacing a junior employee may cost 30-50% of their annual salary, while replacing a mid-level employee could cost over 150%, and replacing a senior employee might cost up to 400%.
The most effective way to prevent employee turnover is to ask your employees for feedback. Conduct regular stay conversations and exit interviews to improve employee retention and satisfaction and understand why employees feel dissatisfied.
Use the insights gathered to implement targeted initiatives aimed at addressing these concerns. Additionally, perform regular pulse checks to evaluate the effectiveness of your initiatives and make necessary adjustments based on employee feedback. This proactive approach fosters a positive workplace culture and helps retain top talent.
Employee experience software like HeartCount can help businesses promptly uncover job dissatisfaction factors, allowing companies to improve employee experience and ultimately reduce unwanted employee turnover.
Thanks to its numerous features, such as pulse check surveys and individual retention predictability, HeartCount offers real-time data about your employees, enabling you to identify areas of improvement and make informed decisions as soon as your employees show the first signs of dissatisfaction.
Conclusion
Employee turnover rates higher than industry norms may indicate that something in your organization isn’t working right, whether it’s compensation, benefits, or company culture. To prevent unwanted turnover and stay competitive in the job market, employers must track employee experience and design a work environment where employees want to stay.
Try it for free and discover how HeartCount can help you build a stronger company culture.