High turnover can strike anxiety in the heart and mind of any HR professional, and it’s not surprising as to why. Turnover costs companies money, time and lost productivity. Understanding your employee turnover rate can help you determine if you’re losing more employees than necessary or if you’re in that sweet spot for building the strongest team.
What is Employee Turnover Rate?
Employee turnover rate is an HR metric used to determine the rate at which employees both voluntarily and involuntarily leave your company. Calculating your turnover rate provides a picture of how satisfied your employees are, how engaged and how likely they are to stay.
How to Calculate Turnover Rate
Calculating turnover rate can help companies learn to control it, ultimately protecting their bottom line. The simplest way to calculate turnover is to take the number of employee separations during a month, divided by the average number of employees, multiplied by 100:
Turnover Rate = # of Separations / Avg. # of Employees x 100
This yields the percentage of turnovers, which is typically the preferred measurement.
The basic formula can be altered for the type of data you wish to use. How your turnover rate is calculated can help determine retention rates, voluntary turnover and involuntary turnover. Keep in mind, according to SHRM, you should only count those separations that include voluntary and involuntary terminations. Employees who are temporarily laid off, furloughed or on a leave of absence are not included. You should also exclude employees on leave because of the Family Medical Leave Act (FMLA) or temporary workers who depart.
- Calculate Retention Rates: Use this formula to calculate your retention rate: (# of individual employees who remained employed for the entire measurement period / # of employees at the start of measurement period) x 100.
- Calculate Voluntary Turnover: Use this formula for a one-month period: = (Total Number of Voluntary Terminations / Total Number of Employees ) × 100
- Calculate Involuntary Turnover: Use the same formula as above, switching out the number of voluntary terminations with the number of involuntary terminations: (Total Number of Involuntary Terminations / Total Number of Employees) × 100
Voluntary vs. Involuntary Turnover
As mentioned above, there are two types of turnover: voluntary and involuntary. Voluntary turnover or voluntary resignation occurs when an employee chooses to leave the company. Involuntary turnover or involuntary separation happens when an employee is terminated. The distinction between the two is important as high rates can tell you a lot about your hiring and retention practices and even your management practices. Consider if you have a high voluntary turnover rate, this could point to a lack of employee satisfaction due to stress, workload, management, poor company culture or the like. On the other hand, a high involuntary turnover rate might spotlight issues with recruitment and onboarding, i.e., you’re not hiring the right people or training them properly.
While calculating your turnover rate is important, it’s hard to determine what the rate specifically means for your company. Every industry is different and what may be high for finance could be a healthy rate for healthcare.
On a national level, the U.S. Bureau of Labor Statistics showed in October 2020 that 5.1 million workers either quit or were terminated, calculating a 3.6% turnover rate for the country. The largest decreases in employment were food services and construction, possibly not surprising considering COVID-19 restrictions and inability to shift to remote work. The average turnover rate for construction is about 21.4%.
Another industry that repeatedly faces high turnover is healthcare. According to the 2020 Nursing Solutions Inc. National Healthcare Retention & RN Staffing Report, the healthcare turnover rate is 17.8%. And the BLS shows manufacturing has some of the highest turnover rates as well. Some of the lowest turnover rates are in the government sector on all levels, federal, state and local.
High Turnover is Costly
Calculating and tracking turnover is important because it is so costly. Losing an employee, whether by termination or resignation, can cost employers about $4,000. The cost is associated with recruiting, hiring and training a new employee plus any overtime paid to workers covering their workload. There are other hidden costs to turnover as well. Overall team morale, as well as your company culture, can suffer as well. When employees start walking out the door, or are terminated, the ones that remain can become disengaged and start looking for work elsewhere.
Employers can calculate just how much turnover costs them. Use this formula: (Recruiting Costs + Onboarding Costs + Training Costs + Unfilled Time) x (Number of Employees) x (Annual Turnover Percentage) = Annual Cost of Turnover
What Does Your Turnover Rate Mean?
Striving for a 0% turnover rate is not only unrealistic but unhealthy. Employers need to terminate employees who underperform and although high voluntary turnover isn’t great, new employees can invigorate a team and generate new ideas. Employers should strive for a healthy turnover rate, one that allows the business to run smoothly and presents more opportunities than headaches. Think of it like this, if the bottom 10% of your staff underperform, 10% should be your ideal turnover rate. Ridding the company of the lowest-performing employees gives you room to improve your staff and build a stronger team.
Why Do Employees Quit?
Employees quit jobs for a variety of reasons, not least of which because they’re unhappy. The top five reasons employees quit include:
- Feeling stuck in their current position. Employees who don’t feel like they have room to grow will look for opportunities elsewhere. Surveys have shown that 34% of workers have seriously considered quitting because of a lack of career opportunities. Providing opportunities to satisfied workers can help improve retention rates, specifically for workers in the 18-24 range.
- Not being paid enough. Compensation is a definite driving factor for retention. Research has shown 25% of workers have considered quitting because pay contributes to their happiness at work.
- Feeling trapped in their daily schedule. Flexibility helps employees balance their personal and professional lives. Employees who feel they must choose between the two will start looking for employment at companies that offer a better work/life integration.
- Disliking their manager. Robert Half states bad bosses are the reason half of employees quit their jobs. Bad management due to lack of communication and lack of feedback can quickly sour an employer/employee relationship.
- Inefficient, outdated work tools. Technology and tools that are difficult to work with can increase employee frustration and stress, affecting an employee’s overall productivity. It is like trying to do a great job with one hand tied behind your back. Research has shown 49% of employees have considered quitting because their company isn’t spending enough on new technology.
When Do Employees Quit?
Tracking when employees quit can be an indicator of subpar company and management practices like communication, training and development. If an employer sees a spike in voluntary resignations after the company restructures, the goals might not have been clearly communicated from the top down. For example, employees might be concerned the company is in trouble and their own future at it. If you see a surge of new employees jump ship before a year is out, your onboarding might be lacking essential training. Or if a high number of employees jump ship at the five-year mark, you may not be offering enough development or succession opportunities.
Which Employees Quit?
Understanding which employees quit is just as important as how many leave. As mentioned above, terminating under-performing employees helps companies build a strong, more productive team. But if the majority of your voluntary turnover are those top performers, your company will always be treading water instead of growing.
Look at the types of employees who leave and draw connections as to why. If your voluntary turnover rate is high, a bad company culture could be to blame. Or if one particular department is constantly struggling to fill roles, training or management could be a factor. Solidifying your onboarding, development and performance review processes can alleviate turnover due to disengagement or dissatisfaction.
Controlling your turnover comes down to implementing strong HR practices.
An effective onboarding process is your best tool to get employees on the job quickly and efficiently, which goes a long way towards encouraging engagement from the start. A good onboarding process ensures employees know exactly what to expect working for your organization. It should outline job requirements, goals and company policies and procedures.
Pay your employees a competitive wage; that means to match or go beyond what your competition is paying. Compensation Management software automates the process by giving employees raises and bonuses based on your structure. Compensation can include pay raises, one-time cash bonuses and profit sharing.
Scheduling regular performance reviews can give managers insight as to what employees want or expect from their position. It also allows managers to correct areas that need improvement, signaling which employees might be underperforming. A Performance Management system helps simplify the process by offering DIY evaluation forms, 360-degree feedback and easy goal monitoring.
Developing your employees’ talents and strengths sets them up for success, and helps you fill any skills gaps in your organization. Development also shows your employees you’re invested in their future and appreciate their hard work. Learning Management software makes it easy to provide and keep track of training completions and certifications for compliance. Managers can assign courses by job or code and employees can access them 24/7.
Arcoro is committed to helping employers hire, manage and grow their workforces. While some turnover may be out of your control, our HR management software strengthens those areas that can be mitigated. Contact us today to see how our onboarding, compensation, performance and learning management solutions can simplify employee management while keeping you compliant.