Employee Turnover Rate: Importance and How to Calculate It

Jun 2, 2020 | Company Culture | 0 comments

The employee turnover rate is a critical metric for HR to know and understand. Keep reading to find out what it is, why it’s important, and how to calculate it.

 

What Is Employee Turnover Rate?

Put simply, the employee turnover rate is the rate at which people leave your company. Naturally, people will come and go from your business, as no one stays forever. That means that this rate will never be 0. However, it is good to keep staff turnover as low as possible.

 

What Is Employee Turnover Rate Important?

Turnover and retention should be calculated by human resources. It is their responsibility to find out what the rate is, why it might be high, and fix it if required. If you keep an eye on this rate, it can help you detect the start of problems in your company. Here are some reasons why it is important.

Cost

The reason we often hear the employee turnover rate discussed negatively is that it’s expensive. Retaining your employees is much cheaper than hiring and training new ones. If your retention rate is low, this can cost your company hugely. The rate is usually calculated over a period of time as an annual turnover rate. This accounts for the natural loss of staff.

Indicative of Other Issues

A high turnover rate is also indicative of low employee satisfaction and engagement. These issues have other consequences, such as low productivity which can make it harder for your company to reach its goals. A bad turnover rate can be a heads up to HR that they may need to find out what’s going on.

Healthy Turnover Rate

An organization must experience some turnover. Not only is this natural, but new people bring new ideas and enthusiasm. They can also bring more diversity and skills into the business. So, while too much turnover is costly, it’s not all bad.

 

Reasons for Employee Turnover

Employees who leave do so for many different reasons. Maybe they got a better job, left to start a family, or decided to change careers. These are all voluntary reasons. But there can be both voluntary and involuntary reasons. Involuntary reasons include redundancy or firing.

Here are some of the top reasons for employee turnover:

Lack of Opportunity

When people leave for another job, it’s not always just about the other role. Likely, they didn’t think they would be able to move up in your organization. If they feel like they are getting nowhere, they may become unhappy and decide to leave.

Poor Management

One of the most common reasons given for leaving a job is the manager. Just one bad manager can affect more than just their team of people. If they are unorganized or hard to deal with, this has massive effects on the people working for them. One team can become unproductive, which can affect all the other teams too.

Bad Cultural Fit

Each person comes with their own expectations of a working environment. Some people expect Friday drinks every week, while others couldn’t imagine anything worse. Perhaps one person expects to wear headphones while working, but the culture is such that everyone chats during the day. The company culture can have a huge impact on turnover.

Lack of Training or Resources

Another reason that people leave a role is that they simply aren’t given the resources to do their job. Someone who has to do all the company budgeting without the use of software, for example. They may get fed up with this quickly and leave the company when their request for software is not approved.

How Can You Calculate the Employee Turnover Rate?

According to a LinkedIn analysis, a normal employee turnover rate is around 10%. However, this highly depends on your type of company. Turnover is much higher than that in the hospitality industry, for instance.

The rate itself is generally expressed as a percentage. It refers to the percentage of people who left your organization within the time period. Some companies calculate monthly employee turnover, while some do turnover calculations annually.

3 factors are required to make the calculation:

  1. The number of employees who left your company in the period
  2. The number of employees at the start of the period
  3. The number of employees at the end of the period

You first need to find out the average number of employees by adding the number of employees at the start of the period to the number at the end. Divide this by two and that’s the average number of employees.

Here’s how to calculate employee turnover rate. You can do it by dividing the average number of employees by the total number of employees who left. This is then multiplied by 100. Then you have your employee turnover rate.

  • Employees who left / Average number of employees x 100 = Employee turnover rate

As an HR professional, keep a close eye on your employee turnover rate. It is a critical piece of insight into what’s going on at your company. By determining this, you may uncover some critical problems employees are having. Perhaps they are not satisfied with management, the culture, or their pay.

Calculating the employee turnover rate is much easier than most people expect. If you have the 3 sets of figures mentioned, then it’s a breeze to figure it out.

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