Definition: Turnover rate in recruitment refers to the percentage of employees who leave an organization over a set period (often one year), and it’s a key indicator of the health of an organization’s culture and work environment.
High turnover is costly due to the expenses associated with hiring and training new employees, while low turnover signifies employee satisfaction and engagement.
How to calculate the turnover rate?
Turnover Rate = (Number of separations / Average number of employees) x 100
“Number of separations” is the total number of employees who left the company voluntarily and involuntarily during the period, and “Average number of employees” is the average number of employees working at the company during the same period.
Factors contributing to high turnover rates
- Poor job fit
- Lack of career development opportunities
- Insufficient compensation or benefits
- Inadequate work-life balance
- Poor workplace culture
- Lack of recognition or appreciation
- Ineffective leadership
- Long commutes
Additionally, changes in the external job market or economy can lead to increased turnover as employees may have more job opportunities elsewhere.
The impact of turnover rate on a business
- Cost: A high turnover rate leads to increased costs for a company. When an employee leaves, the company not only loses its investment in the employee’s training and development but also incurs additional costs associated with hiring and training a replacement. These costs can include advertising vacancies, screening and interviewing candidates, onboarding, and training new employees, which can be substantial.
- Productivity: Employee turnover disrupts normal business operations. When employees leave, their duties are shared among the remaining staff until a replacement is found. This added workload leads to stress, reduces productivity, and potentially impacts the quality of work or customer service.
- Employee morale: Frequent employee departures negatively impact the morale of the remaining employees by creating a sense of instability and uncertainty, which may lead to decreased job satisfaction and engagement, potentially triggering a vicious cycle of further turnover.
- Knowledge and skills loss: When employees leave, they take the knowledge, skills, and experience they have gained during their tenure. This loss can be particularly detrimental if the departing employees are in key positions or possess unique skills or knowledge.
Read more: Costs of Hiring a New Employee
FAQs
What does a 20% turnover rate mean?
A 20% turnover rate means that 20% of the workforce left the organization during a given period. Whether this is a high or low rate can depend on the industry, company size, and specific circumstances. Still, it generally indicates that one out of every five employees left the company during that time period.
What is a good turnover rate?
What’s considered a “good” turnover rate can vary greatly depending on the industry, job role, and geography. According to the U.S. Bureau of Labor Statistics, the average annual turnover rate across all industries as of 2020 was around 57.3%, but this varied significantly by industry.
How do you calculate turnover?
Attrition Rate = (Number of employees who left voluntarily / Average number of employees) x 100
Does the turnover rate include retirements or terminations?
Yes, the turnover rate typically includes both retirements and terminations. The turnover rate calculation includes all separations, both voluntary (such as resignations and retirements) and involuntary (such as terminations or layoffs). However, some organizations calculate and report these separately, to reflect different aspects of the workforce or organizational practices.
How does turnover rate impact a company’s profitability?
When an employee leaves, the company incurs costs associated with recruiting, hiring, and training a replacement. While finding a replacement, productivity is reduced, leading to decreased outputs or sales. High turnover can also lead to lower morale among remaining employees, potentially reducing their productivity.