Definition: Employee turnover is the number or percentage of workers who leave an organization and are replaced by new employees during a defined period.
It can be voluntary (e.g., resignations) or involuntary (e.g., terminations or layoffs).
High employee turnover can be costly for organizations due to the cost of recruiting, hiring, and training new employees and the lost productivity and knowledge from departing workers.
How to calculate employee turnover?
The turnover rate is calculated with the following formula:
Turnover Rate = (Number of employees who left during the period / Average number of employees during the period) × 100
Here’s what each component means:
- Number of employees who left during the period: This is simply the total count of employees who departed from the company for any reason during the specific time frame you’re examining.
- Average number of employees during the period: This is calculated by adding the number of employees at the start of the period to the number of employees at the end of the period, and then dividing by two.
- You multiply the result by 100 to get the turnover rate as a percentage.
For instance, if a company started the year with 100 employees, ended with 110 employees, and had 20 employees leave during the year, the average number of employees would be 105 ([100 + 110] / 2). The turnover rate would be approximately 19% (20/105 x 100).
Calculation breakdown:
First, calculate the average number of employees:
Average number of employees = (Number at start + Number at end) 2
Then, plug the numbers into the turnover rate formula:
Turnover Rate = (20 / 105) × 100 = 19.05 %
Reasons that contribute to the turnover rate
- Job dissatisfaction: If employees are not satisfied with their roles, they’re more likely to leave. This can stem from the nature of the job, the work environment, or a misalignment with personal values and interests.
- Lack of competitive compensation: Employees may leave if they believe they can earn a better wage or salary elsewhere, especially if they feel underpaid for their skills and responsibilities.
- Limited career advancement: A lack of opportunities for growth and promotion can lead to feelings of stagnation and prompt employees to look for better prospects.
- Poor management: Ineffective leadership, lack of feedback, micromanagement, or a lack of recognition can make employees feel undervalued or disrespected.
- Work-life imbalance: Demanding work hours, lack of flexibility, or excessive overtime can strain personal lives and lead to burnout.
- Lack of training and development: If employees feel they aren’t acquiring new skills or that their professional development is being neglected, they may seek opportunities elsewhere.
- Inadequate benefits: Lackluster health, retirement, or other benefits can be a deciding factor, especially when comparing multiple job offers or opportunities.
- Job insecurity: If the company is experiencing financial difficulties, regular layoffs, or there’s a general sense of instability, employees may leave preemptively.
- Company culture mismatch: A disconnect between an employee’s values and the company’s culture can lead to discomfort and eventual departure.
- Poor work environment: This can range from outdated equipment and facilities to an uncomfortable or even toxic office environment.
- External opportunities: External factors such as a booming job market, industry shifts, or regional economic changes can present employees with more attractive job opportunities elsewhere.
- Personal reasons: These can include health issues, family responsibilities, relocation, or a desire for a career change.
- Mandatory retirement: In organizations or roles with a defined retirement age or service length.
- Involuntary turnover: Terminations due to performance issues, misconduct, or organizational changes such as restructuring can also contribute to turnover rates.
- Mismatched job expectations: If what the employee is asked to do is different from what was discussed during the hiring process or what they expected, they can quit the job.
FAQ
How is the turnover rate calculated?
The turnover rate is calculated using the formula:
Turnover Rate = (Number of employees who left during the period / Average number of employees during the period) × 100
What’s the difference between voluntary and involuntary turnover?
Voluntary turnover occurs when employees choose to leave, often for reasons like a new job, better pay, or personal circumstances. Involuntary turnover happens when the organization terminates an employee due to performance issues, restructuring, or other business reasons.
How can organizations reduce turnover?
Organizations can reduce turnover by improving employee engagement, offering competitive compensation and benefits, investing in training and development, fostering a positive workplace culture, and addressing employee concerns promptly.
Is some level of turnover healthy for an organization?
Yes, a certain level of turnover can be beneficial as it brings in fresh perspectives, new skills, and can help eliminate complacency. However, excessive or continuous high turnover can be problematic.
What industries tend to have the highest turnover rates?
Industries like retail, hospitality, and customer service often have higher turnover rates due to the nature of the jobs, which can be part-time, seasonal, or have non-traditional hours.
How does turnover impact team morale?
Consistent turnover can lower team morale as employees may feel insecure about their roles, have to constantly adjust to new team dynamics, or take on additional workloads during transition periods.
Can exit interviews help address turnover?
Yes, exit interviews provide insights into the reasons employees leave and can offer valuable feedback to address underlying issues within the organization.
What are the financial implications of turnover?
The costs include recruitment expenses, training and onboarding costs, lost productivity, and potential impacts on sales or customer service. It’s estimated that replacing an employee can cost anywhere from 50% to 200% of the position’s annual salary.
How can organizations differentiate between avoidable and unavoidable turnover?
Avoidable turnover results from factors within the organization’s control, like work environment, compensation, or management. Unavoidable turnover arises from factors beyond the company’s control, such as personal reasons, relocation, or retirement.
What role does leadership play in turnover rates?
Effective leadership can greatly influence employee satisfaction and retention. Leaders who engage, motivate, and value their teams can reduce the likelihood of voluntary turnover.
Are there tools or software to track and analyze turnover?
Yes, many Human Resource Management Systems (HRMS) and Applicant Tracking Systems (ATS) offer features to track, analyze, and generate reports on turnover rates and their associated factors.
How does company culture impact turnover?
A positive, inclusive, and value-driven company culture can increase employee loyalty and satisfaction, reducing the desire to seek opportunities elsewhere.
What’s the difference between turnover rate and attrition rate?
While both deal with employees leaving, turnover includes employees who are then replaced. Attrition, on the other hand, refers to employees leaving and not being replaced, reducing the workforce size.