Turnover Rate

What is turnover rate?

Turnover rate is the number of employees who leave a business within a given time period. For most companies, the rate is calculated annually or quarterly or following a specific recruitment campaign.

Understanding the turnover rate is an essential responsibility of the human resources team and a critical part of workforce management. High turnover can indicate problems with the company as a whole that need to be addressed. Retaining current employees is typically less expensive than replacing them, so businesses should aim to keep their turnover rate as low as possible. 

Businesses often turn to workforce management software to track the turnover rate and identify when a surplus of employees are deciding to leave the company.

How to calculate turnover rate

To calculate the turnover rate percentage, the number of employees who left during a given time period should be divided by the average number of employees during the selected period. The formula for determining the turnover rate is then (employees who left / average number of employees) x 100.  

For example, if a business wants to know the turnover rate for the previous year, it first needs to know the average number of employees in the business across the last 12 months. If the business had 500 employees on January 1st and 600 employees on December 31st, the average would be 550. If 20 employees left during that year, this number is divided by 550 to make 0.036. Multiplying this by 100 gives an annual turnover rate of 3.6%.

A good turnover rate for most industries is considered around 12-20%.

Types of turnover

For most businesses, turnover is either voluntary or involuntary. While both impact the turnover rate, it’s helpful to separate them to gain a better understanding of employee retention.

• Voluntary turnover, as the term suggests, occurs when an employee leaves a company of their own will. 
• Involuntary turnover happens when a business needs to let employees go. This could be due to poor performance from an individual employee, or it could involve several employees as a result of cutbacks. Involuntary turnover may also include other situations in which an employee must leave without wanting to, like reaching a mandatory retirement age.

Why turnover rate matters

Employees naturally come and go, but keeping the turnover rate as low as possible should be a priority for every HR professional. Having a consistently high turnover rate can result in:

• Low morale for remaining team members. When a large number of people leave, the employees still there may start to question the company’s stability. On top of this, these employees will likely be required to pick up additional work left behind by the previous employees, which increases stress, damages company culture, and makes it hard to come to work.
• A shortage of skills and knowledge. Employees who leave a business take skills and company knowledge with them. This leaves significant skills gaps on the team, especially in smaller groups. 
• Additional expenses for recruiting new employees. The average cost to hire someone new is around $4,700, as per a report by the Society of Human Resource Management (SHRM). In many roles, costs can be over three times the position’s annual salary. This includes recruitment advertising, interviewing candidates, onboarding new employees, and providing training. In addition, this amount also factors in money not being earned as the new hire works to reach the same level of productivity and service as the employee that was previously in the role. Retaining existing employees is significantly cheaper across most industries.

Factors affecting turnover rate

Depending on whether turnover is voluntary or involuntary, several factors play a critical role in a company’s overall turnover rate. These can include:

• Job dissatisfaction or work stress. An employee may be unhappy at work for many reasons. They may feel overworked or underappreciated, or they could be bored and looking to move on to a new challenge. Outside of their direct work, a hostile work environment or poor leadership could make an employee leave a job voluntarily.
• A highly competitive job market. When an employee finds better opportunities elsewhere, they will probably take them. Compensation, benefits, and upward mobility are often the major factors behind an employee’s exit.
• Poor performance or inappropriate behavior. If an employee continually doesn’t meet the organization’s expectations or engages in behavior unsuitable for the workplace, an employer may need to terminate the employee’s contract.

Best practices for improving turnover rate

To keep the turnover rate as low as possible, businesses can implement measures through HR and individual teams to ensure current employees are satisfied and supported. Examples of these practices could be:

• Investing in recruiting. Hiring the right people from the start is one of the best ways to keep turnover rates low. HR should be looking at candidates who have the skills and are a good culture fit.
• Improving new hire onboarding. Employees who are adequately trained upfront are more likely to succeed in their new role. Spending time and money helping new hires acclimate pays off long-term.
• Recognizing and rewarding good employees. Everyone wants to feel appreciated, especially in the workplace. When individuals go above and beyond, it’s important to recognize this to create a positive work environment for everyone on the team.
• Building clear progression pathways. Voluntary turnover often occurs because employees want to move up the career ladder but feel restricted by their current employer. Each team’s manager should do this with every employee they oversee.
• Encouraging work-life balance. A company’s benefits are one of the biggest reasons employees choose to work where they do. Ensuring employees have adequate time off, compensation, parental leave, and other perks like flexible schedules can make the biggest difference in giving employees a better work-life balance.

Find the right people for your business and keep your annual turnover rate low with recruitment marketing software and support.