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How to Calculate Employee Turnover Rate?

Mathew Maniyamkott

Mathew Maniyamkott

7 min read

Sooner or later, employees are going to leave the company anyway because of many reasons that can be both personal and official. They need to be replaced to make sure that there is business continuity. The rate at which employees leave an organization during a certain time period is called employee turnover.

Employees retire, move to a different city, get a job in a competitor’s company, get dismissed or leave the industry itself. Employee turnover is an expected phenomenon and good for everyone involved but it can be harmful to the company if there is a high employee turnover rate than is normal. If there is huge turnover, it might be impossible to accommodate new people into the workforce all of a sudden.

What is Employee Turnover Rate?

It is the percentage of employees who leave a company during a certain period of time. Although there are simple calculations to measure employee turnover rate, the number gravely affects the organization. It shows the efficiency of the organization, employee satisfaction, workplace atmosphere, policies and so on. It is important to lower the employee turnover rate as finding new employees and expecting them to give the best possible results will take time and investment.

Employee turnover rates differ from industry to industry. Foodservice companies, retail stores, and their ilk show high turnover rates because most of the employees working there are either on contract or student workers while IT, manufacturing and such industries have comparatively less turnover. In fact, positions that have a high turnover are usually low skilled jobs.

happy employees stay longer with the company

Here are Some Employee Turnover Rate Stats that You Need to Know

  1. Employers need to spend an equivalent of six to nine months of an employee’s salary to find and train their replacement, according to a study conducted by the Society for Human Resources Management.
  2. Harvard Business Review says that 80% of employee turnover is due to poor hiring decisions.
  3. A survey by OfficeTeam says that more than 50% of the workers are likely to leave if they don’t feel appreciated by the management.
  4. HR Magazine says that companies which invest at least $1500 per employee on training averages 24% higher profits than companies with lower spending.
  5. Economists at the University of Warwick found that happy workers were 12% more productive while unhappy workers were 10% less productive.
  6. More than 50% of voluntary turnover happens in the first year.

Types of Turnover

There are two types of employee turnover:

  1. Voluntary Turnover
  2. Involuntary Turnover

Voluntary Turnover is when the employee leaves the organization out of his/her own will due to reasons that affect them. Involuntary turnover is when employees are laid off or other reasons where the decision comes from the employer and not the employee. Voluntary turnovers are given more importance when it comes to calculation and measurement of various parameters.

How to Calculate Employee Turnover?

To calculate the employee turnover rate, there are 3 important numbers that we need.

  1. The number of active employees at the beginning of the month (B)
  2. The number of active employees at the end of the month (E)
  3. The number of employees who left the company in that particular month (L)

Before you calculate the employee turnover rate, you need to find the average number of employees.

Average= (B+E)/2

Monthly Turnover%= (L/Average)*100

Companies are generally of the opinion that monthly or annual turnover rates bring more meaning than just using data from a single month to calculate such an important metric.

Let us find the annual turnover rate using the below formula:

Annual Turnover rate%= (L/ ((B+E)/2))*100

There are a lot of ways you can calculate turnover rate formula depending upon your needs. Let’s say you want to know about the employee turnover rate of people who are less than 40 years old. Here you need to consider employees under 40 who have left in the previous one year against all other employees.

By trying different combinations, you can understand a lot of things about the company and how employees quit. You can find out patterns too which will help you make smarter business decisions.

What will we do with the number, i.e high turnover rate? What insights can we gain from that? Compare your company’s turnover rate with the average in your industry and also from the same region. How does it compare? Look for ways to mitigate the problem based on the comparison data available in front of you.

Collect data from different periods of time, from different sections, under different managers and more. With all that said, make sure that your company’s turnover rate is at a healthy range. It is a matter of concern if your company’s turnover rate is higher than average.

How to Analyze Your Turnover Rate?

to decrease employee retention rates, hire right

Now that you know how to calculate employee turnover rates, let’s discuss what to do with that data. You can analyze the turnover rate by using these three attributes as the main factors:

a. Analyzing employees who leave

It is important that you know what your employee turnover rate is, if it is lower than average, it might not always be a good thing because you need to know the kind of employees who leave. If it is a huge influx of high-level employees who quit the company, then it is a matter of grave concern. Even employees who can be considered as top performers leaving is a bad thing for the company. Are there methods to retain the good performers? If not, devise a strategy where you can convince the good employees (read top performers) to stay back.

b. Reasons for employees leaving

Is there a pattern for employees leaving? If you see a lot of people quitting after the appraisal period, you can assume that many of them were unsatisfied with what they received. Is there a way to keep them satisfied before they even think about quitting?

When people leave, it is important that you conduct exit interviews to ascertain the reasons behind their leaving. Give them the freedom to be as honest as possible in your employee feedback surveys so that you can work on any steps that they think needs to be taken. Review your recruitment process, change your benefits plan and include perks that will keep them happy.

c. When do most people leave?

Keep a track of when people leave the company. It could offer you a lot of insights about your company’s processes. If an employee leaves in the first few months of the job, it could mean that their expectation from the job was different from what is being done at the workplace. This means you should have a much clearer interview process where the expectations are spelled out crystal clear to the candidate.

4 Ways to Reduce Employee Turnover Rate

The high rate of turnover can be a worrying factor for companies as the sunk costs are too high and the time taken to train and hire replacements can be taxing. Thankfully, there are some ways for you to reduce the turnover rate. Here we list out some of the ways in which you can reduce the turnover rate significantly.

1. Hire people with the right fit

poor hiring is why employee turnover rates are high

Hiring employees with the right attitude and skill sets is important, but you also need to know if they are the right choice for your business. The right choice as in the right fit for your company’s values. Ask behavioral interview questions using which you can assess their EQ and other social skills. Tell them about your workplace culture, show around the office and let them talk to the present employees- give them the opportunity to leave for themselves if they think they won’t be a fit.

2. Chart a career path for them

Most employees want to be on top of the job market, they can do this by improving their skills and learning new things. Why not arrange a career counselor help chart a plan for them? Most of them are in the dark anyway. This will show them that you care about them.

3. Encourage a friendly atmosphere

Your employees work at the office for more than 8 hours every day which literally means that they spend one-third of their lives in the workplace. Don’t let the workspace be intolerable, make it a place where they are happy to be working. Create an atmosphere where people are happy talking, having fun and being themselves.

4. Conduct regular employee reviews

It makes sense to ask your employees what is affecting them in the workplace and how it could be improved to give them a better workplace. Get employee’s feedback regularly, ask them about their likes and dislikes about the job. Select a good employee feedback software to run periodic surveys and give you deep insights. Understand what’s bothering your employees the most and fix it.

lack of appreciation is why most people leave their jobs

Conclusion

Employers should make sure that there is proper communication during the entire process of the interview so that there are no gaps in expectations for either side which is one of the prime reasons for employee turnover. There should be two-way communication so that there is a clear understanding among both the parties. It should extend to all areas where employees can freely exercise their right to ask questions.

Now that we have given you the steps on how to calculate employee turnover rate as well as how to bring that number to a healthy range, why not work on them? You can reduce employee complaints if you treat your employees well. A great employer will always have people flocking to them. Be one of them.

Mathew Maniyamkott
Mathew Maniyamkott

Guest Blogger at SurveySparrow

Regular contributor to various magazines. Passionate about entrepreneurship, startups, marketing, and productivity.

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