What is employee turnover?
Employee turnover is the percentage of employees who leave a company during a set period of time, often requiring employers to hire a replacement. Employee turnover often puts a financial strain on small businesses by causing them to spend money and resources on training an employee that did not end up contributing to the company. Turnover can also make operating a business more challenging because other employees may need to cover the responsibilities of an open position during the hiring process.
There are a wide variety of reasons an employee might leave a company, ranging from personal preferences to workplace conflicts. Even the happiest and most committed employees may choose to leave their job for another opportunity, so some turnover in a business is completely normal. However, understanding why employees leave their jobs can help new managers avoid unnecessary turnover.
The two primary types of employee turnover are as follows:
- Involuntary: This is when an employee is terminated from a position and asked to leave the organization.
- Voluntary: This is when an employee voluntarily leaves a company for any reason including pursuing a new career or better compensation, or going into retirement.
Employee turnover includes both employees leaving as well as the employees who take their place. Turnovers typically do not include internal transfers or promotions.
Why is it important to calculate turnover rates?
In order to reduce staff turnover, you should first focus on understanding how often employees leave your company by calculating the turnover rate. Calculating turnover rates in your organization can provide valuable insight into your company’s leadership, procedures and overall culture. It can also show you how much money you’re spending on hiring and training new employees as a result of employee turnover. Additional reasons why it’s important to calculate your employee turnover rate include:
- Provides a better understanding of the time and money you spend looking for, interviewing and hiring new employees.
- Assists in pinpointing where your company may be lacking in terms of employee satisfaction and engagement.
- Brings awareness to employee separation costs such as unemployment compensation.
- Allows you to assess your talent acquisition strategy and determine its effectiveness.
Average employee turnover rates
The average turnover rate can vary significantly from industry to industry. For example, a retail company that experiences increased business during the holidays would likely see a larger turnover rate due to the hiring of seasonal or temporary employees. An accounting firm would likely see a much lower turnover rate due to the stable nature of the company’s business.
Despite the potential for variation, HR consulting firm Mercer found that the average turnover rate for US companies in 2018 was 22%, including voluntary separations, involuntary separations and retirement-based separations (with voluntary turnover making up 15% of that number).
How to calculate turnover rates
Turnover rates are generally calculated for monthly, quarterly and annual time periods. Most employers use quarterly or annual turnover rate calculations because they show more meaningful patterns.
Some employers separate and measure new hire turnover rates because the reasons new employees leave an organization often differ from those of tenured employees. This can help employers pinpoint and resolve issues faster. Businesses can also calculate voluntary turnovers separately as these can reflect a company’s competitiveness compared to other employers.
The following are formulas you can use to calculate the employee turnover rate in your organization:
- Start by calculating the average number of employees for the time period. To do this, add: (# of employees at the beginning of the time period) + (# of employees at the end of the time period) and divide by two.
- Divide: (# of employees who separated from the company during that time period) by (average # of employees)
- Multiply: (# calculated in step 2) x 100 = turnover percentage
Example: Monthly turnover calculation
On March 1, a company employs 30 people. On March 31, the company employed 35 people. During that month, 3 employees left the company.
- Calculate the average number of employees:
- 30 + 35 = 65
- 65 divided by 2 = 32.5
- Divide 3 (number of employees who left) by 32.5 (the average # of employees) = 0.0923
- Multiply 0.0923 (# calculated in step 2) x 100 = 9.23%
First-year turnover rate
The first-year turnover rate for new hires is a simple calculation. Use only the number of separated employees who worked at the company for less than a year in your calculation. The average number of employees is replaced by the total number of separations for one year.
- Calculate the total number of employee separations – both voluntary and involuntary – within a 12-month time period.
- Divide: (# of separated employees who worked at the company less than 1 year ) by (# of all separations)
- Multiply: (# calculated in step 2) x 100 = turnover percentage
Example: During the 2019 fiscal year, five new hires left the company and seven employees left the company (total separations).
- Divide 5 (# of separated employees who worked at the company less than 1 year) by 7 (total separations) = 0.7143
- Multiply 0.7143 (# calculated in step 1) x 100 = 71.43%
Tips for reducing employee turnover rates
If you find that your turnover rate is particularly high and includes top performers, here are some tips to consider to reduce turnover and increase overall employee job satisfaction:
1. Improve your hiring strategy and onboarding process
Reduce turnover rate by ensuring that you hire people who are a good fit for your company. Use competency screening, behavior testing and a thorough interview process to best identify candidates who match your open positions and company culture. Develop an effective onboarding process that increases engagement with mentoring and training.
Putting more time and effort into your hiring process can help prevent employee turnover later. Consider having candidates submit a sample work assignment that requires them to work with your team to get a feel for whether they would cooperate well with your current employees.
Related: New Hire Onboarding Checklist
2. Offer a competitive salary, benefits and a healthy work-life balance
Salary and benefits are some of the most important factors for job seekers. Fair compensation and regular raises can show employees that they are valued and have room to grow at your company. Competitive salaries and comprehensive benefits, including health insurance, 401(k)s and paid time off can be enhanced with additional benefits such as work from home days and gym membership reimbursements, which can attract high-performers, improve your work culture, support work-life balance and reduce voluntary separations.
3. Provide career growth opportunities and development programs
Employees want opportunities to grow within a company. Cross-training and career progression programs give them the skills to take on more responsibility, grow as professionals and develop their potential within an organization so they don’t get a wandering eye.
4. Recognize top performers and team success
Employees who feel valued and are rewarded for their work are more likely to stay with a company. Recognition boosts productivity, engagement and increases retention rates. Develop a recognition program that works for your company, offers incentives such as bonuses, celebrations for employee successes or team quarterly events and parties.
5. Train your managers
The managers within your company can have a significant impact on employee satisfaction and ultimately employee turnover rates. Training your managers to be as effective as possible when it comes to managing a team can help reduce employee turnover and increase communication and performance among employees.
6. Implement regular surveys
If you want to really know what’s going on with your employees and how they’re feeling about your company, consider sending out regular anonymous surveys. This will provide valuable insight into each employee’s current state of mind and allow you to address issues before they cause employees to leave.
7. Focus on culture
As an employer, you can have a direct influence on your employees’ experience. A satisfied employee is much more likely to stay at their current job instead of looking elsewhere to grow their career. By putting in effort to create a positive company culture that promotes growth and celebrates employee success, you can have a long-term impact on staff turnover. Taking small steps to improve company culture such as giving positive feedback and organizing team building activities can make a big difference in turnover rate.
Ultimately, reducing staff turnover is a key part of building a successful team. As an employer, you have the opportunity to directly influence how someone feels about their job. New managers can integrate themselves into their team and regularly ask for ways they can improve in order to motivate employees and decrease turnover.