Millennials and Gen Zers, who comprise nearly 50% of the U.S. workforce, are fond of job hopping. They rarely hold a job for more than three years before searching for greener pastures. Besides seeking higher-paying roles, these workers pursue jobs that offer flexibility and remote work and provide career growth opportunities.
Failing to meet these needs can saddle your company with high employee turnover rates as your employees jump ship in search of better offers.
High employee turnover is detrimental to your company because it dulls your competitive edge. Learn more about the employee turnover rate, how it affects your company, and how to head it of
Definition of employee turnover
What is employee turnover? Employee turnover is the loss of talent within a company. It's a measure of the number of employees leaving your company within a specific period. Common employee turnover drivers include resignations, layoffs, retirements, transfers, or terminations.
Importance of understanding employee turnover rate
Employee turnover rate offers insights into the efficiency of your HR policies and practices and the state of your workforce. Spiking turnover rates can highlight underlying issues such as poor job satisfaction and inadequate compensation.
Monitoring and analyzing employee turnover data can help you identify the factors driving workers away. You can then create and implement strategies to help you retain valuable employees and create a conducive work environment. Understanding employee turnover rates lowers your recruitment costs while allowing you to prioritize revenue-generating activities.
The employee turnover rate
Employee turnover rate is the percentage of employees who leave your company and are replaced by new hires in a year. It's an important metric that measures your hiring and employee retention efforts.
A high turnover rate is indicative of problems within your company. The issues could include poor communication, inefficient management, low pay and benefits, and lack of career advancement opportunities.
Stemming high employee turnover lowers recruitment and training costs and boosts employee productivity, engagement, and satisfaction.
How to calculate employee turnover rate
Calculating the employee turnover rate is a multistep process that requires input from human capital management specialists. Involving an HR specialist can help you garner incredible insights into the cause of employee turnover.
The Society for Human Resource Management (SHRM) offers a simple formula to help companies calculate turnover rates. It entails dividing the number of employees who leave (separations) within a month by the average number of remaining workers, multiplied by 100.
Turnover rate = (number of separations / average number of employees) x 100
The formula requires you to calculate the following:
- Total headcount. It covers all employees on payroll and direct-hire temp workers, including those on leave, furloughed, or temporarily laid off. Temporary workers and independent contractors are excluded.
- Average number of workers. Add the number of employees at the beginning and end of the month and divide the number by two.
- Total separations. Tally the number of workers who left during the month, including voluntary and involuntary terminations.
This formula gives you the monthly turnover rate for your company. You can calculate the annual turnover rate by adding the monthly turnover rates.
Turnover rate = sum of 12 monthly turnover rates
You can also niche down and calculate various dimensions of your firm's turnover rates, including:
Involuntary turnover = (number of employees who left involuntarily / average number of employees on payroll) x 100
Voluntary turnover = (number of employees who left voluntarily / average number of employees on payroll) x 100
Industry benchmarks and average rates
Employee turnover rate varies wildly within industries and organizations due to various factors. Therefore, it's essential to benchmark your turnover rates against your industry-specific standards.
What may comprise extreme turnover in one business vertical may be the typical rate for another. For instance, turnover rates of 37% are standard in the wholesale and retail sectors. These rates would seem astronomical compared to the national average, which is 20%.
Factors affecting turnover rates
Various internal and external factors can influence the employee turnover rate in your company, including:
- Compensation and benefits
- Job satisfaction
- Company culture
- Management and leadership
- Career opportunities
- Market conditions
- Demographic factors
Understanding how these factors impact employees can help your company develop strategies to retain top talent and reduce turnover rates.
Reasons for Employee Turnover
Employees quit their employers for several reasons, from poor pay to hostile company culture and a lack of work-life balance. While employee turnover is normal, it's important to investigate why your employees jump ship. Employee turnover falls into two broad categories — voluntary and involuntary.
Voluntary vs. involuntary turnover
Voluntary turnover happens when an employee quits your company on their own accord. Employees often leave on their own volition to pursue new opportunities, seek better work-life balance, or retire.
Voluntary turnover is a mixed bag. It's beneficial for the company when disengaged and low-performing employees leave. Conversely, the company can suffer when high-performing employees choose to leave.
On the other hand, involuntary turnover happens when a company fires or lays-off employees. Companies often terminate contracts due to poor performance, restructuring, misconduct, and seasonal or company-wide layoffs. Involuntary turnover may lead to the loss of your top talents. It can also lower the morale and motivation among the remaining employees.
Common causes of employee turnover
Common causes of employee turnover include:
- Natural career progression
- Poor pay and benefits structure
- Poor working conditions
- Terrible managers
- Toxic work environment
- Lack of career growth and development opportunities
- Work-life balance issues
- Job dissatisfaction
- Layoff or restructuring
- Internal promotion
- Family or life event
Identifying signs of potential turnover
It's essential that you spot and identify the signs of employee turnover to avoid potential staffing issues. Noticing and fixing these problems can ensure your business runs like clockwork and improve talent retention. Common telltale signs of employee turnover include:
- Decreased productivity
- Increased absenteeism
- Lack of engagement
- Increased hostility and animosity
- Complaints about pay or benefits
The cost of employee turnover
Employee turnover can prove costly for your company. Gallup estimates the cost of employee turnover to be 1.5x to 2x the employee's salary.
Consequently, you may spend as much as $100,000 to fill a role that pays $50,000. The cost can prove astronomical if you have a high employee turnover. Replacing ten such workers a year would set you back $500,000.
Employee turnover is expensive because it lowers your firm's productivity while saddling you with additional expenses. You'll incur huge recruitment and onboarding costs to get a new employee through the door. Then there's the cost of training the new hire to ensure they're up to speed with your processes.
Direct and indirect costs
The cost of employee turnover falls into two broad categories: direct and indirect costs.
Direct costs are expenses directly linked to the process of replacing an employee. They include the cost of advertising the vacancy, conducting interviews and background checks, and onboarding new hires.
Indirect costs are expenses associated with the impact of losing an employee on your company's efficiency, productivity, and morale. They can include lowered productivity, loss of institutional knowledge, increased absenteeism, and reduced customer satisfaction.
Impact on productivity and company culture
High employee turnover rates can negatively impact your company's culture and productivity. The loss of skilled and experienced workers robs your company of their expertise, knowledge, and service. Replacing skilled workers can be costly and tedious, and your company may suffer a productivity dip during the transition.
High employee turnover may tarnish your company culture by creating a sense of instability and uncertainty. Your employees may feel less invested in the company and less committed to their roles. Losing expertise and specialized knowledge may dull your edge and damage your brand reputation.
How to measure the cost of employee turnover
You can calculate the cost of employee turnover in five steps:
- Use the employee cost as a benchmark. Prorate the departed employee's pay package into daily and monthly rates.
- Calculate the position's coverage cost. Multiply the days the position remains vacant by the daily rate from step 1.
- Calculate the cost of filling the position. It covers all talent acquisition costs — advertising, screening, selection, background checks, and employees in the interviewing panel.
- Compute the cost of onboarding and orientation. Calculate the cost of the time and resources used by a hiring manager to bring the new hire to speed.
- Determine the cost of ramping up productivity. Use the new hire's daily rate to calculate the cost of helping them learn the ropes. In the first 60 to 90 days, a new hire spends more time learning than producing.
Tally up these costs and multiply them by 12 months to get the cost of employee turnover. Repeat the process for every position you need to fill.
Strategies for reducing employee turnover
Reducing employee turnover takes concerted effort; implementing these strategies can help you retain your top talents.
Employee engagement and job satisfaction
A happy employee is engaged and takes pride in their work. Creating an enabling workplace environment that values employee input, open communication, and collaboration can increase employee engagement and job satisfaction.
You can achieve this feat by recognizing and rewarding achievements, providing an avenue for employee feedback, and building a supportive work culture.
Competitive compensation and benefits
People spend a significant portion of their lives and invest huge sums of money to gain valuable skills. They do so in hopes of securing a well-paying role that rewards their efforts. Offering competitive compensation and benefits packages will help you attract and retain top talent. Employees increasingly gravitate toward nonmonetary benefits such as hybrid arrangements, extended vacation time, and remote work.
Providing growth opportunities and career development
Career growth and development are top considerations because they improve job satisfaction and financial rewards. You'll attract top talents to your company by offering a clear career progression path. You can provide mentorship programs, on-the-job training, and resources to help employees develop new skills and advance their careers.
Implementing effective onboarding and training programs
New hires will feel valued and appreciated if you have a structured onboarding process. Handholding new employees lowers their learning curve and allows them to ramp up productivity quickly. It enables you to provide clear job expectations and introduce them to company culture while offering ongoing support and feedback.
Encouraging work-life balance and well-being
As baby boomers exit the stage left, they're taking their fastidious work ethics with them. Incoming millennials are cut from a different cloth. They crave more than a paycheck from their workplace.
Instead, they gravitate toward companies that value work-life balance and prioritize well-being. You can attract this crowd by offering a flexible work environment, promoting healthy work habits, and offering resources to manage stress and burnout.
Monitoring and analyzing employee turnover data
Monitoring and analyzing turnover data helps you stem the bleeding and retain your top talents. It enables you to understand why workers jump ship and identify areas for improvement. You can accurately forecast and control your turnover rates and avoid costly business disruptions.
HR analytics and data-driven decision-making
HR analytics eliminate guesswork to let you make sound human resource management decisions grounded in evidence. The process involves collecting and analyzing data relating to various HR metrics, including employee engagement, performance, and turnover.
Tools and technologies for tracking turnover
You can use various tools and technologies to track employer turnover, including applicant tracking systems (ATS), HR information systems (HRIS), and survey software. They simplify collecting and analyzing turnover data to identify trends and patterns.
Leveraging insights for continuous improvement
Managing employee turnover is an iterative process, especially in the current workplace environment. Use the insights from HR analytics to develop custom talent retention strategies. You can target specific jobs or specific departments based on turnover data.
Understanding employee turnover rate
HR specialists have a crucial role in managing employee turnover within your company. Your HR specialist should develop and implement various employee retention strategies and conduct exit interviews to gather feedback.
They should analyze the turnover data to identify the root cause of employees departing. Addressing the resultant issues can help you improve employee engagement and job satisfaction, reduce turnover costs, and help your company attract and retain top talents.
Addressing employee turnover offers significant long-term benefits to your company. It lowers recruitment and training costs by helping you retain valuable, skilled, and knowledgeable employees. Retaining valuable employees ensures a stable and engaged workforce that can give you an edge in the market.
FAQs on employee turnover rate
Employee turnover is the rate at which employees leave an organization and are replaced by new hires. Employee attrition is the natural or voluntary loss of employees due to resignation, retirement, or death.
High employee turnover can negatively impact a company's reputation by signaling to potential hires and clients that it has poor management, uncompetitive compensation packages, or low job satisfaction.
High employee turnover can have negative consequences on team morale and collaboration. It can lead to increased workload and stress, loss of trust and cohesiveness, and heightened uncertainty and instability among remaining employees. These factors may reduce communication, motivation, and collaboration between team members, potentially reducing performance and productivity.
Exit interviews can help companies understand and address employee turnover by providing valuable insights and feedback from departing employees. Employees can share their reasons for leaving and their experiences working for the company and offer suggestions for improvement.
A company should review and update its employee retention strategies regularly, ideally on an annual basis. The reviews can be more frequent if there are significant changes to the business environment or the company's workforce. Regular updates and reviews demonstrate a company's commitment to employee retention and satisfaction. That may improve worker engagement and bolster their morale and productivity.