One of the more pressing HR metrics to know, employee turnover rate is the rate at which employees are leaving your company.
In smaller companies this isn't so relevant, as everyone's generally aware when someone leaves and it's not difficult to spot when it's happening more than usual. But in larger firms with lots of incomings and outgoings, it can be harder to get sight of.
Turnover rate isn't just a number; it's an indicator. You can learn a lot about the state of your business from it. But what is turnover rate, why's it important, and how do you calculate it?
What is employee turnover rate?
Employee turnover simply refers to workers leaving the business, so the employee turnover rate is how many of them are leaving in a given time period.
It's worth noting that people leave for voluntary reasons, like changing companies or starting retirement, and also involuntary reasons, like dismissal or redundancy.
Why is employee turnover rate important to know?
A high turnover rate is usually a sign that there's a problem within the company. Firstly, if more people are leaving the company than are joining it, that'll cause a reduction in headcount, productivity, and ability to deliver on existing customer/client contracts.
Secondly, it means spending on hiring more staff to remedy the situation - and that isn't cheap. There's quite a few expenses to deal with when hiring new people: posting job ads, using recruitment services, investing in updated equipment and facilities. New staff arriving externally usually demand higher salaries than internal promotions, too.
You've then got the labour cost of training them, where at least one other employee has to teach them the ropes instead of doing productive work. And your new employee will potentially take a couple of months to reach their potential productivity.
So in short - you need to know how many people are leaving so you can analyse the causes and try to prevent it, otherwise things get expensive, quickly.
There are various possible reasons, including:
- Employees being unhappy with internal company culture
- Competitors having a more attractive recruitment campaign
- Employees facing discrimination or other interpersonal problems
- Lack of progression opportunities
- Unhappiness with the work environment
But being able to say whether a turnover rate is 'good' or 'bad' depends entirely on the company's situation. You might be clearing out a bunch of poor performers and replacing them with great new employees that better fit your culture - in which case you might call it a good thing instead.
How to calculate employee turnover rate
It's a really simple calculation - it's literally just the percentage of your workforce that left. The number by itself only really becomes interesting when compared to other things, like industry standard turnover rates, or historical trends in your business.
Here's how you calculate it:
(The total number of leavers in a month
The average number of employees you have in a month ) x 100
That final figure will end up as a percentage, and that's your turnover rate.
How do you get the average number of employees in a month? For the purposes of this calculation it doesn't need to be complicated. Just grab the number of employees you had at the start of the month, and the number you had at the end - then divide by 2. Bosh.
Imagine in July you had 62 employees at the start of the month and 58 at the end. Your average number of staff would be (62+58 = 120) / 2 = 60.
4 people in total left the business.
So that's 4 / 60 = 0.07
0.07 x 100 = 7% turnover rate.
If you want to make an annual employee turnover calculation, just repeat the same as above but with annual figures instead of monthly.
Again, the number itself doesn't mean much unless you compare it to previous trends or other companies in your industry. Retail, for example, is known for having a high turnover rate and can be as high as 60% annually, which means companies in that industry have to continually hire new staff. But jobs that are more specialised usually have lower rates, which correlates with the smaller pool of people available to fill a position.
As an employer it's important to interpret the data wisely and use it to make informed decisions on your staff retention efforts.