How to Calculate and Improve Your Employee Turnover Rate

What Is Turnover?

‘Turnover’ is when employees leave a company, voluntarily or otherwise. ‘Turnover rate’, meaning the percentage of employees who leave a company during a specific period of time. This figure gives decision-makers a clearer picture of just how big of an issue turnover is in their organization. Turnover rate is the opposite metric to employee retention, which measures how many of your hires remain with the company. 

What constitutes a ‘high’ turnover rate will vary from industry to industry — according to the US Bureau of Labor Statistics, the industries with the highest separation (turnover) rates in 2021were ‘accommodation and food services,’ ‘leisure and hospitality’, and ‘arts, entertainment, and recreation’ with each showing a separation rate of about 75% – 85%. On average, US businesses during that time period saw a separation rate of 47.2%. 

That said, most leaders agree that a turnover rate of about 10% is ideal, and Gallup agrees— provided that the 10% who are leaving represent the 10% who are least engaged in your organization. If the 10% turnover comes from your top performers, then that number is definitely still too high.

The lower this figure is, the better your business will be able to recoup its hiring investments and foster valuable, loyal talent. It can also contribute to improved outcomes for the organization overall. A high turnover can reduce institutional knowledge and cut into company culture, all of which reduce your organization’s capacity to serve your customers. 

The High Cost of Turnover

Excessive employee turnover carries with it a significant cost. When an established employee leaves your organization, the money and time you invested in recruiting, outfitting, licensing, and training that individual leaves with them. The employee’s job is suddenly vacant and their responsibilities either fall to another employee (potentially leading to burnout) or get put on hold (decreasing productivity). And, of course, locating and onboarding a suitable replacement means investing all over again. 

How does this impact translate into dollars? Every business is different, but SHRM suggeststhat the average base cost of bringing on a new hire is about $4,700, and the total costs may be as high as three to four times the position’s annual salary. And there’s no guarantee that the new employee you bring on is going to stay long enough to offset that investment — research from Latticesays that approximately 52% of employees who have been with their companies for fewer than three months (and 60% who have been there for fewer than six months) are actively looking for new jobs.

Increased employee turnover also hurts employee engagement. When members of your workforce see their colleagues leave, it can take a major toll on your company culture. Employees begin to view their positions as unstable or start to think of the organization as a pit stop on the way to something better. This, in turn, can have a negative impact on employee morale, service quality, customer retention, and more. 

Simply put, a high employee turnover is an issue that no company can afford to overlook. But how can you accurately track turnover in your business? 

How to Calculate Employee Turnover Rate

While many factors influence turnover rate, calculating the turnover rate is straightforward. A basic equation for determining total turnover is as follows:

Overall Employee Turnover rate = (Number of employees who left during a specific time period / Average number of employees during that time period) x 100
 

Let’s break down how you can fill out each part of this equation.

Step 1: Define the Time Period

The first step in calculating your turnover rate is to decide what kind of time period you will be looking at. Are you interested in determining your annual turnover rate, or are you more concerned about how many people you may be losing during a specific time of year, like after bonus payouts or during the holidays? Different time periods will provide unique insights into possible issues you may need to address. 

Step 2: Determine the Total Number of Employees During the Period

Once you’ve decided on a time period, your next step is to find the average number of employees you had on staff during that time. To find this number, take the total number of employees from the first day of the timer period, add it to the total number of employees on the last day of the time period, and then divide the sum by 2. 

Step 3: Determine how Many Employees Left During the Period

This step is extremely straightforward — just count the number of separations that occurred during the time period. Account for every employee who left, whether the separation was voluntary (those who quit) or involuntary (those who were let go). 

Step 4: Divide the Employees who Left by the Average Number of Employees

With all of the variables fully defined, now you just need to work through the equation. Take the total number of separations and divide it by the average number of employees for the time period. 

Step 5: Multiple the resultant number by 100

Most employers report turnover rates as a percentage, so your last step is to multiply the quotient from the previous step by 100. The answer you get represents the turnover rate as a percentage for your business during the specified time. 

So, if you start the year with 500 employees and you lose 80 people during that time, then your overall turnover rate would be 16%.

(80 separations / 500 employees) x 100 = 16% turnover rate

Understanding Your Turnover Rate

With that percentage in hand, you’re much closer to putting your turnover rate to good use in improving employee retention. But just landing on a percent probably won’t tell you the whole story. To more fully understand your turnover rate, you need to put it into context:

Find and Compare Industry Benchmarks

Compare your turnover rate against benchmarks within your industry. The US Bureau of Labor Statistics can help you get an idea of what kinds of turnover rates are common and what might represent a warning sign.

Determine What Types of Employees Are Leaving

Not all employees bring the same value to your organization. As previously mentioned, if your turnover is highly disengaged employees, you can focus on improving your company’s employee engagement rates. If, on the other hand, your turnover rate includes your best and brightest, you may want to investigate possible systemic causes within the organization. These include issues like few growth opportunities or management inefficiencies, which require different solutions than employee disengagement. 

Go to the Source to Discover Why Employees Are Leaving

Some employees simply enjoy taking on new opportunities, but many people who quit had a reason they chose to look for other opportunities. Case in point: 79% of people who quit their jobscite ‘lack of appreciation’ as a major factor in their decision. Conducting honest exit interviews with those who choose to terminate their employment can be a vital opportunity to solicit open feedback and identify issues that may be impacting your retention. 

Of course, there’s no reason to wait until someone decides to quit to hear their opinions. Work environment surveysprovide an easy and anonymous channel for employees to share their concerns and observations, so you can address potential problems before your best people start leaving. 

Support Employees to Decrease Turnover Rates

Decreasing your turnover rate is within your power. Employees provide many reasons in their interviews for leaving — they found a higher salary, they don’t feel challenged where they are, they are burnt out juggling work and home life. But all of these motivators have the same root cause: the employee sees leaving this position as beneficial to their wellbeing in some way.

You can address many employee concerns about their wellbeing through a wellness program. After all, workers cite ‘wellness benefits’ as the second most important aspect of a job offer! People are happy to stay somewhere they are thriving. 

If you want to talk through how a wellness program can help increase your employee engagement and satisfaction, talk to a Wellbeing Specialist today!