What Is an Employee Turnover Rate and How to Calculate It? by Mile Živković on Mar 21, 2019

While some people are struggling to find a job, others are rushing to get rid of theirs. In 2018, 3.5 million people quit their job in the USA, every month. Even though finding qualified candidates seems tough to some employers, it looks like it won’t be so hard to others, since employees are so eager to ditch their jobs.

However, what if you are the employer they are breaking up with? Having too many employees going away from your company leaves you without precious talent and hurts your bottom line. It’s also known as turnover rate and having a high one could do serious harm to your business. Here’s what it is, how to calculate it and spot some of its signs early on.

What is the employee turnover rate?

Simply put, the employee turnover rate is the number of people you hired and which left your organization within a certain timeframe. This includes dismissals, retirements and resignations but does not include moving within the company, such as getting a promotion or being moved to another position.

Needless to say, your turnover rate should be as low as possible, for several reasons. Primarily, it costs quite a bit to have employees leaving you. As we’ve mentioned in one of our previous articles, finding a direct replacement for an employee can cost 50-60% of their annual salary, with the total amount estimated at 90-200% of the annual salary for the position.

In other words, if you hire a developer at $100k per year, if they leave you after a few months, this can cost you more than $180k.

Then there is the issue of productivity. Once you hire someone, it will take several months until they become fully productive in their role. Up until this point, you’re training them and they only start making a profit for the company after the break-even point. Whether they leave you before or after they start becoming fully productive, the damage can be pretty devastating.

How to calculate the employee turnover rate

The first step in addressing the issue of employee turnover is to track and measure it. The measurement method is one and the same, but there are several intervals to measure by – monthly, quarterly or annually. Since monthly measurements don’t give such accurate results, it’s best to measure turnover rates on a quarterly and annual basis to get relevant results.

Let’s say that you want to calculate the annual turnover rate in your company. You would take the number of employees that left the company (A) and divide it by a sum of employees who were there at the beginning of the year (B) and those at the ending of the year (C), divided by 2 – then you’d multiply all that by 100. In other words…

A/((B+C)/2))x100

Or, let’s make it even easier. Let’s say that you have 80 employees at the start of the year and you ended the year with 86 of them, with 2 employees that quit. Put the values in the formula, and you get:

2/((80+86)/2))x100 = 2/83×100 = 2.4%

In short, this is an employee turnover rate of 2.4%, which is more than good. So, presumably you’ve calculated your own – let’s see how it stacks up.

What’s a good employee turnover rate?

According to a recent LinkedIn study with more than half a billion participants, the average employee turnover rate across industries is 10.9%. The unlucky winner on top of the list is the technology/software industry with a turnover rate of 13.2%, followed by retail and consumer products (13.0%).

While retail and consumer traditionally have high turnover, the tech industry has been at the very top of the list for years now. By diving deep into the results, you can see some positions which have incredibly high turnover rates, such as UX designers (23.3%), data analysts (21.7%) and software engineers (21.7%). These results can be attributed to high demand and increasing wages.

So, what’s a good employee turnover rate? In short, anything below than the average across industries is a good figure to aim for. As for the longer answer – it depends on a large number of factors. Your industry, the role you are hiring for, the size and structure of your company.

In the end, your ultimate goal should be to keep the turnover rate as low as possible and well above the industry standards. You can only do so by understanding the reasons why it happens in the first place.

Understanding the reasons for high turnover rates

While some part of high turnover rates can be explained with the industry (tech/retail), there are cases when something else is the underlying cause of employees leaving you. Here are some of the main reasons your turnover are higher than you’d like them to be.

Reason #1 – employees are stuck in a single place for too long

One of the most common reasons for employees quitting is a lack of opportunities for professional development. While many companies list it as a perk in their job ads, very few actually walk the walk and give their employees a chance to get a promotion and move up the ranks. In fact, only 25% of respondents in one research say that they have enough opportunities to grow within their organizations.

If your employees are in the same position for a while, without a chance to prove themselves, they are likely to seek another place where they can advance in their career. As studies have shown, employees don’t even have to be promoted to increase retention rates – lateral moves are just as effective in making your employees happy with their jobs.

Reason #2 – poor manager(s)

If there’s a high turnover in a specific department within a given time frame, the reason for high turnover could be found in poor management. As a popular saying goes – people don’t quit jobs, they quit bosses. If there’s someone in your company that’s giving your employees a hard time, they could personally be the driver behind high turnover rates.

Reason #3 – your employees are underpaid

One of the most common reasons why employees quit is simply because it’s lucrative. According to research, quitting a position and starting in a new one results in a salary bump of up to 15%. On the other hand, salaries, in general, are growing so slowly that a raise as big as this one could take years.

Poor salaries coupled with no room for growth are a killer combination for turnover rates. Make sure to stay in the loop when it comes to wages in your industry and promote regularly.

Reason #4 – too much commuting and working remotely

Besides making delicious candy, the brand Hershey also created an attrition model that can accurately (up to 87%) predict how likely an employee is to leave the company. They used a range of factors to come up with a formula, and one of them included external factors.

As it turns out, having long commutes to work makes employees more likely to quit their jobs. No kidding – you’re probably thinking. The surprising thing is that working remotely also makes employees more likely to quit. Having face time with coworkers and managers increases the overall employee experience and decreases the chances of leaving the job.

The takeaway – if hiring traditionally, make sure the commute is not taking a toll on your workforce. If hiring remotely, put a strong emphasis on building a culture and building a team so that your remote employees don’t feel left out.

Reason #5 – they’re not engaged

Let’s say that you pay your employees well, give them regular promotions, make sure their management is excellent, but there’s still something missing and they feel left out. It’s simple – they’re not engaged.

Employees that aren’t actively participating in their work and company process are more likely to quit. But how bad is it really? According to Gallup research, only 32% of the workforce in the USA feels engaged.

the gallup-healthways well-being index

According to the same research, engaged employees fare much better in the workplace and are overall more satisfied with their jobs. What’s more, they are:

  • 27% more likely to grade their job performance as excellent
  • 59% less likely to look for another job within the upcoming year
  • 42% more likely to highly grade their overall lives

As can be seen, engaged employees not only feel better about their work but also about their wellbeing and lives in general.

Conclusion

Having a high turnover rate could do significant damage to your business, leaving you short of great people and costing ludicrous amounts to re-fill those positions. By staying alert at all times and keeping track of this number, you are making sure to have a happier, more engaged workforce that does not intend to change employers any time soon.

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