What is employee turnover?

Employee turnover is the number of employees that leave your organisation in a given period, such as a year. Your employee turnover rate is this number expressed as a percentage. It’s a valuable statistic that informs the vacancies you need to fill and the responsibilities other employees have to handle while you recruit a new replacement for the role. Turnover, typically, does not include internal transfers and promotions in its calculations.

Employees may leave an organisation for a variety of reasons. Typically, employees resign so that they can accept a better job offer that allows them to pursue their career ambitions. Some may seek a new challenge or even a complete change in their career path. Even the most committed employees may desire a different direction. The tough decision helps them pursue personal and professional goals alike. Understanding why employees leave their jobs can help you avoid unnecessary turnover .

The following describes the three types of employee turnover you need to consider:

• Involuntary turnover. This occurs when you terminate an employment contract before it expires. You may ask an employee to leave your organisation due to poor performance, misconduct or market induced layoffs.
• Voluntary turnover. This is when an employee resigns from their post at will. Often the desire for professional development and better compensation drives this decision.
• Attrition. This refers to the end of an employment relationship because of retirement, job elimination or employee death. This differs from turnover because when attrition occurs, a new employee does not fill their position. It addresses a grey area that lies between voluntary and involuntary turnover.

Related: 10 Recruiting Strategies for Hiring Great Employees

Why is it important to calculate turnover rates?

It’s important to calculate turnover rates because the statistic makes inferences about your corporate culture and can inform strategic planning . If you are a small business owner, a high rate of employee turnover can incur significant costs to your company. It’s advisable to monitor your turnover rate to ensure the health of your operations. The following explains how turnover can impact your business operations:

Hiring costs

When an organisation loses a worker, the cost of hiring and training a replacement can be expensive. Your recruitment team will need to allocate a considerable budget to identify the right candidate for the role. The costs of advertising, interviewing and screening potential candidates can add up. For each recruit you hire, you will also need to account for the time they will need to adjust to the new position. Other employees may need to take time out from their own duties to train them. This loss in productivity influences your overall profitability.

Overtime costs

A healthy turnover rate is important because it allows your employees to concentrate on their own workload. When a turnover increases, other employees will have to take over their projects until a replacement arrives. This can incur overtime expenses as your employees try to manage the additional workload. The sudden change in responsibilities may also impact the quality of their work.

Impacts morale

When a valued team member leaves, it’s only natural for your employees to miss them. If this is a regular occurrence, employees will begin to feel the burden of the extra workload. The stress can impact their motivation and the productivity of your business. A high turnover rate can also damage the reputation of an organisation. Highly skilled professionals may avoid applying for jobs with your company and your public image may suffer too.

Related: Employee Satisfaction Surveys: What They Are and Why They’re Important for Your Business

Average employee turnover rates

The average turnover rate in the UK is approximately 15% per year. However, this varies from one industry to another. The industries with the highest turnover rate include retail, media, call centres and construction.

The industries with the lowest turnover rates include accountancy, education and the public sector. While these are not necessarily less stressful roles, these professionals often have more flexibility around their work schedule, leading to greater reports of job satisfaction.

How to calculate turnover rates

Most companies calculate turnover rates annually. However, some employers may prefer to calculate turnover rates over a monthly or quarterly time period. This helps them monitor their turnover rate more precisely.

The following describes two common methods of calculating your company’s turnover rate:

Turnover calculation

The following is a three-step guide on how to calculate your employee turnover within a set time frame:

1. Calculate the average number of employees

Begin your calculation by finding the average number of employees within a predetermined time period. To do this, use the following formula:

• Average number of employees = (Number of employees at the start + Number of employees at the end) / 2

2. Work out your turnover statistic

Calculate the number of employees who separated from the company during that time period. Divide this result by the number you got in the previous step, the average number of employees within that time frame. Here’s a formula to describe this calculation:

• Turnover statistic = Employees who left / Average number of employees

3. Display your result as a percentage

Multiply your result from the previous step by 100 to get your final turnover rate. It should look like this:

• (Employees who left / Average number of employees) x 100

Here’s an example to give you a better mental picture of how to calculate the turnover rate for a fixed timeframe:

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.

First, calculate the average number of employees during the month of march:

30 + 35 = 65

65 / 2 = 32.5

Next, divide the number of employees who left by the result you got in the previous step:

3 / 32.5 = 0.0923

Finally, multiply your result by 100 to get the turnover rate:

0.0923 x 100 = 9.23%

First-year turnover rate

Calculating the first-year turnover rate for new hires can help alert you to any problems in your employee onboarding process. It’s a simple calculation that compares the new hires that left your company to your long-term employees who recently resigned too. Follow the steps below to calculate the first-year turnover rate:

1. Determine the total number of employee separations

Find the sum of the number of new hires that left the company and the number of current employees that left the company within a 12-month time period. This is essentially the total number of employees that resigned either voluntarily or involuntarily.

2. Work out your first-year turnover statistic

Divide the number of separated employees who worked at the company less than one year by the number of all separations. To do this, use the following formula:

• First-year turnover statistic = Number new hires who left within less than one year / Total number of separations

3. Display your result as a percentage

Multiply your result from the previous step by 100 to get your final first-year turnover rate. It should look like this:

• First-year turnover rate = (Number new hires who left within less than one year / Total number of separations) x 100

Here’s an example to help you calculate the first-year turnover rate:

Example: During the 2019 fiscal year, five new hires left the company and seven employees left the company.

First, determine the total number of employee separations. From the case study above, we can see this number is seven.

Next, divide the number of separated employees who worked at the company less than one year by seven, the total number of employee separations:

5 / 7 = 0.7143

Finally, multiply your result by 100 to get the first-year turnover rate:

0.7143 x 100 = 71.43%

Tips for reducing employee turnover rates

It’s important to track your employee turnover rate so that you can intervene and reduce the turnover rate before it can impact your business operations. Timely intervention can also lead to cost savings for the future. Here are some tips to help you maintain a healthy turnover rate:

Hire the right candidates

Give your recruitment team sufficient time to find and hire candidates who are most likely to integrate with your team and company culture. The professionals you hire should not only be qualified for the role but also demonstrate resilience and adaptability skills. Use behavioural questions in an interview to find out how candidates will react in certain situations. A strategic hiring process will help you hire higher-quality professionals.

Offer a competitive salary and benefits package

Employees often leave jobs for a better job offer. So, having an attractive compensation package will help you attract highly skilled professionals. If you offer competitive perks, employees are also more likely to think twice before switching to another employer. Fair compensation also positions you as an ethical employer. It conveys integrity and compassion, qualities that professionals value during their job search.

Recognise employees who perform well

Your employees need encouragement and recognition. Write an appreciation letter or compliment them to express your gratitude. Reward quality work so that employees motivate themselves to continue performing to a high standard. The goal here is to create a positive work environment. This way employees will want to continue working in your company.

Promote training and development programs

Professionals stay in organisations when they feel they are growing. As an employee, their career ambition is to be a future industry leader. Address this need with training and development programs that target skills and knowledge enhancement. Employees want to perform better on the job. Therefore, they will welcome workshops that promote self-development. This not only helps you to retain your top performers but also generates a more proficient workforce.

Provide opportunities for career advancement

Often employees resign from companies because of a lack of career advancement opportunities. Implementing a clear promotion pathway can encourage them to commit to your organisation for the long term. Remember to provide your employees with challenges to renew their interest in their role. Allow them to use critical thinking skills to approach novel circumstances. This will help them grow into more capable professionals, who are ready to take on more complex responsibilities.