What is employee turnover?

Employee turnover is the number of employees who leave your organisation in a given period, such as a year. Your employee turnover rate is this number expressed as a percentage.

Turnover can often be 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 does not usually include internal transfers and promotions.

Employees may leave an organisation for a variety of reasons. Employees might 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. Understanding why employees choose to leave their jobs could help you avoid unnecessary turnover. Employee satisfaction surveys are a valuable tool to understand any potential turnover issues your company may be having.

The following are the three types of employee turnover:

• 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 willingly. Often, the desire for professional development and better compensation drives this decision.
• Attrition: this is the end of an employment relationship due to retirement, job elimination or employee death. This differs from turnover because, when attrition occurs, a new employee does not fill their position.

Why is it important to calculate average turnover rates?

Calculating turnover rates helps you evaluate your corporate culture and improve strategic workforce planning. If you are a small business owner, a high rate of employee turnover could incur high costs to your company.

It may be advisable to monitor your turnover rate to ensure the health of your operations. Your turnover rate is an important metric for assessing business performance and making informed management decisions. Turnover can impact your business operations in many ways:

Recruitment costs and operating expenses

When an organisation loses an employee, the cost of recruiting and training a replacement can be expensive. Your recruitment team may 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 person you hire, you may also need to account for the time they might need to adjust to the new position. Other employees may need to take time out from their own duties to train them.

Turnover and net profit

This loss in productivity can influence your business’s net profit. It can do this by:

• Slowing down project progress and creating delays
• Reducing total sales if your retail services team is short-staffed
• Loss of specialist skills and team knowledge

Overtime costs

A healthy turnover rate is important because it allows your employees to concentrate on their own workload. When turnover rises, remaining staff must manage the departing employee’s projects until you hire a replacement.

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, employees could 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.

Average employee turnover rates

Average turnover rates can be approximately 15% per year. That said, this varies from one industry to another. Industries with high turnover may include retail, media, call centres and construction.

Calculating annual turnover

Most companies calculate annual turnover rates. That said, some employers may prefer to calculate business turnover rates over monthly or quarterly periods. Turnover rates can be calculated for any set period, depending on the business’s needs.

This helps them monitor their turnover rate more precisely.

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

Business turnover calculation

The following is a three-step guide on how to calculate your employee turnover within a set time frame. It is important to clearly define the specific period, such as a month, quarter or year, for which you are calculating turnover, as this ensures accuracy and meaningful comparison.

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 left your company during that time period.

Divide this result by the number you got in the previous step, which is the average number of employees within that time frame:

• 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 as a percentage:

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

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

Example: monthly turnover calculation

On 1 March, a company employs 30 people. On 31 March, the company employed 35 people. During that month, three 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 employees can help alert you to any problems in your employee onboarding process.

It’s a simple calculation that compares the new employees who left your company to your long-term employees who recently resigned as well.

New business owners can particularly benefit from monitoring first-year turnover rates to identify early retention challenges. Follow the following steps to calculate the first-year turnover rate:

1. Determine the total number of employee separations

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

2. Work out your first-year turnover statistic

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

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

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 is as follows:

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

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

Example: During the last fiscal year, five new employees left the company, and seven long-term employees left the company.

First, determine the total number of employee departures. From the case study above, we can tell the number is seven.

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

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.

Improving employee performance through recognition and support can help reduce turnover rates. Here are some tips to help you maintain a healthy turnover rate:

Recruit the right candidates

Give your recruitment team sufficient time to find and recruit candidates who are most likely to integrate with your team and company culture. Hire professionals who are qualified for the role and also demonstrate resilience and adaptability skills.

Use behavioural questions in an interview to find out how candidates may react in certain situations. A strategic recruitment process may help you recruit quality professionals.

Offer a competitive salary and benefits package

Employees often leave jobs for a better job offer, so having an attractive compensation package can help you attract skilled professionals. If you offer competitive perks, employees are also more likely to give more thought before switching to another employer.

Fair compensation also positions you as an ethical employer. It conveys integrity and compassion, which are 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 feel motivated to continue performing to a high standard.

The goal here is to create a positive work environment. This way, employees may wish to continue working in your company.

Promote training and development programmes

Professionals stay in organisations when they feel they are growing. Address this need with training and development programmes that target skills and knowledge enhancement.

Employees likely want to perform their best on the job. Therefore, they may 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

Employees may 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 can help them grow into more capable professionals who are ready to take on more complex responsibilities.

Calculating employee turnover rate can be useful as it helps you identify whether employee engagement is low and whether your employees have enough incentives to stay.

You can increase retention rates by providing opportunities for career progression, training and development and career advancement.