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Employee turnover rates are a crucial metric for organizations to monitor, as they show how frequently employees leave the company. Beyond just tracking numbers, understanding turnover rates requires identifying the root causes of employee departures and developing effective retention strategies in response.
In this article, you’ll learn the common reasons for high employee turnover, how to develop an effective formula to measure it, and actionable strategies to mitigate it. By analyzing turnover rates, organizations can proactively address underlying issues and improve employee satisfaction and retention for the long term.
How to calculate employee turnover rate
To calculate employee turnover, start by identifying the number of employees who have left your organization during a specific period, such as monthly or annually. Next, divide this figure by the average number of employees during that same period. Finally, multiply the result by 100 to get the turnover rate as a percentage.
Let’s look at a sample formula as well as go through the five steps to calculating turnover rate.
Examples of employee turnover rate equations
Annual turnover = [(# of employees who left / average # of employees) * 100]
For example, if the average number of employees is 90 and 6 employees left during the year, the turnover rate would be:
(6 / 90) * 100 = 6.67%
Steps to calculate turnover rate
1. Set a timeframe to measure
The first step to accurately calculating turnover rate is setting a timeframe to measure it. Timeframes can vary depending on an organization’s needs, ranging from monthly, quarterly, to annually. By selecting an appropriate timeframe, an organization can identify patterns and trends in employee turnover.
For example, while calculating turnover rates monthly can help track short-term trends, an annual calculation could provide insight into long-term retention patterns.
2. Find the average number of employees during that timeframe
Next, record the number of employees at both the start and end of your chosen timeframe. By adding these two figures together and dividing the sum by two, you’ll get the average number of employees for that period.
For example, if an organization had 85 employees at the start of the quarter and 95 at the end, the average would be (85+95) / 2 = 90.
3. Discover the number of employees who left during the timeframe
To find the number of employees who left your company within a timeframe, review company records for both voluntary and involuntary employee departures, encompassing terminations, layoffs, resignations, and retirements.
For example, if five employees quit their jobs while one was terminated this quarter, the total number of employees who left would be six.
4. Divide employees who left by average employees with timeframe
After determining the number of employees who have left your company, divide that figure by the average number of employees during the same period.
For example, there were six departures, and the average number of employees was 90, the formula at this stage would look like: 6 / 90 = 0.067.
5. Convert the turnover rate into a percent
Finally, multiply the result of dividing the number of employees who left by the average number of employees by 100.
For example, 0.067 x 100 = 6.7%.
Expressing the turnover rate as a percentage makes it easier to interpret and compare turnover rates across various periods, providing a clear view of employee turnover trends over time.
Analyzing your employee turnover rate
What does your turnover rate tell you?
So now that you have your employee turnover rate, what is it communicating to you?
Your company’s turnover rate offers insight into workforce dynamics. A high turnover rate may signal job dissatisfaction and the need for organizational change, while a low turnover rate typically suggests a stable and healthy workforce.
For example, high employee turnover rates could reveal factors such as:
- Inadequate annual salary
- Lack of career development
- Poor management
- An unhealthy work environment
While low turnover rates might be linked with:
- Employee satisfaction
- Alignment between employee expectations and role
- High morale and engagement
- Competitive compensation
Ultimately, each organization faces unique factors that can influence an employee’s decision to leave. Which is why you should look to your turnover rate as a valuable starting point when investigating the root causes behind employee departures.
Common causes of high employee turnover
As mentioned before, some of the common reasons for high employee turnover could include:
- Poor management: Where employees may not feel acknowledged, valued, or supported by their managers
- Lack of career advancement: An unclear career path within the organization could lead to job dissatisfaction, and ultimately turnover
- Inadequate compensation: A company that offers below-market compensation may struggle to retain employees
- Toxic workplace culture: An environment rife with discrimination and lack of inclusion could cause employees to seek out healthier environments
Industry-specific turnover rates
Examining industry-specific turnover rates is essential when assessing workforce stability and comparing your organization’s retention efforts against industry benchmarks. These rates can also reveal specific trends and challenges within your sector, helping organizations tailor their retention strategies.
Here are a few turnover rates for key industries:
- Financial institutions: The Economic Times reveals that employee attrition within the financial services segment was at 25% while life insurance had the highest attrition rate at 47%. This may be due to the high number of entry-level roles in sales and customer service, where new hires may leave for higher compensation.
- Retail: Research from McKinsey reveals that turnover rates for frontline retail workers have long hovered around 60%. This is likely due to factors such as low wages, seasonal work, and inconsistent schedules.
- Professional services: According to research by Statistica, professional services organizations around the globe report an employee attrition rate of 12.5%. This is likely due to high workloads that may lead to burnout, and ample career advancement opportunities in the industry.
Impact of high employee turnover rates
1. Financial costs
High employee turnover rates can be costly for organizations, encompassing fees related to recruitment, hiring, and training new employees. For example, replacing an employee can range from 40% to 200% of the employee’s salary – depending on the role.
High turnover also results in lower productivity, as new employees need time to settle into their roles and learn the business. Furthermore, employees who are witness to high turnover are likely to feel disengaged, which can negatively impact morale and possibly lead to more turnover.
2. Effects on workplace culture
Beyond financial costs, high turnover can also negatively impact workplace culture as it disrupts team morale and cohesion.
For example, when top performing employees leave their roles, they take their expertise with them and leave gaps that can be difficult to fill. Their work might be redistributed among teammates, who might feel burdened by a heavier workload – which could lead to frustration or burnout.
Also, turnover can also spark a chain reaction and influence more employees to plan their departure. Furthermore, high turnover could negatively impact an organization’s brand and make it more difficult to attract and retain top talent.
3. Long-term business impact
High turnover can also have a detrimental long-term impact on business, affecting organizational growth. Constant turnover may erode institutional knowledge over time, while also making it difficult to maintain consistency in strategy, operations, and leadership.
For example, if key employees frequently leave, companies may have a hard time maintaining continuity in long-term projects and customer relationships – which can damage the company’s performance and employer brand in the long run.
Strategies to reduce employee turnover rate
Reducing employee turnover requires a proactive approach focused on improving employee engagement and retention. It could include fostering a positive workplace culture that rewards and recognizes the good work that employees do and facilitating professional growth within the organization.
Below, we’ll explore these two strategies in further detail.
1. Employee engagement and retention initiatives
Organizations can reduce employee turnover by cultivating a supportive and appreciative work environment where employees feel genuinely valued.
For instance, implementing engagement and retention initiatives like a rewards and recognition program can boost morale and reduce the likelihood of employees seeking other job opportunities. Also, investing in an employee wellness program, which may include free gym memberships, work-life balance resources, and mental health support, is a way to show commitment to your employee’s holistic health.
When organizations recognize and act on the connection between well-being and engagement, they can create a high-performing work environment where employees are less likely to experience burnout.
2. Ongoing professional development
Investing in ongoing professional development is another way to reduce employee turnover. By equipping employees with opportunities to learn new skills, advance their careers, and achieve upward mobility within the organization, they are more likely to feel engaged and loyal – knowing their company is committed to their professional growth.
Additionally, ongoing professional development prepares employees for leadership roles, reducing the need for external hires and saving the organization money typically spent on recruitment and hiring. It also boosts retention by creating clear career progression paths within the organization.
Cultivate a committed, engaged workforce with Achievers
Fostering a healthy, stable, and positive company culture is key to creating a workplace where top talent wants to stay for the long term. The Achievers Experience Platform offers a comprehensive solution to help organizations reach their employee retention goals, delivering a powerful combination of enhanced engagement and organization-wide recognition.
Achievers Recognize powers meaningful recognition programs that boost morale, cultivate a culture of appreciation, and celebrate the good work that your employees do. In addition, Achievers Listen empowers your organization to take the pulse on employee job satisfaction by gathering and taking timely action on feedback. Armed with these tools, your organization will be able to develop effective employee retention strategies and build a more engaged and committed workforce.
FAQs about employee turnover rates
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