Employee Retention: What Does Your Turnover Rate Tell You?

What is employee turnover?

Employee turnover is the loss of talent in the workforce over time. This can take many forms of employee separation, including layoffs, location transfers, resignations, retirements, terminations and even deaths.

Employee turnover should not be mistaken for employee attrition. Attrition is the loss of employees through a natural process, such as resignation, retirement or personal health issues. However, unlike with traditional turnover, these jobs will remain unfilled when the employee leaves.

Employee turnover is the voluntary or involuntary loss of an employee who leaves an open position that your business will need to fill. Turnover can be due to the same reasons as attrition, but it’s generally viewed negatively and as a burden for employers.

There are two standard types of employee turnover:

1. Voluntary: This refers to employees who willingly leave their jobs.
2. Involuntary: This refers to employees who have been laid off or fired or whose employer has terminated their contract.

How do you calculate your employee turnover rate?

To figure out if you have an employee turnover problem, you first need to determine your turnover rate. When calculating your turnover rate, you need to look at a set period of time — usually one year. Sue Andrews, senior human resources (HR) professional and fellow of the Chartered Institute of Personnel and Development, says that to calculate turnover, you’ll need three separate figures:

1. The number of employees who left in the time period, including both voluntary and involuntary leave
2. The number of employees at the beginning of the period
3. The number of employees at the end of the period

To calculate the average number of employees, you take the number of the employed at the beginning of the period and add it to the number of the employed at the end of the period. Dividing this figure by 2 will give you the average employee count.

You can then calculate your turnover with this simple formula:

Turnover = (Employees who left ÷ Average number of employees) x 100 

What’s an example of calculating employee turnover rate?

To calculate employee turnover rate, you should review which employees were not working for the month and the reason for their absence. As an example, although you should consider any employees out on maternity leave or disability, they should not be used in your formula for an employee turnover rate.

For example, in July, say you had two employees retire and two employees quit. Your business has a total staff of 180 employees. Therefore, your employee turnover rate for July is 2.2 percent. Use the same formula to calculate annual turnover rates.

What is the average employee turnover rate?

The SHRM Benchmarking Human Capital Report found that the average annual employee turnover rate, including both voluntary and involuntary turnover, was 30 percent and that less than 50 percent of organizations had a succession plan in place — be it formal or informal. While organizations should aim for a 10 percent employee turnover rate, the national average in 2021 was slightly more than 47 percent. Certain industries report higher employee turnover rates due to the nature of the job. Foodservice, accommodation, retail, entertainment and construction have some of the highest employee turnover rates, according to Zippia.

Why should a company track its employee turnover?

Your business should monitor and track its employee turnover to gauge how attractive your company is to employees and to help you improve areas that may be causing employees to leave your company.

A high turnover rate can have a negative impact on your bottom line if you aren’t prepared for it, according to Ellen Mullarkey, vice president of talent advisory solutions for Messina Group.

“If you know that you have to hire several times a year, you should set aside enough time and money to do so,” Mullarkey said. “It’s not cheap, so you have to plan. Tracking your turnover rate can also let you know if your company is a good company to work for.”

Marc Prosser, CEO and co-founder of Choosing Therapy, believes there is both good and bad employee turnover. He said these are the differences:

• Good employee turnover: With good employee turnover, you can include employees who leave the company for a major promotion and employees who were on performance improvement plans. You want to be a company where people can learn and advance their careers. Your reputation as a business where workers can learn new skills and become more attractive to future employers will help your recruiting efforts.
• Bad employee turnover: Bad turnover is when moderate- or high-performing employees are leaving for lateral positions. This means you have a bad work environment or are paying under market value. If your bad turnover rate is more than 15 percent per year, you should take a close look at your compensation and company culture.

Is there a tool to help you track this rate?

While some businesses choose to track their employee turnover rate manually, others opt for top HR outsourcing services or HR software.

Highly rated HR software can help your business track its staff turnover, according to Bob Teasdale, managing director at Myhrtoolkit.

“For example, our system generates an exportable staff turnover report that automatically calculates staff headcount at the end of each month and provides a turnover percentage,” Teasdale said.

Most HR software helps you track all employee information, including hire dates, leave requests, training, payroll and benefits administration.

When making hiring decisions during the turnover process, you may want to consider an applicant tracking system that allows you to track and manage all applicants electronically throughout the employee recruitment process.

How do you analyze your turnover rate?

Regardless of the tool you use, it’s crucial for your business to make the purpose of its turnover analysis abundantly clear. Generally, employee turnover is an indication of your overall employee satisfaction: Low employee turnover is a result of high employee satisfaction.

Your goal should be to make sure employee morale and satisfaction are growing within your workplace constantly. Therefore, it’s best to use a benchmark turnover rate to see if your rate improves yearly. You can also compare your turnover rate against national and industry averages.

While the normal rate of employee turnover varies by industry, an effective retention plan can help you retain talent and reduce turnover costs, no matter what industry you’re in.

What does your turnover rate tell you?

Your employee turnover rate tells you your risk of an employee leaving and your opportunities for retention when new employees come on board. This data also helps you see if your compensation is on par with the market, what your employees’ work environment is like and how they view future opportunities in your business, according to Josh Dane, owner of Dane Salon Group.

“We analyze employee turnover based on our estimates of our competitor turnover levels, as well as tracking period to period,” Dane said. “If turnover is increasing, we need to figure out what is causing this.”

It’s no secret that high turnover is expensive for any business. Reducing employee turnover costs begins with determining your direct and indirect costs.

Belinda Wee, associate professor at the Husson University School of Business and Management, said direct costs include the replacement of employees who left, such as the costs of background checks and training, while indirect costs are not as easy to quantify. One example of an indirect cost is the cost of finalizing paperwork when an employee leaves, which can include benefit paperwork and unemployment documentation.

“Losing an entry-level employee costs a business about 50 percent of that employee’s annual salary,” Wee said. “Losing a technical or senior-level employee costs a business about 125 percent of the employee’s annual salary to the business.”

Improving your retention rate begins with refining your employee onboarding process, evaluating the employee experience at your company and finding opportunities to enhance your company culture. These preventive measures can produce the yearly employee turnover rate your business wants and reduce the associated costs.

What are the top reasons for employee turnover?

You should evaluate your company culture if your employee turnover rate is higher than normal. High turnover figures are a red flag that will prevent you from securing the best talent in the field.

Lack of career opportunities and advancement

High turnover could indicate that employees are not finding enough opportunities for advancement in your company. If employees feel stuck in a dead-end job, they will look for a better position. Employees also prefer companies with career training programs that allow them to add new skills and build their resumes. Training opportunities can also increase their confidence in handling their current job duties.

Poor management

Another reason for high employee turnover is poor management. If managers are difficult or tend to micromanage the employees, workers may look elsewhere for a position. Also, if a leader’s management style is to be critical instead of encouraging, this may create a hostile work environment that makes employees want to move on.

Feelings of being overworked

The work environment and how your company values employee time also contribute to turnover rates. For instance, if employees feel overworked or are frequently asked to commit to long shifts, they may start looking for other positions.

What are some tips on how to improve your employee turnover rate?

Open communication and recognition

Constructive feedback and recognition for a job well done reduces turnover. Good communication between employees and employers makes a big difference in overall job satisfaction. The employee wants recognition for doing well on the job. Incentives could also act as an aid to reduce employee turnover rate. Employee of the Month, sales awards and bonus checks are just a few examples of incentivizing a job at your organization.

Training and career development

Look for training opportunities for your employees. Although onboarding may already involve some training, consistently offer programs that expand their knowledge and skill sets. Tech training is especially important in today’s climate since hard skills are the most desirable on resumes.

Flexible schedules

Flexible schedules tend to help employers reduce their employee turnover. Many employers find that paying for work produced instead of hours worked increases overall employee satisfaction. Another way to offer flexible schedules is to consider allowing employees to work remotely if job duties allow for it.

Miranda Fraraccio contributed to this article. Source interviews were conducted for a previous version of this article.