A LinkedIn poll released in 2023 indicates that 93% of companies are anxious about their workforce commitment levels. This concern isn’t surprising, as elevated employee migration often results in diminished productivity and revenue loss.
According to the Society for Human Resource Management (SHRM), it costs an average of about $4,683 to replace a worker. This implies that hiring new personnel is an expensive affair.
As an HR head, you should know the employee turnover rate in your organization. This blog outlines how to compute it and reduce it effectively.
The staff or employee turnover rate is the percentage of employees leaving your organization over a certain period (annually/quarterly).
High employee turnover may point out issues related to recruitment strategies or management practices. This makes it important to calculate your turnover rate.
A low turnover signals a stable and healthier workplace. Monitoring this metric helps recognize and address trends before they affect turnover rates. It helps increase workforce satisfaction and build a stronger employer brand.
Voluntary turnover occurs when a worker leaves the organization. It may occur due to job discontent, personal circumstances, or better employment opportunities.
For the HR department, this turnover signals low staff engagement or poor career development programs.
On the other hand, involuntary turnover happens when an organization dismisses an employee for underperformance, layoffs, misconduct, or behavioral issues. Though essential, excessive involuntary turnover can be morale-crushing and create uncertainties among staff.
It’s important to track both types separately, as this helps identify their sources and develop targeted strategies to reduce unwanted attrition.
Staff turnover has a direct impact on your organization’s success. Here’s why reducing turnover should be a priority:
It takes recruitment fees, training costs, and productivity losses to replace an employee. According to Edie Goldberg, the cost can be 3 to 4 times the employee’s salary.
If you retain your existing employees, this money can be spent on improving your firm’s performance.
There’s instability and uncertainty among colleagues when employees leave frequently. This lowers morale among remaining staff and even triggers questions on job security. Conversely, a stable and satisfied workforce leads to long-term commitment.
When skilled workers switch jobs, their responsibilities are assigned to other team members, lowering productivity. Furthermore, recruiting new personnel requires time, which results in an under-resourced team and affects project timelines.
Customer service suffers when turnovers rattle your team. Distracted employees may not provide the level of service your customers expect, causing dissatisfaction. You cannot maintain good customer relationships without a motivated workforce.
Here are 3 simple steps for calculating the employee turnover rate:
Start by collecting the following information:
Include all workers in the calculation except workers on temporary leave or temporary hires. Do not factor in occasional workers in the labor force because they would inflate employee turnover rates.
Next, calculate your average number of workers using this formula:
Average No. of workers = [(No. of workers at the beginning + No. of workers at the end)/2]
For instance, let’s assume your company had 30 workers at the beginning of Q1 and 50 at the end of it. Moreover, 5 workers left during that period. Your average no. of workers will be [(30+50)/2] = 40.
Remember, including temporary shifts in staff numbers will not reveal the correct turnover rate.
Next, divide the number of workers who left by the average number of workers. Then multiply the result by 100 to calculate the final turnover rate percentage.
The staff turnover rate formula is:
Staff Turnover = [(No. of workers who left/Average No. of workers)*100]
Following the same example, your quarterly employee turnover percentage would be: [(5/40)*100] = 12.5%
The turnover rate is more than just a number or metric. Answer the following questions to understand your staff turnover better:
Identify the workers who are leaving. Are they the top performers or the new hires? If your senior employees are leaving, your organization’s performance will lag. New employees leaving can signal a poor work culture.
Calculating turnover rates by demographics, departments, or other organizational segments can help determine specific teams or areas experiencing higher staff turnover. This information allows for tailored support and interventions.
Find out if there is any pattern in employee departures. For example, if employees are quitting right after or before the annual appraisal, they might be dissatisfied with your increment process.
Analyzing turnover trends over time can be beneficial. This can reveal possible correlations between staff turnover and factors like industry trends, seasonality, and organizational changes.
Understanding why your workers are leaving improves human capital management. Conducting exit interviews and gathering employee feedback illuminates the underlying reasons driving turnover.
It can uncover hidden issues related to the work environment, compensation, management practices, career growth, and other concerns. This proactive approach allows you to address pain points and implement effective employee retention strategies.
As per the 2023-24 US survey, the average rate of voluntary employee turnover rate in various industries stands at 13.5%. This is an improvement from 24.7% recorded in 2021–22. If your turnover is above this rate, it indicates higher-than-average employee departures.
Turnover rates vary across regions and industries. The temporary labor supply and cyclical demand patterns make certain industries like retail and manufacturing experience high level of turnover.
To ascertain whether staff turnover in your organization is low or high, taking into account industry standards is necessary. Comparisons also need to be made with similar enterprises to check if the rate is normal or abnormal.
Let’s take a look at the recent staff turnover rates among vulnerable industries:
Some staff turnover drivers are out of one’s control, like when staff members move or retire. However, in many instances, negative worker experiences are the major cause.
Generally, workers depart due to the following reasons:
A company turnover rate is high due to bad leadership and management. Insufficient guidance from seniors or managers and unjust decisions lead to discontentment and ambiguity among employees. Workers have no choice but to seek better management elsewhere.
Aspiring employees value the potential for advancement or professional development. When they sense stagnation in their duties or restricted upward mobility, they are more likely to move on to better opportunities that match their career objectives.
Work overload, long hours of work, and instability of private life act as key drivers for employees to quit. Burnout caused by a lack of healthy work-life balance usually makes workers move to other places where they will not be subjected to job strain or labor pressure.
Too little pay and poor benefits are significant factors that fuel voluntary staff turnover. Employees who feel undervalued or underpaid are more likely to explore other options with better financial prospects.
Unsupportive or toxic work culture is a key factor influencing employee attrition. A negative work atmosphere with poor recognition and weak communication erodes job satisfaction. It pushes employees to seek more positive environments.
HR personnel can implement various employee retention strategies to address frequent staff departures. Here are five strategies to get you started on fostering a supportive work environment while encouraging lower staff turnover:
Onboarding is key to ensuring a new worker’s success. It sets the stage for long-term employee retention by helping new employees understand the company culture and make important connections with stakeholders.
You can lower turnover rates by leveraging HR software to guide new hires through the onboarding process. This ensures that employees continually receive relevant information during the initial period to help them acclimatize. Effective onboarding is all about giving new workers the tools that help them thrive in their roles.
Employer and employee requirements must align when it comes to professional development. Ambitious workers expect their company to help them acquire new skills to move into new roles or stay relevant in older ones.
A 2023 survey by the World Economic Forum reported that 6 in 10 employees will require training before 2027 to address increasing skills gaps.
Investing in employee development and training is a great incentive for workers to continue with a company while helping organizations prepare for the future.
Engaged workers have increased productivity and higher retention rates due to improved well-being and reduced absenteeism. Developing an atmosphere where employees feel valued and have a sense of psychological safety is vital to engagement and retention.
Offering flexible work arrangements, recognition programs, feedback loops, and employee wellness initiatives can boost staff engagement and encourage them to stay committed to your company.
Did you know that benefits or pay were the primary reasons workers quit in 2023? Inflation has made this more challenging.
Employees who don’t get cost-of-living appraisals consider it a pay cut, leading to dissatisfaction with the employer.
Regularly review compensation based on a market analysis to ensure your workers are paid fairly. Offer expanded benefits like healthcare, tuition reimbursement, and retirement plans to retain top talent. Survey your workers to discover what benefits make a difference.
Company culture comprises the acceptable behaviors, shared beliefs, and general attitudes of the employees. There’s no one “right” kind of workplace culture when it comes to retention.
HR leaders must maintain a consistent culture and see if workers buy into that culture. Being treated fairly and feeling accepted for your true self are vital to worker retention. Companies that develop a sense of community among the employees improve the worker experience and retention.
Ironically, turnover is part of a healthy organization lifecycle. The best way to find out if your turnover rate is “healthy” is to compare it with the average rate within your industry.
As discussed earlier, employee turnover differs by industry and company size. Generally, healthcare and hospitality tend to have higher turnover rates.
If your staff turnover is higher than your industry average, it suggests ineffective management practices.
Monitor on your rates and understand how your organization compares to others. This can help you fine-tune your future hiring strategy and ensure your rates stay within healthy industry ranges.
US staff turnover rates have been continuously decreasing over the past few years. While the 2022 survey revealed an average turnover rate of 24.7%, it dropped to 17.3% in the 2023 survey.
The current year’s survey reported an average of 13.5%. The US chemical industry has the lowest staff turnover rate at 9.1%. The wholesale and retail industry reported the highest staff turnover rate of 24.9%.
Following such current trends can help you chalk out strategies for better employee retention.
Monitoring and reducing the employee turnover rate is crucial to maintaining organizational stability and ensuring long-term success. Creating a retention-first culture allows you to develop a productive and motivated workforce that drives business results.
As an HR leader, you must lead this transformation by focusing on employee development and strengthening retention strategies.
This is what Engagedly, a flexible and connected employee retention platform, can help you with. Our AI-based talent management software seeks to streamline your HR processes, close skill gaps, and foster professional development. With Engagedly, you can empower your team and pave the way for success.
Initiate the journey towards a more engaged workforce today using Engagedly’s talent management system.
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