Now could be the most important time ever to calculate your turnover rate.
When you understand your turnover rate, you’ll be better equipped to find out who’s leaving, and more importantly, why. Then you can take steps to prevent turnover and the costs associated with it.
In here, we’ll help you calculate your turnover rate and give you practical tips on how to use the knowledge to improve retention.
What is employee turnover rate?
Your employee turnover rate is the percent of employees who leave the company within a specific time period. You might calculate it by month, quarter or year.
You can include voluntary resignations, dismissals and retirements in your calculations. Most organizations don’t include internal movements such as promotions, demotions or transfers in their employee turnover rate calculations.
Depending on the depth of the detail you want, you can even focus in on certain departments, levels or demographics, rather than across the entire organization.
In some instances, you might want or need to break it down to just assess your involuntary losses. On the other hand, you can determine voluntary losses so you can see how events such as retirements or decisions to leave the workforce affect overall turnover rates.
What is a good rate?
HR leaders want to keep a low turnover rate. But what’s the ideal? Most experts say it’s 10%. You want some attrition, ideally from the bottom performers.
But the Bureau of Labor Statistics shows turnover rates are in constant flux. At one time, the national average was as high as 57%! But in the years prior to the COVID-19 pandemic, the national average hovered below 45%.
Turnover rates change from month to month, year to year, industry to industry.
For instance, according to an industry specific report from the BLS, government agency turnover rate is around 25%, education and health services is around 50%, retail is about 70% and hospitality is well above a 100% turnover rate.
So what’s most important to know is a good turnover rate for your organization.
To help, you’ll likely want to take the types of turnover into consideration. Here are the three most relevant.
This is your turnover. You let employees go because of poor job performance, excessive or unjustified absenteeism or serious workplace rule violations. You have good reason to terminate employees.
Involuntary turnover usually also includes layoffs due to changing business needs, restructuring or decreased demand.
This is employee-prompted turnover. Employees choose to leave.
They might not be satisfied with their work or the organization. Some might find a more appealing position, company or benefits elsewhere. In other instances, employees might move out of the area, pursue more education or decide to leave the workforce entirely.
This is a natural form of turnover. Employees retire. Some might transfer within the organization, leaving you with an open position. In other cases, employees move up (or down) the chain of command, taking a promotion or demotion that contributes to turnover.
For the most part, this is healthy turnover – and some HR pros don’t even factor it into their turnover data.
How to calculate
To calculate your turnover rate, you only need three pieces of information (that you probably have at your fingertips).
You’ll need the number of employees on the first day of your analysis, the number of employees on the last day of your analysis and the number of separations (involuntary and voluntary turnover) over that same period of time.
So, if you want to find the annual turnover rate, you’d need the number of people employed on January 1, the number of people employed on December 31, and the number of employees who voluntarily or involuntarily left between those dates.
Or, if you wanted a monthly turnover rate, you’d pull the number of people employed on, say, May 1, the number of people employed on May 31, and the number of employees who left during the month of May.
Here’s a better look at the formula.
Add your beginning and end headcounts together and divide by two to determine your average number of employees:
Divide the number of employee separations by the average headcount for your quotient. Then multiply the quotient by 100 to get your turnover rate:
Let’s do an example. Ajax Corp. had 200 employees on January 1. It was a busy year. They filled 86 positions and experienced 24 separations. On December 31, Ajax Corp. had 262 employees.
Average number of employees: 200+262=462 /2=231:
Number of separations: 24
Turnover rate: 24/231=.103 x 100 = 10.38%
That’s an example for one year. You can plug numbers in for a month or quarter, if you prefer.
You can get more specific, too, perhaps looking at the annual turnover rate for just front-line employees or first year managers. Or you might want to look into annual turnover rate differences between genders. You could dig into turnover rates in divisions or business units. The same formula works for any population you want to analyze.
Why turnover rate is important
Knowing your employee turnover rate – that is, the actual percentage – is important, but it’s just a starting point.
When you dig deeper after you calculate your turnover rate, you can often assess other things critical to HR: company culture, recruiting efforts, management gaps and successes, training needs and retention strategies.
Plus, your turnover rate details can help you identify commonalities such as the types of employees who leave, which departments or levels are hit worst and least with turnover and how long employees generally stay. From there, you can identify who or what drives turnover and develop strategies to overcome it.
When you gather granular data – such as hierarchical, gender and/or division turnover rates – you can likely identify deficiencies in recruiting, hiring, management styles and retention strategies. Then you can adjust to fix them and improve your turnover rate.
The cost of high turnover rates
Of course, turnover – and more importantly, the problems behind it – come at a cost to organizations.
The actual costs vary by industries and positions. And research on the subject varies, too. But generally, you can anticipate the cost to replace employees is:
- 30-50% of entry-level employees’ salary
- 150% of mid-level employees’ salary, and
- 400% of specialized or high-level employees’ salary.
The actual costs involved in turnover:
- Recruiting: The cost to hire new employees which includes advertising, interviewing, screening and hiring, and
- Onboarding: The cost to bring on new people, which includes orientation, training, oversight and management time.
Recognize the hidden costs, too:
- Employee morale. It typically takes a hit when colleagues leave
- Institutional knowledge. It’s the worst when veteran employees leave. They take best-practices, insider tips and potentially confidential information with them
- Productivity. It doesn’t just drop because you lost a worker. Employees who have to pick up slack will lose steam eventually, and
- Cultural changes. Good employees are often the glue that keeps teams united. When they leave, others ask, “Why? What’s wrong here?”
For perspective on the cost of turnover, consider these three factors: who, when and why. More specifically:
You need to know who leaves because if it’s top performers walking, company performance is in jeopardy, too. Whereas, if low performers leave, your organization might benefit from improved employee morale and productivity. Also, if you lose good employees, you need to look for management issues. If you lose not-so-good employees, you more likely need to look for recruitment issues.
It’s important to know when employees leave in their tenure. It can be telling. For instance, if turnover is high in the first year, you might have recruiting and expectation misalignments. That’s less costly to fix – perhaps with changes to onboarding – than fixing issues that affect veteran employees who walk away with greater skills and knowledge.
It’s the greatest question of them all. Why do employees leave? As you find out the reasons – through exit and stay interviews – you can change management and operational strategies to retain employees rather than swallow turnover costs.
Strategies to improve retention
HR can take steps to keep the turnover rate low. Here are four proven strategies:
- Relentlessly calculate your turnover rate. You can’t fix turnover issues if you don’t know where they are. Calculate monthly, yearly and year-over-year turnover rates. Compare departments, divisions, levels, specific groups, etc., to identify problems in people or processes early.
- Host more stay interviews. HR leaders or front-line managers will want to talk with high-performing and high-potential employees at least quarterly to find out what’s important to them, what they love and what they hate about their employee experience.
- Fine tune your onboarding process. The first months on the job most often set the course for success (or turnover). You can improve retention by meticulously refining and personalizing the onboarding process. Give front-line managers guidelines, tools and resources to keep close tabs on new employees and their experience. Get feedback from new hires at a regular cadence so you know if expectations aren’t aligned so you can fine tune the situation.
- Publicize and capitalize on growth. Employees will stay when they see opportunities to grow and are confident they can succeed in larger roles. Maintain an up-to-date database of job and responsibility-expanding opportunities, plus learning resources, for employees to move ahead.