Table of Contents
Table of Contents
What Is Turnover Rate?
Turnover rate is the number of employees who leave your organization over a certain period of time, whether they were terminated (involuntary turnover), resigned, or retired (voluntary turnover). Typically it is measured by a percentage.
How Does Turnover Affect a Company?
Turnover steers a company’s actions towards retaining talent. If a company has a high turnover rate, they will likely put an emphasis on employee retention. Turnover rate affects company morale, the ability to attract talent, and finances.
- Morale. If employees see other employees leaving constantly, it is likely to affect the way they view their job and their overall job satisfaction. On the flipside, if a company has a lower turnover rate and thus better employee retention, employees are more likely to be satisfied as they see their fellow co-workers enjoying their jobs as well.
- Ability to attract talent. The prevalence of social media and the rise of sites like LinkedIn or Glassdoor makes it easier for job seekers to see what a company is like even before they interview. If a company is struggling to retain talent and that is reflected in company reviews, job seekers will see that.
- Financial costs. Bringing on new employees is expensive. The amount spent on recruiting, training, and onboarding adds up for each employee. The higher a company’s turnover rate is, the greater the financial impact on the company.
On average, turnover costs $15,000 for each employee who leaves
Reasons for a High or Low Turnover Rate
There are all kinds of factors that affect your turnover rate. Some of them include company culture, management, and job advancement opportunities.
Company culture has become even more important over the last few years. Due to the Great Resignation following the 2020 pandemic, employees became more picky about the jobs they pursue. Companies with great cultures have an easier time holding on to their employees. According to one study, 72% of employees say that company culture is one of the main reasons they decide to stay at a company. Of employees who left their job only after 90 days of employment, 32% said it was due to company culture.
The way employees are managed has a direct impact on whether they stay at a company. Employees want to be validated and supported by their managers. If you have high turnover, more training for managers may be indicated.
Employees also need to know that senior management cares about them and wants to retain their talent. The Society for Human Resource Management, (SHRM) points out that senior management needs to play a primary role in the retention process. Otherwise, managers and employees will be unsure of how much they are valued by the organization.
Job Advancement Opportunities
Companies that don’t offer job advancement opportunities are more likely to have higher turnover rates. According to SHRM, 29% of employees cite lack of job advancement opportunities as a reason for quitting. In addition to that, 80% of employees don’t think their employer provides job advancement opportunities.
How to Calculate Turnover Rate
Calculate turnover rate by taking the number of employees terminated in a time period and dividing it by the number of employees employed during that time.
Step 1: Determine Time Period
The first step is deciding the time period you want to review your turnover rate. Generally retention rates reflect a full year, but there’s no reason you can’t calculate it by quarter or month.
Step 2: Gather Data
Next, gather the data you want to analyze. This includes choosing whether you are looking at retention for the whole company or by department, the number of employees employed, and the number who left during that time.
Step 3: Analyze the Data
The final step is to calculate the turnover rate by taking the number of employees who left during your chosen period of time and dividing it by the number of employees who were employed at the start of the time period.
An example monthly retention study might look like this: you terminated four employees and one resigned, and 100 employees were employed at the start of the month, so your turnover rate would be .05, or 5%.
How do you know if your turnover rate is high or low? Every industry is different. Call centers, fast food, hospitality, and retail are examples of high-turnover businesses. In general, a 10% turnover rate is considered good for a company; at the time of this writing, most companies fall between 12% and 20%.
One place to look for benchmark reports are SHRM and the Bureau of Labor Statistics (you can also search for Employee Tenure Summary at BLS).
Steps Companies Can Take to Lower Turnover Rate
If you have analyzed your turnover rate and realize that you need to take action to lower it, here are a few steps you can consider.
Step 1: Review the Causes of High Turnover
Any time you are looking for ways to improve your company, you need to understand what is causing the problem—in this case, the causes of high turnover. Are certain departments struggling with a higher turnover rate? What actions need to be taken to address the issue? Are there cultural issues, management issues, or pay/benefits issues? All these things need to be considered. These causes could be analyzed through employee satisfaction surveys, exit interviews, or manager’s one-on-ones.
Over 75% of turnover is preventable
Step 2: Understand Senior Management’s Role
As mentioned earlier, upper management should play a key role in employee retention. This doesn’t mean that they take over the recruiting, onboarding, or other key aspects of HR that play a role in employee retention. Rather, senior management with HR’s insight takes a step back and decides what needs to change in the organization. Any kind of organizational change must start at the top. If a cultural, management, or pay/benefit change needs to happen, it needs to be led by senior management.
Step 3: Recognize Employees
One quick way to improve turnover rate is to put an emphasis on employee recognition. If employees are recognized more, they are more likely to produce better work more often and ultimately stay with a company longer. According to one study, 37% of employees perform better if they are recognized for their work.
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Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.