In this cutthroat competition, the annual employee turnover rate in the US in 2022 was 20% higher.
Figures jumped drastically from 31.9 million employees to 37.4 million leaving their jobs. This indicates a pressing need for organizations to understand how to calculate their turnover rate accurately and implement strategies to improve retention.
The post-pandemic era has experienced a significant delay in hiring new employees for vacant posts. It leaves HR and managers with more pressure to rectify the gap. With these new adaptations, it is critical to highlight the importance of the employee turnover rate and strategies to improve it.
Read on as we explore how to calculate employee turnover rates and ways to improve them. Let’s dive in!
Employee Turnover Rate: What Should You Know?
Understanding employee turnover rates is crucial for maintaining a healthy and productive work environment.
Here are some key points to consider:
- The total number of employees who leave your company voluntarily over a specific time period is known as the employee turnover rate.
- The motivations range from moving to various positions inside the same firm to better roles, pay, growth, and learning possibilities at another.
- Moderate staff turnover affects companies of all sizes frequently. On the other hand, a high personnel turnover rate can be detrimental to your company, leading to low productivity and a negative reputation in the marketplace.
- An organisation may incur major financial expenditures as a result of high turnover rates, including costs for recruiting, hiring, onboarding, and training new hires. These expenses can mount up quickly and have an effect on the overall profitability of the company.
How to Calculate Your Employee Turnover?
Every business calculates the employee turnover rate to analyze employee turnover and formulate effective retention strategies. So, if you are asking yourself, what is the best way to calculate the employee turnover rate? You land at the right place.
Establishing a period is the first step in calculating employee turnover. The next step involves the calculation of the number of employees:
- who joined at the beginning of that period,
- who quit in that period,
- who stays with you at the end of that period.
You can calculate your turnover rate using this simple formula:
Employee Turnover rate = (Employees quit the company/ Average number of employees)*100
Estimating Average Number of Employees and Departing Employees
Now, let us calculate the average number of employees. It involves the sum of employees at the beginning and end of the desired period, divided by 2.
Average number of employees = (Employees at the beginning of a given period + Employees at the end of that period) / 2
This is one of the easiest and best ways to calculate the employee turnover rate. Let us understand this simple example.
- In January 2023, your business had a total of 80 employees.
- In that same year, 2 employees left the organization.
- In December 2023, the number of employees with your organization is 78.
So, the average number of employees in the company is 80 + 78/2 = 79
Hence, employee turnover rate = 2/79*100 = 2.5%
Voluntary V/S Involuntary Turnover: Crush the Confusion
Turnover takes place when an employee departs from your organization. However, when an employee leaves your organization willingly, it is termed voluntary turnover. On the contrary, involuntary turnover occurs when your organization terminates an employee.
The difference between voluntary and involuntary turnover is the decision-maker.
- Involuntary turnover: It is a termination of employment by your organization. Reasons for termination may vary from retirements, poor performance, company policy violationsand layoffs to contract dismissal. In technical terms, it is called attrition.
- Voluntary turnover: This occurs when employees leave your organization based on their own decisions. Reasons for voluntary termination include promotion to a new role, relocation, joining a new company with a better payroll, or seeking professional growth.
Both turnovers are an expense to the company, but voluntary turnover is a contingent overhead you haven’t prepared for. Since the separations are usually unexpected, you may not be fully equipped to fill the void in the required time.
It can cause delays in project executions that ultimately lower productivity. You need to build successful skill strategies that encourage your employees to stay longer with your organization.
Understanding What Your Turnover Rate Means
Every multinational organization seeks the best way to calculate the employee turnover rate.
But what is it? Simply put, if you see 15 employees left out of 100 each year, it is considered a safe turnover pace or good turnover rate.
A good turnover rate occurs when employees who leave your organization are mediocre performers who need improvement. This will leave your organization with skilled and efficient staff, improving your standing in the market.
However, this turnover percentage may vary from industry to industry. For example, as per Gartner reports, IT, Oil & Gas, Human Resources, and manufacturing industries bear the highest turnover rate of 22% to 36% compared to legal, healthcare, social services, and education, which is 14% to 15%. The fluctuation in turnover rate is due to unexpected changes in factors like company size, industry norms, and location.
Factors Affecting Your Turnover Rate
Here are a few factors influencing your turnover:
1. Company Size
If your organization is small, your employee turnover rate will mostly always be high. This is because when you face the departure of employees, it is challenging to manage the sudden ordeal. This will cost you more than you gain from the entry of new employees.
2. Industry
Industry norms, innovations, and revenue can significantly impact the employee departure rate. According to Gartner, the telecommunications, IT, oil and gas, and finance industries have the highest turnover rate due to ever-changing norms, job availability, and expectations of better compensation.
3. Location
Location plays a critical role in retaining employees in your organization. Better connectivity for on-site work reduces commute timing and promotes a hassle-free work life.
In the post-pandemic era, organizations have seen an upsurge in employees opting for remote work. It produces better outcomes if you focus on the employee’s expectations regarding work location.
Top Strategies to Reduce Employee Turnover
Here are some of the best strategies to boost employee retention:
1. Hiring Right
It is extremely crucial to take your recruitment process seriously. Hiring the right people for the right roles is the pillar for reducing employee turnover. You need to form a meticulous structure for attracting and retaining talent.
You can find the best talents that last for a longer period after proper assessments and interviews to weigh their skills and potential.
If you are hiring recruits remotely, Mentoring Complete can help you build the right strategy.
2. Onboarding & Development
After hiring the right ones for your company, the second step is to ensure a smooth onboarding experience. Positive onboarding helps new hires understand their job role and responsibilities.
A well-designed training and development module is required to keep employees engaged and growing. According to a PWC survey, job seekers in the US are willing to trade approximately 11.7% of their salary for training and development opportunities.
You need to provide flexibility for internal team switching for better learning and development opportunities. There are some effective employee development programs you can’t miss:
- Training programs in management and leadership
- Professional certifications courses
- Training programs to boost technical skills
3. Compensation & Benefits
One of the significant factors in employee retention is fair compensation.
When you reward your employees as per their skills and position, they tend to stay longer and reduce turnovers. Competitive salaries and benefits don’t mean more wages; they also include health insurance, retirement plans, paid leaves, and performance incentives.
When they feel involved, appreciated, and well-paid for their role, it strengthens employee connection with your organization.
4. Positive Work Culture
Fostering a workplace culture where employees enjoy open communication, recognition, fair reviews and feedback, work-life balance, and job satisfaction. Peer-to-peer mentoring with Mentoring Complete will motivate team members to build trust.
You need to know the perception of a positive work culture for different types of employees. Unburden them with a heavy workload, irregular working hours, and denied leaves.
Promote a healthy work culture and work-life balance to sabotage early turnovers with the following methods:
1. Facilitate Diversity and Inclusivity in Your Workplace
Encouraging diverse and inclusive work culture where gender, caste, creed, and race don’t matter. Promoting Friday activities when employees are working in-house and virtual coffee breaks when employees are working remotely.
Your HR department needs to uplift Gender diversity by hiring fair and square. Learn from the best, Mentoring Complete can help you improve recruitment planning.
2. Develop an Employee Recognition and Strategy
Encouraging employees to level up their performance and career development with effective mentoring. It helps you achieve impressive outcomes.
3. Tactics to Boost Your Employees’ Motivation
Routine feedback from employees on their mentors or jobs will allow you to identify areas of improvement.
This will help HRs for better management and your employees will feel valued and happier. Keep projecting a Career mapping program with Mentoring Complete to guide your people for better external and internal opportunities. This will help you avert a high turnover rate.
Higher job satisfaction leads to higher productivity and reduces early departures of team members.
Key Takeaway
Every employee looks for stability in work life. You can provide that stability by empowering your employees with a future-proof environment. Supervising your employee turnover rate will help you retain top performers for longer periods in their roles.
A high turnover rate is your cue to improve management and administration functions. It encourages cutting unexpected overheads like advertising, recruitment, and training new employees.
Taking care of employees and their needs should be your top priority for low turnover and high production. If your employees feel secure, happy, and content in their work lives, it will boost efficiency and help them achieve goals.
So make sure to prioritize strategies that enhance employee satisfaction, streamline processes, and foster a positive work culture.
Frequently Asked Questions
1. What is a healthy employee turnover rate?
A healthy turnover rate is the percentage of employees quitting your organization that does not exceed 10% to 15%. This rate instils confidence in recruits and existing employees regarding your organization’s positive work culture.
2. Is high employee turnover a threat to the organization?
For your company, it affects your efficiency and taints your market reputation. It implies that your organization has a toxic work culture, unappealing compensation, and minimal employee development and growth.
3. What is the best way to calculate employee turnover rates?
By summing the total number of employees at the beginning and end of the period, you may find the average number of employees by dividing the total by two.