How to Determine Employee Turnover Rate and Why It's Crucial For Your Business

How to calculate the cost of employee turnover and more crucially, how to reduce it? Here are all the answers.

Retention and Turnover
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10 Min read
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February 2, 2021

Your company probably puts a lot of effort into hiring the best people you can find, training them thoroughly, and making them a valued part of the team. So when they decide to leave to work at another company, the impact can feel pretty big - on both a professional and personal level. But how can you know if your rate of employee turnover is on par with your competition? Do employees leave your business more frequently or stay with you longer than average? And why does this one number matter so much for your business? That’s exactly what this article will discuss - so read on for everything you need to know.

What is Employee Turnover?

Employee turnover is the number of people who stop working at your business in a year. It’s natural to have some level of turnover - after all, people change careers, move to a different location, retire, or reach as far as they can go with your company. But having a higher-than-average level of employee turnover is an indication that something is wrong at your company. If you had created a great place to work where employees felt satisfied, they wouldn’t leave in such high numbers.

How to Calculate Cost of Employee Turnover Rate?

Knowing if your business has a high level of employee turnover is really important - that’s a good indicator that you need to make some serious changes to your workplace culture. But how can you figure out your employee turnover rate so you can compare it to your competitors? That’s just why you need to know how to calculate your annual attrition rate. There’s a pretty simple formula that SHRM recommends for calculating employee turnover rate:

Turnover rate = number of separations / average number of employees x 100

Now, doing this math isn’t as easy as it might seem at first - you need to decide how to account for part-time employees, temporary workers, employees on leave, and more. This is where the SHRM Turnover Calculation Spreadsheet can be very useful. Once you know your average employee turnover rate, your job isn’t done. This number doesn’t mean much unless you know how it stacks up to other businesses in your industry and area. For example, if your turnover rate seems pretty low, but it is still significantly higher than your competitors near you, you’re clearly losing some battle for the best employees.

Unfortunately, employee retention is an ongoing challenge across the world. In fact, half of employees in the US have thought about leaving their current employer. With an increasingly competitive labor market, this puts many employers at a disadvantage - so don’t let your company be one of them. Doing some competitor research in this area is vital to understand where your business stands. Once you have the full picture of what turnover looks like in your organization and similar businesses, you’ll have an accurate picture of how you’re doing and what you need to improve.

Why It’s Crucial For Your Business?

You can read much more on how to calculate the cost of employee turnover, but what you really need to know is this: it’s probably much more expensive than you think. How expensive could it really be? Especially for lower-level or hourly employees, employers often drastically underestimate employee turnover's true cost to their detriment. From the cost of hiring and training to the knowledge gaps left behind when employees leave to the drain on morale caused by employees frequently coming and going, turnover is expensive and disruptive.

When an employee leaves, your remaining employees often have to take on increased responsibilities to cover the loss for a period of time. If your employees are already busy and strapped for time, this additional burden can be too much and decrease morale. One employee leaving for a better position can also inspire other employees to consider leaving, as they wonder if it’s their only option for moving up or improving their position.

You can do the math with this cost of employee turnover calculator and see for yourself. Was it more expensive than you thought? It’s true - every employee is pricey to replace, though senior leaders certainly have the biggest impact on the bottom line. But the cost of employee turnover isn’t the only reason it’s damaging to your business. When high numbers of employees are regularly leaving, that indicates something is wrong with your workplace culture that employees dislike. In fact, they dislike it so much they’re willing to put in the time and effort to find another job - which is not a good sign.

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What High Employee Turnover Really Means

There are many, many reasons why employees leave your organization at a high rate - it can be different for every business. But there are a few common factors that you will want to look at that often cause employees to leave.

Poor Compensation or Benefits

If your employees work just as hard as employees at your competitors, but they aren’t getting the same level of pay or benefits, that’s a big reason they might leave. And with the popularity of sites like Glassdoor, employees today have plenty of insight into what their peers at other organizations are earning. After all, employees accept jobs for many reasons, but the most important one is to earn money to support themselves and their families. If they don’t feel they can do that with you or feel they can do that better elsewhere, they’re more likely to leave.

Negative Workplace Culture

Are your employees stressed out, overloaded with work, unappreciated, or subject to too much unhealthy competition? The culture of your workplace has a big impact on employee retention. If employees feel your organization shows through your workplace culture that you don’t actually care about them as people, they’re probably heading for the exits soon. That can mean a culture of overwork, a culture of underappreciation, and a culture of poor boundaries, so employees work all hours or culture of unpleasant or harmful behavior. Employees spend most of their week at work - have you created a supportive culture where people can do their best work or one where they can’t wait to get out the door at the end of the day?

Poor Career Opportunities

You might have competitive pay and great workplace culture, but you notice employees are still leaving more often than you’d like - what’s up? It could be a lack of career opportunities. If employees don’t feel there’s a path for long-term success with your company, that’s discouraging. They want opportunities to learn new skills, take on new challenges, and grow their careers. That doesn’t mean you need to promote every employee every year - that’s not a reasonable expectation. But it can help take a hard look at the kind of career development plans and opportunities you’re providing for employees - is there room for improvement, especially for your most promising talent? Helping them see a clear future and plan for getting there can encourage talented performers to stay and continue contributing to your business.

When Turnover is Healthy

That being said - not all employee turnover is bad! A healthy level of turnover brings fresh blood and ideas into your organization. New hires can bring new ways of looking at old problems and enhance how your organization operates. You don’t want things to get stale in today’s fast-moving world, so don’t aim for a turnover rate of zero. Plus, you sometimes want employees who are not well-suited for their roles or your company culture to select themselves out of your organization and find a place or role that suits them better. That kind of turnover is healthy and should sometimes happen instead of holding onto people who just aren’t working out.

In short, don’t try to get rid of all your employee turnover - make sure it’s at a healthy level and happening for the right reasons.

How to Reduce Employee Turnover

If you do have an unhealthy rate of employee turnover, how can you start finding and fixing the issues that are causing it? Reducing a high rate of employee turnover isn’t always easy, but as the costs are so high, it’s an area well worth investing time and money into. The best way to figure out why employees leave? Ask them directly! Using survey tools like those in Xoxoday Empuls can give you real insight right from your valued employees about how they feel about your workplace culture, pay and benefits, career opportunities, and much more.

Looking at your employee engagement rates and building a winning culture is easy with the vast array of features and data in Empuls. Want to learn more? Book a demo or start your free trial today.

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