Calculating Employee Turnover Rate, And How To Combat It
There are many ways that businesses can lose money, and one way is a high employee turnover rate. Understanding employee turnover rates can be as simple as calculating the math and crunching the numbers, but addressing it is another story.
Companies may think that their high turnover rate is caused by the Great Resignation. But, a lingering high employee turnover rate can signify company issues, like high employee dissatisfaction and potentially poor work conditions. You should calculate your employee turnover rate so that you can take steps to combat it.
This article will discuss your employee turnover rate and how to fix the problems affecting it.
What is Employee Turnover Rate?
Employee turnover rate, as used in business human resources management, is the rate at which employees leave a company or organization during a specific period.
This rate is a calculation or statistic that helps businesses understand how frequently employees leave a company to understand better the money spent on training new employees, potential security issues, and employee turnover costs.
Once employee turnover is calculated, the business has an idea of the number of employees leaving the company voluntarily or involuntarily, giving company management an understanding of why people are going.
You can also understand turnover as the attrition rate or churn rate, which looks at the number of employees leaving in large numbers. The more people go and the higher the turnover rate, the more money a company will spend on hiring a new employee.
Understanding Staff Turnover
Before we get into calculating employee turnover rates, it’s essential to understand why you should calculate this metric at all. Calculating employee turnover is important because it measures the time spent at companies and HR effectiveness and indicates key positions filled.
High employee turnover rates are time-consuming and costly and are a negative measurement. Companies want better turnover rates because employees are generally happier, and your HR management is working effectively.
When you have more employees leaving, you waste valuable time and resources training them and then retraining them when you could nurture their relationship with your company and improve your organization. High turnover typically leaves businesses in a hiring cycle, which limits their ability to grow.
There is a healthy turnover rate as some turnover is normal. Generally, an employee retention rate of 90% or higher is considered good, and a company should aim for a turnover rate of 10% or less to keep the company’s labor force stable. A high turnover rate suggests your employees aren’t staying, and you need to address this problem. Although, statistics do suggest that turnover is higher in new hires, with a potential of 30% of employees leaving within the first 6 months.
How to Calculate Employee Turnover Rate
Calculating your employee turnover rate will give you a percentage of employees leaving your organization during the period chosen. The period you choose for this calculation can be established for your specific needs (if you want to analyze a particular period, for example). Still, most companies look at this rate monthly.
This is what the employee turnover calculation looks like:
Average Turnover Rate = # of Separations / Avg. # of Employees x 100
From this calculation, you will see who left your company every month. After this calculation, calculate the annual turnover rate or year-to-date turnover. This will also give you your employee retention rate.
First, you want to calculate your total employees. Get a sense of how many employees you have throughout the month. And employees in this sense will include all employees on the payroll, direct-hire temporary workers, and employees on temporary layoff, furlough, or leave of absence.
The total number of employees on your payroll will not be the same at the end of the month as at the beginning of the month, so it’s important to get an average. Connect with your human resource information system (HRIS) or payroll system to get this number or the report of total employees. Run these numbers weekly throughout the month.
Then calculate the average number of employees. This will be the total sum head count from each report divided by the number of reports used. So if you run four reports once weekly, you’ll add the total number of employees in each piece divided by 4 to get the weekly employee turnover. You can change the calculations for monthly employee turnover as well.
Total Employee Separations
After that, you’ll want to get the total number of separations. Separation means employees who have left the company or have a termination rate. Your HRIS can quickly provide a list of employees by the termination date. Include all individuals who have gone to the company for good, such as retired individuals and terminated employees. Do not include temporary workers who are not on payroll or employees on leave.
Consider splitting this metric into the total voluntary turnover rate and involuntary turnover rate.
5 Factors Commonly Impacting High Company Turnover
The SHRM Human Capital Benchmarking Report found that the average employee turnover rate in 2017 was 18% (compared to the 10% ideal). Even worse, companies did not have a succession plan to keep up with these numbers.
Whether you have a high voluntary turnover or involuntary turnover, consider these factors when working towards a lower turnover rate:
1. Lack of Career Opportunities or Advancements
Sometimes your business may be moving consistently, but the problem lies in your employees not feeling like they can improve. If there are no actual areas for advancement in your business, you may need to rethink your organizational structure. Implement career-building opportunities if there are areas for improvement so that you want to hire in-house and provide incentives.
2. Poor Management/Leadership
Poor management is by and large the biggest reason for company turnover. Your workers want to follow someone they can trust to help this company succeed and care for their workers. Take a good look at your management and leadership team to see if this is the issue.
3. Overwork or Burnout
Burnout or low employee engagement is a significant factor that affects turnover, and its also usually associated with a lowered payscale. Employees feeling overworked, overwhelmed, and burned out will leave, especially if they don’t think your company will listen or make changes. Paying people more and fixing your employees’ workload is vital to stopping this harbinger of poor retention.
4. Poor Organizational Setup or Operations
If your organization is messy, unorganized, and constantly working through “operational issues,” then this can cause frustration and make your employees want to leave. Look at your workflows for productivity and production to see what natural barriers come up and what can be done to fix them.
5. Poor Company Culture
Poor company culture can be caused by a breakdown in the other factors listed above; regardless, this is typically something that organizations must consider and address. Company culture can look like work-based clique groups, unhappy employees, late employees, poor productivity, and issues in HR.
An employee monitoring system will be more effective at catching company culture because you can identify poor timesheets, poor productivity, and issues in personnel through communication monitoring rather than trying to understand these problems from employees who might not tell the truth.
Combat High Turnover Rates For Improved ROI
While some level of company turnover is expected, breaking down why you have higher turnover rates is essential and combat this immediately. Implementing a metric collecting system is the best way to combat high turnover for improved attrition. You can calculate your employees on payroll easily, but you need to dive deeper into where company breakdown happens.
Improving your turnover can look as easy as this:
- Implement employee monitoring to understand more areas of your company better
- Start opening lines of communication and recognize with your employees that your turnover rate can be improved
- Consider training and career development for your employees; also analyze the new hire process to see if there are roadblocks causing employee attrition, like poor hiring practices.
- Look at work conditions for areas of improvement; this can include modifying job descriptions, title changes, flexible schedules, flexible work, and more.
Installing SoftActivity employee monitoring is the first step to combating and understanding employee turnover. With this software, you can see who is productive and willing to work and who is not. Organizations can collect metrics around employee turnover (rather than just the employee turnover rate), like poor productivity, poor work performance, unhappy employees, and more. See today how drastically your employee turnover and work culture can improve with SoftActivity!
By SoftActivity Team.