Employee turnover is an umbrella term for all employee departures, both voluntary and involuntary. The employee turnover rate is the percentage of a company’s employees that leave the company each year.
The turnover rate is an important business metric to track, for a number of reasons. First and foremost, knowing the turnover rate is useful, because it enables enterprises to understand and plan for an expected number of employee departures. However, employee turnover can also be an indicator of internal and external threats business leaders need to be aware of, such as a struggling manager, or increased competition for specific types of employees.
While many factors contribute to an employee’s decision to leave, most of those are controllable by the business. This is where employee engagement comes into play, as disengagement has been shown to drive significant increases in employee turnover.
How to calculate the employee turnover rate
Turnover is a simple calculation: simply divide the number of departing employees by the total number of employees. The resulting percentage is the employee turnover rate.
(Number of employee departures) / (total number of employees) = Employee Turnover Rate
This rate can be calculated for the whole company, by department, or even by team.
Tracking the rate of turnover by department or team can help companies better plan (and budget) for employee departures.
How turnover impacts businesses
Employee turnover represents a real cost to any business — replacing an employee costs about a third of that employee’s annual salary.
A Business News Daily article titled “How to Calculate and Improve Employee Turnover,” provides a deeper dive into the costs of employee turnover.
Todd Brook, the chief solutions officer at the employee engagement platform Engagement Multiplier, said it’s estimated that 67% of those costs are “soft costs,” such as the opportunity cost incurred when a project slows or is delayed, as well as the cost of using internal resources to recruit, hire and train new employees.
“Thirty-three percent of the costs are ‘hard costs’, representing cash outflow,” he added. “These costs include hiring temporary workers or outsourcing work as a result of employee departures, as well as the costs associated with hiring: advertising, recruiting fees, and the costs of drug tests and background checks.”
Turnover rates are important to consider when developing plans that rely on specific teams for execution. A complex project assigned to a team with an average turnover rate of 35%, for example, needs to scenario plan for the disruption that can occur when an employee leaves.
What causes high employee turnover?
As we mentioned already, employee turnover is fairly controllable. People leave companies for myriad reasons, including:
- To pursue opportunities with greater learning and growth potential
- To leave a bad manager
- To improve their work/life balance by reducing commuting time or aligning with family schedules.
In many cases, when employees become disengaged – meaning they no longer bring their best selves to work, no longer feel valued by the company – they lose their motivation, are less productive, and more likely to miss work.
Disengagement is costly in and of itself, however, when disengagement actually leads to turnover, the problems compound for the employer – remaining staff have to pick up extra work, and one employee’s departure can lead to others deciding to test the job market. If there is a problem with disengagement on a team, an increase in employee departures can compound the problem.
Other elements that contribute to employee departures for which the organization can manage include:
- The effectiveness of managers. Are managers treating employees fairly, operating transparently, and engendering trust and alignment with their teams?
- Concern for the employee’s wellbeing. A broad category that as expanded significantly with the onset of the pandemic, employee expectations increasingly include:
- A safe work environment
- Concern for employee stress levels and mental health, which today may mean more support for parents tasked with overseeing their children’s schooling at home
- Support for employee health and fitness, which can mean providing workspace enhancements such as standing desks or providing on-site flu shots.
- Whether or not employees have a voice. Employees value employers who are open to feedback and employees’ ideas. Engagement Multiplier’s founder, Stefan Wissenbach, says “Employees show up at work wanting to be engaged. They want to do a good job and have a workplace they enjoy. It’s companies that actively disengage their employees.”
If employee turnover is a concern for your firm, here are 6 mistakes to avoid that can lead to increased employee departures.
Employee turnover is largely preventable. Proactive leaders who make employee engagement a priority, create an open and transparent environment, develop a purpose in which employees can believe and welcome ideas and feedback from their team will be rewarded with more stable and profitable teams.