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When you think about a business, it’s best to consider it as a living organism and this is perhaps most true when you think about the staff. Staff turnover is a constant reality for businesses as people leave and new people join. But just because turnover is an inevitability, it doesn’t mean you should do nothing about it. Tracking staff turnover is key for both long and short term planning. So, this brings up the question: how is employee turnover calculated? Here’s what you need to know.
How is employee turnover calculated?
To calculate employee turnover, we need to use the employee turnover rate. This is a formula that calculates how many employees have left a company within a certain amount of time.
The formula is as follows:
Employee turnover rate = (Employees who left/ Average number of employees) x100
So, in order to use this formula, we need access to the different variables. The first is the simplest, employees who left is relatively self explanatory and so you just need to have access to the number of employees who have left the company (both voluntarily and involuntarily).
The second variable is the Average number of employees. To get this number, you need to add your beginning and ending workforce and divide by two (Avg = [B+E]/2).
Finally, multiplying by 100 will give you the employee turnover rate expressed as a percentage.
What is a good employee turnover rate?
Calculating employee turnover rate is one thing but what exactly do you do with this arbitrary number? Well, the first port of call is comparing this number with relevant benchmarks. You can compare your rate with the industry average, sectors like hospitality typically have a very high turnover rate, while sectors like government have much lower rates.
You can also look at internal benchmarks and compare your turnover rate to years prior to see if any trends are emerging.
Why does employee turnover matter?
Employee turnover certainly matters. A high turnover rate suggests serious issues with either the culture, policies or onboarding or a business, potentially all three. Employees can leave for any reason and you should begrudge a business because of someone retiring or moving away. But, generally speaking, employees will only leave if they are unhappy and so a high turnover may mean lots of unhappy staff.
Analyze your turnover rate
If your turnover rate is cause for alarm, the next thing you need to do is analyze why your turnover rate is an issue.
Who is leaving?
Figuring out exactly who is leaving can help address a high turnover rate. If it’s largely starters who are leaving then perhaps you need to question your onboarding and training systems to see why they are struggling to stick their landing at your business. On the other hand, if it’s typically senior employees that are leaving then perhaps there are issues to do with glass ceilings, decision making processes or even pay.
Is a certain demographic leaving? This can be extremely worrying as it may mean that there are serious flaws in your business culture. Perhaps a certain group is being made to feel unsafe or unappreciated. Not only does this make hiring from that group in the future difficult, but it may even open you up to potential legal issues with discrimination.
Different groups will almost certainly require a different response from management so it’s important to understand the characteristics of those leaving.
Why are they leaving?
It may seem obvious but it’s important to find out why these employees want to leave. Setting up exit interviews or surveys can help illuminate potential threats from both within and outside your company.
Where are they going?
Are people leaving to join one of your competitors? This may be cause for alarm because it may mean your competition is providing a better offering for talent whether that’s pay, benefits or culture.
Are people leaving the industry entirely? You may think that leaving the industry entirely means your business is not at fault but that may not be true. Perhaps workloads are taking a toll on your staff and leaving them burnt out. Or maybe they have been made to feel that a career in your industry is too insecure.
When are they leaving?
Finally, you need to analyze how long people leavers have been with the business. If all the people are leaving within their first year, then it may mean that there are serious issues with your recruitment and onboarding process. Perhaps you're setting the wrong expectations with your job listings or aren’t providing sufficient training for the workload.
What is a good turnover rate for employees?
Here are the average employee turnover rates for different industries:
- Construction: 56.9%
- Manufacturing: 39.9%
- Trade, Transportation, and Utilities: 54.5%
- Information: 38.9%
- Financial activities: 28.5%
- Professional and Business services: 64.2%
- Education and Health services: 37.3%
- Leisure and Hospitality: 84.9%
- Government: 18%
These averages can provide a useful benchmark to help you understand how good your business’s turnover rate is.
Summary
Hopefully you now know how employee turnover is calculated. The employee turnover calculation can help you understand how high your turnover rates are compared to your industry or even your own past rates. If your turnover rate is too high, it’s important to get to the bottom of it and solve the issue before it can cause further damage.
