Employee turnover: Definition

Employee turnover is defined as the number of employees who quit the organization or are asked to leave and are replaced by the new employees.

Employee turnover is usually calculated on a yearly basis. It doesn’t matter whether the employees resigned or were fired, their absence takes a toll on the overall productivity of an organization.

This phenomenon may have a certain negative impact but isn’t necessarily all that bad, because if certain employees leave, there are new ones joining in. However, the pace at which the work gets done is affected to a certain extent.  

As we go further in the article we will cover the important aspect of employee turnover and how can we best possibly avoid it, so it does bare minimum damage to the goals and overall strategic development of an organization.

Learn more: Employee turnover survey questions + sample questionnaire template

Types of Employee Turnover

Employee turnover is primarily of 4 types:

  • Voluntary turnover: This type of turnover is when the employee decides to voluntarily leave an organization. It is the employee’s choice to disassociate from the organization, without the pressure mounted by any external forces.
  • Involuntary turnover: This type of turnover is when an employee is fired or asked to leave the organization due to various factors (which cannot always be pinpointed). Here, it is at the sole discretion of an organization and employee is replaced after termination.
  • Desirable turnover: Turnover is considered desirable when an organization fires or loses underperforming employees and replaces them with new hires. This process may not go down well with a lot of employees, yet it is essential to keep the momentum going within the organization.
  • Undesirable turnover: Undesirable turnover is when an organization loses it’s top performing employees. Some employees leave a deeper impact than others, those are the employees who are difficult to replace.

Learn more: Employee retention strategies and best practices

Employee turnover rate: How to calculate employee turnover

Employees leave organizations for various reasons, leaving can be voluntary or forced.  However, turnover is not considered good for the overall organization. It is a painful process of losing some of the best talents within the organization.

On the other hand, if underperforming employees are replaced, it can bring some positive results. So, the process has its fair share of positives and negatives.

In this section, we will be learning about employee turnover rate calculation.

Monthly employee turnover rate: To calculate employee turnover on a monthly basis, you will need 3 numbers:

  • Number of active employees at the beginning of the month(AEB)
  • Number of active employees at the end of the month (AEE)
  • Number of employees who left during the particular month (EL)

You can now get your average number of employees by adding the number of active employees at the beginning of the month and number of active employees at the end of the month and dividing by 2.

Avg.= AEB + AEE/2

For example: Say you have 100 active employees at the beginning of the month and 94 active employees at the end of the month. Your average is calculated as:

Avg.= 100+95/2

        = 97

Now you have your average calculated, you should now divide the number of employees left by the average you calculated. Therefore, monthly turnover can be calculated using the formula:

Employee Turnover

For example: If 3 employees left

Monthly turnover %= 3/97 X100

                                    = 3.09 %

So your monthly employee turnover rate % is 3.09%

However, organizations prefer calculating employee turnover on a quarterly or annual basis as there is enough data to point to meaningful statistics and in turn, analyze the pattern.

Here is the formula to calculate the annual turnover rate:

Employee Turnover

For example: If you have 100 employees at the start of the year and 150 at the end of the year and 5 employees left during that year, your annual turnover rate would be calculated as:

Annual Turnover rate percentage = 5/(100+150)/2 X100

                                                     = 5/150/2 X 100

                                                     =5/125 X100

                                                     =0.04 X 100

                                                     = 4%

Therefore, according to the calculation your annual employee turnover rate percentage is 4%.

If you are an HR, you will be tempted to ask, so what is the best turnover rate formula that I should use?

Good question! Depending on what you aim to measure, you can use different numbers to calculate your turnover rate.

For example: If you want to illustrate the overall turnover, you would need to include all the separations. There is another factor to this if you want to include retirement in your turnover calculation then you will have to specifically mention this attribute.  

One very interesting and extremely useful way of measuring turnover is to see whether your new hire turnover rate is higher or lower than your overall turnover.

You can calculate the first year turn over rate % by using the formula:

Employee Turnover

Top 4 reasons for employee turnover

The only thing constant in this world is change, I have twisted the original penned down by Francois de La Rochefoucauld, “The only thing constant in life is change.”

But constant changes can be harmful to any business. Employee turnover is a change that directly affects an organization’s bottom line. Here are the top 4 reasons for employee turnover:

1. They are motivated by better pay

Different people have different motivation and believe me nothing is right or wrong. There might be employees in your organization who have worked with you for a long time and believe in your business, but if they are presented with better opportunities they might consider moving on.

Keep a keen eye on what your competitors are offering and what is the word in the market. You can also conduct an annual survey to know if your employees are happy with the hike they are offered.

To help employees truly appreciate their compensation, provide each employee with a written statement at the end of the year covering their remuneration cost and any additional charges that the company provides them with.

2. Employees don’t feel engaged enough

Employee engagement may sound cliched, however, it is one of the major issues dealt with by organizations. Employees quit because they don’t feel engaged enough at work. Following are some of the common traits:

  • They seek for a more challenging role
  • They are not provided with good quality work
  • Their ideas are not appreciated at work
  • They are not offered enough support from the team/manager
  • There are not enough training and development activities

There are many ways in which an organization can boost engagement activities and your approach should be what’s right for the organization and if it fits into the company culture or not. It is also important to keep an organization’s leadership engaged and make sure your managers are well trained in crisis management.

3. Employees get bored easily

High-performing employees need to be constantly engaged in the workplace and need to move forward in terms of professional and personal growth. Take time to meet with your employees to understand their career path and what they appreciate the most in their respective roles.

Make sure your employees have enough opportunities at work that keeps their pace active and they are involved enough in the organization’s development plan.

4. Poor management of employees

Employees often voluntarily leave the job due to relationships gone sour. It might not always be the case, but most often this is the reason when traced back to. Generally, if work relationships are positive there is a greater enthusiasm in employees to perform better at work and stay focused and engaged.

By managing your employees better, you can reduce the percentage of employee turnover. Create policies and procedures that not only suit them but also the organization. Employee loyalty is something organizations need and to make loyal employees you need to make sure you inculcate best practices in the system.

How to reduce employee turnover?

Turnover is inevitable! But as an organization, you can surely reduce it. For involuntary turnover, the best thing you can do is to manage your employees well, keep them engaged and satisfied at the workplace.

The following can be done to reduce the rate of employee turnover:

  • Train your hiring staff to identify what a promising candidate looks like, it’s cannot happen overnight, it will take years of experience to master the art. Make the interview process robust and hire the right people. This includes making sure that the candidate fits the profile perfectly, blends with the organization culture and more.
  • Do some research around your compensation packages, review them and make it competitive. Have your HR team do the research and put down the best packages in the industry and create something similar for your organization too.
  • Ask managers/teams for their monthly/quarterly achievements. Reward your best-performing employees. There is no greater joy than a work well done and in return appreciated. It is one of the most cost-efficient ways of increasing employee satisfaction.
  • Outline a clear career growth path at the time of employee-onboarding. Discuss this with employees annually. Encourage them to bring questions to the table. If they are not comfortable talking directly to the management, encourage them to speak to their managers or immediate supervisors.
  • Supervisors and managers play a crucial role in the organization, they are the first line of contact for the employees. If you are upper management, make sure your supervisors/managers are not only well-trained professionally but also in the area of soft skills.