Employee Turnover: Definition and Calculation

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.

As per the U.S. Bureau of Statistics, the annual turnover rate in the U.S is about 12% to 15%.

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 aspects of employee turnover, and how can we avoid it, so it does bare minimum damage to the goals and overall strategic development of the organization.

Types of Employee Turnover

Employee turnover is primarily of 4 types:

  • Voluntary turnover: This type of turnover is when an employee decides to voluntarily leave the organization. It is the employee’s choice to disassociate from the organization, without pressure from 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). 
  • 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 that 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 talent 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 professional, 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 turnover rate % by using the formula:

Employee Turnover

How can you analyze your organization’s turnover rate?

You can get a better understanding of your organization’s employee turnover if you look at the following three critical aspects:

  • Which employees are leaving?
    No matter the industry average, it is crucial for organizations to identify which employees are leaving the organization. Once you know that, only then will you be able to take necessary actions, be it retention or letting them go. An analysis needs to take place to identify if high performers are leaving or low performers. You can then take remedial measures, for one way or the other, it may affect your employee retention, staff engagement, workforce productivity, etc.
  • When are they leaving?
    The timing for employee departures is crucial to understanding employee churn. If employees leave within a few weeks of joining, you may have to look at your recruiting processes, job descriptions, etc. If employees that have worked for long are leaving, then it could be due to low engagement, or lack of a clear career path, absence of excellent employee benefits, etc. Knowing these can help in identifying and revamping your people processes.
  • Why are they leaving the organization?
    There are several reasons for an employee’s departure; it can be employee processes, management style, superiors, lack of a feedback mechanism, etc. It is essential you conduct exit interviews, understand the reasons, what could hold them back, etc. Organizations cannot fix everything overnight, but they can start with a few things. Observing the turnover rate after that will determine what’s working and what’s not.

Top 7 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. Better pay offers

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. Low levels of employee engagement

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

  • They seek 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. Low workforce morale

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.

5.  Growth opportunities missing

All your employees need to have a clear growth path that is known to them. It has to be clear and should be clearly indicative of their goals, achievements, and growth. The absence of a growth plan can bring the morale down and they may feel their efforts will not be recognized and rewarded. These employees are at a risk of leaving the organization, sooner rather than later.

6.  Poor work culture

Organizations that have a positive and strong work culture outperform the ones that do not. Work culture is much more than interesting work, outings, or a ping pong table. It is a combination of a lot of things, employees need to feel and know they are appreciated and valued. Organizations with weak culture tend to have high workforce turnover numbers.

7.  Unhealthy work-life balance

Achieving a healthy work-life balance is essential to employees, be it for pursuing higher studies, hobbies, etc. Managers need to work with employees in helping them achieve the right balance. Employees feel assured this way and will stay longer with the organization.

Learn more: Employee turnover survey questions + sample questionnaire template

Why is it crucial to measure employee turnover?

With employee turnover, one can understand an organization, its workplace culture, compensation, policies, and people procedures. It is a window into knowing the organization’s employee experience, their average tenure with the organization etc.

Staff turnover gives you insights and data to understand your hiring practices and filling in necessary gaps. It also helps in arresting costs that organizations would spend on:

  • Recruitment
  • Onboarding
  • Training
  • Benefits
  • Replacement hires

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 top 6 things can be done to reduce the rate of employee turnover:

  • Identify the right candidates
    Train your hiring staff to identify what a promising candidate looks like, it cannot happen overnight, and 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.
  • Offer competitive compensation
    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.
  • Recognize and reward performers
    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.
  • Design and convey a career path
    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.
  • Meet employees’ training needs
    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 provided with the best and necessary training options.
  • Provide employee benefits
    With the changing nature of workforce and industries, the nature and expectations of employee benefits has also evolved. Employee benefits such as student loans management, dental care coverage, etc. go a long way in making employees happy. Benefits such as these positively affect their intent to stay.