Employee Churn and how to calculate it

Employee churn is a costly affair & high churn rates are not good for any business. Learn here how to reduce employee churn in your organization.


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What is employee churn?

Employee churn is defined as the percentage of employees leaving an organization over a specific period of time.

Although a certain level of employee turnover is expected in any organization, however, high rates of employee churn can be a costly affair. Employee onboarding, hiring, training, and development require a financial outlay and a new hire may not be immediately effective in terms of bringing in profits.

Depending on the role and responsibilities assigned to an employee it may take upto a year for an employee to completely understand the working conditions and the work-related expectations. So it can take an organization a year or more to break even on a new hire and probably even longer to get a return on investment.

An unusually high rate of employee churn also is indicative of problems with employee engagement and employee satisfaction within the organization. There might be many factors involved here, like salary, work culture, nature of work, ineffective management, etc.

According to the Society of Human Resources Management 2018 Employee Recognition Report, employee churn is the number one challenge for most organizations worldwide. A whopping 29% of organizations even admitted they were stressed out about finding replacements.

Employee churn formula and calculation

Employee churn is usually expressed as employee churn rate. It is calculated as the percentage of employees leaving an organization at a certain period of time divided by the total number of employees in the organization during that period of time.

A common way of looking at employee churn rate is on a monthly basis. Calculating on a monthly basis can useful in spotting when employees tend to leave in the first year of employment. Here is the formula to calculate monthly employee churn rate:

Monthly employee churn rate = Number of employees quitting that month / Average number of employees in that month X 100

Let’s say in a particular month 4 employees quit the organization and there are a total of 200 employees in that organization then their monthly churn rate can be calculated as:

Monthly churn rate= 4/200 X100 = 2%

This formula gives us the calculation for a month, but what about over the course of a year?

Here is how you can calculate employee churn rate for the first year.

The formula is:

First-year employee churn rate = Number of employees who quit in less than 1 year of employment / Number of separations during the same period X 100

For example, let’s consider 30 employees quit the organization even before they completed one year and you have 115 employees who departed your organization during the same period.

Putting the numbers into the formula:

First-year employee churn rate = 30/115 X100= 26.08 %

Once you have this number, it’s time you understand the context of it.

Why is it important to calculate employee churn?

Employee churn tells the story of an organization- culture, policies, practice, and procedures. It also speaks about the compensation system. Because churn and retention are the two sides of the same coin, you can balance between them to ensure smooth functioning in an organization.

From onboarding to an employee quitting the organization replacement costs include:

  • Time spent on talent acquisition
  • Time spent on interviewing the candidate
  • Onboarding expenses
  • Training
  • Getting an employee to accommodate to the organization’s culture

Apart from the cost issues, measuring employee churn will also help you in understanding if your hiring strategy is moving in the right direction. The data and benchmark will give you a starting point for investigation. After all, as an organization, you would want to know who is leaving and why!

This understanding will help you determine what needs to change in the organization. Employees are critical to any business. As an organization, your strategy should be employee retention.

How to contain employee churn?

Employee churn is experienced by any business with workers. Employees walk in and walk out, but when a significant number of employees leave the organization it is certainly a matter of concern. It takes not only human efforts but also time and money to train new hires and bring them to speed, so it’s best for any business to reduce churn as much as possible.

Here are the 4 ways to help you reduce employee churn:

  1. Hire the right talent: It all starts with hiring an employee. As thumb rule organizations hire an employee based on their skillset, but how well do you know if the employee is the best fit for your organization’s culture? You must hire employees who not only have a strong skill set but are also the right fit for your culture. At the time of hiring ask them organizational behavioral questions to understand their mindset and to fathom if they will stay in the organization long enough.
  2. Offer the best compensation: Employees want to be compensated well. There are “n” number of expenses that they need to cover and other liabilities that need to be considered before offering them a certain figure. Find out what your competitors are offering, make a better offer to the right candidate. Only paychecks don’t suffice, employees need good benefits too. Do your research and offer them what is good.
  3. Recognize achievements: Your employees need to be encouraged and recognized. When employees do something worth the praise, praise them. Show them you notice their hard work. You don’t need to praise employees for every small thing they do on a daily basis. However, if they have successfully completed a tough project or have submitted the work before the deadline, they need a pat on the back. This immensely speaks about the organization’s culture.
  4. Allow flexible working hours: If it falls in your company policy allow flexible working hours. This helps employees adjust their time and also locations. This might not be possible for all businesses and you might need your employees to come to work and leave at a certain time but there might still be ways you can offer them flexibility.

Finally, there might always be employees who want to quit your business and work someplace else. They will find new jobs, relocate, demand for better compensations or even decide to become a home parent. It is their choice at the end of the day. But as an organization, you can always lower this by providing them a conducive environment where employees would want to stay longer.