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Employee churn is defined as the percentage of employees leaving an organization over a specific period. An employee’s exit can be voluntary or involuntary. Resignation or retirement falls in the voluntary category, whereas, an employee being let go will be in the involuntary category. Some voluntary churn is avoidable with hiring best practices, building a positive workplace culture, etc.
According to the Society of Human Resources Management’s (SHRM) 2018 Employee Recognition Report, employee churn is the number one challenge for most organizations globally. A staggering 29% of these organizations admitted to being stressed about finding replacements.
Although a certain level of employee turnover is normal 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. You have to give them a certain amount of time to learn, adjust, and start contributing.
While many factors add to employee churn, some easily stand out and need management attention. Let’s look at the top 5 factors that contribute to employee churn:
Employee churn rate is calculated as the percentage of employees leaving an organization at a certain period divided by the total number of employees in the organization during that period.
A common way of looking at employee churn rate is on a monthly basis. Calculating every month can be useful in spotting when employees tend to leave in the first year of employment.
How to calculate monthly employee churn rate:
Let’s say in a particular month, four 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?
How to calculate annual employee churn rate:
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 %
Now that we know how to calculate it let’s understand why is it crucial to know the employee churn rate.
Employee churn tells the story of an organization - culture, policies, practice, compensation, and procedures. It lets you know about the employee experience, how they are treated, and how long do employees usually stay with the organization.
When an employee leaves, the organization incurs the following costs:
Apart from expenses, measuring employee churn also helps you in understanding if the 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 and hence, as an organization, your strategy should be employee retention. Understand their reasons behind their decision, inquire if it is company processes, the culture, or something else. This will help bridge any gaps in your people processes.
Employees join and exit, but when a significant number of employees leave the organization, it is undoubtedly a matter of concern. The amount of money, efforts, and resources required to hire new people or replacements are enormous. Arresting employee churn is essential for smooth operations.
Here are 4 ways to help reduce employee churn:
You may retain some employees, if not all, and that’s fine. Employees have various ambitions, desires, and ideas about work that they need to pursue. All you can do in this case is to ensure they had a great experience. This way, they can always feel like and come back to the organization.