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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 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:
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:
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.
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:
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.
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:
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.