July 18, 2022
HR Metrics: How to Calculate and Reduce Turnover Rate
One of the biggest measures of a company, at any level, is its employee turnover rate. In some industries – like food and retail – we expect it to be high, and plan accordingly.
High schoolers and college students take jobs that we all know are temporary. Demands change predictably over time. Businesses in high-turnover industries have always known this.
But in some industries, high turnover rates are rare; and their onset can signal a bigger problem within a company.
In this post, we’ll look at what turnover means, the impact it can have, how to calculate turnover rate, and ways to reduce it when it becomes problematic.
What is employee turnover?
Employee turnover is the number of people who leave your company over a given period.
Turnover can be voluntarily, when someone leaves for a better opportunity, or becomes dissatisfied with their current job.
Turnover can be involuntarily, when a person’s job is terminated due to performance or conduct.
The importance of employee turnover for an organization
In companies that require a specific set of skills, high employee turnover rates can kill progress. For one, it’s expensive; the average cost to hire in the US is over $4,000.
In companies with 0-500 people, it costs an average of $7,645. Besides the cost, it’s time-consuming, and leaves skill gaps that can go on for extended periods.
High employee turnover rates – voluntary and involuntary – can be detrimental to company culture, too, which can spill into the wider community you serve.
Word can spread fast in some industries, damaging your brand and prompting wouldbe candidates to avoid applying in the first place.
It’s important that organizations facing an upward trend of employee turnover get a handle on things, fast.
You don’t want to get a reputation of being a company that churns and burns its employees.
So with that in mind, let’s find out how to calculate employee turnover, analyze the results, and find ways to reduce it.
How to calculate turnover rate
To calculate turnover rates at your company, you need to know:
The number of people who left voluntarily
The number of people who left involuntarily
The period your are measuring
The average number of employees in that period
This can be broken down by department, seniority, and any other specific area of interest.
Let’s try a super simple example, showing how to calculate the annual turnover rate.
From January 2020 to January 2021, Company X started with 500 people and grew by 5 employees overall – but 20 people were terminated, and a further 50 left voluntarily.
The formula to calculate turnover rate is:
The number of people who left, divided by the average number of employees in the 12 month period, multiplied by 100.
So, the total turnover rate for Company X in the January 2020 to January 2021 period works out like this:
Total employees who left (70), divided by the average company size (502.5 employees), multiplied by 100.
70 ÷ 502.5 x 100 = a total annual employee turnover rate of 13.9%
Using the numbers for voluntary and involuntary turnover, we can see that Company X has an involuntary turnover rate of 3.9% and a voluntary turnover rate of 9.9%.
How to calculate monthly employee turnover rate
To calculate monthly turnover rate, you use the same formula as above – only this time, use the number of employees who left in the month and the average company size over the course of the month.
Let’s say Company X had 495 employees in January 2020, and shrunk overall by 5 people. During January, 2 people were terminated and 4 left voluntarily.
6 ÷ 497.5 x 100 = a monthly turnover rate of 1.2%
Analyzing your turnover rate
What is a good turnover rate?
It’s complicated. This is such a tricky line to walk, because it doesn’t take into account any of the most important metrics: employee tenure, positions filled, open positions due to promotion, and most importantly, variability of turnover rates across industries.
With access to external benchmarking data, split over industries, you can see how your company stacks up.
But let’s look at big, bold averages for a second, for a general idea.
The 2021 Bureau of Labor Statistics report gives the overall turnover rate as 57.3%
This drops to 25% when filtered to voluntary turnover, and 29% for involuntary turnover only
The average annual turnover rate is just 3% for high-performers
Over the entire labor market, an overall turnover rate of 57.3% might look high, and make yours look low by comparison. But consider the employment types that make up the majority of the labor market.
Turnover rates have been as high as 65% for retail and 73% in food services in recent years, and as such a prominent component of all labor, this drags the overall average up.
The only way to know the truth about your employee turnover rate is to accurately capture and record your HR analytics data, and use industry benchmarking data to see how you compare in your space.
And remember, some turnover is healthy. You need it. It’s great when an employee, even a key player with roots in the company, makes a life-changing decision that improves their wellbeing.
Letting people go amicably, before frustration sets in, is another healthy way to end a working relationship.
Keeping hold of people who don’t want to stay anymore won’t be good for anyone.
A low turnover rate only looks good on paper; it’s how it impacts the company as a whole that counts – and that’s what leadership should really be looking at.
What do the types of employee turnover mean (voluntary and involuntary)?
Making the distinction between voluntary vs involuntary employee turnover is super important, because each one indicates a different set of potential issues.
A high rate of voluntary turnover can indicate a few major problems in your organization: a poor working environment, a toxic culture, below average pay, and a lack of clear career progression.
A high rate of involuntary turnover is a sign of issues in the hiring process, and should be flagged for review as soon as possible.
Average employee turnover rate versus trends
Analyzing your employee turnover data is important, but it needs to have a point. Simply knowing averages isn’t enough; you need to be monitoring for trends, patterns, and the impact on groups of people.
Let’s say for example that turnover is disproportionate between men and women in your company, and over time, the workforce has skewed male. What’s caused this? Lack of progression – pay inequity? Or is it a deeper-rooted issue?
Looking at trends in the data rather than baseline averages is the key to unlocking the power of HR analytics.
7 ways to reduce turnover rate
Understanding what impacts your employee turnover rate can be a long and deep process. But eqtble can help companies get to the core of the issue using HR analytics data, much faster than any other platform currently available.
In a time when acquiring and securing talent is becoming ever more pertinent, eqtble is leading the way; giving companies employee retention strategies that actually work, based on their own and wider industry data.
Here are a few ways to reduce turnover rate – with data, a respectful culture, and greater awareness.
1. Keep an eye on engagement
Is your annual engagement survey falling short of the mark? Should you consider pulse surveys instead? Tracking engagement can show signs of where and why turnover rates may be high.
2. Collect data at exit interviews
Exit interviews are a goldmine of information.
This is often where you’ll get your most candid, confident responses; the stakes are low and the true reasons for a person leaving are easily revealed. This can inform every process, from recruitment and onboarding to progression and pay scaling.
3. Assess what you provide
Is career progression transparent at your organization? Are the opportunities and compensation packages in line with the rest of the industry? By measuring how you stack up next to competing companies, you can find where your business needs to improve.
4. Recognise when people contribute
On the face of it, making your team feel valued isn’t hard. But in a big organization, many people can fade into the background, where frustration and a feeling of being undervalued can take hold.
Managers should record, recognize, and reward all kinds of contributions – strategic, cultural, or otherwise – and keep every member of the company in mind for this.
5. Make better hires
Don’t forget that a significant portion of employee turnover is involuntary – a sign of poor hiring decisions. With the processes in place, you can make better hires. Hiring bias can reduce your pool of candidates considerably, even if you think your organization is ahead of the curve.
It’s important to have data that supports your hiring decisions, and to take the guesswork or gut feelings out of the process.
Charm, affinity, and any other conscious or unconscious biases that affect hiring decisions can lead to many problems – a high turnover rate being one of them.
Give your HR team goals – but help your people set goals, too. Find out what they want from work, and help them to achieve it. Do they want new skills? Then set up bespoke training programs. Do they want more pay? Measure how their performance impacts revenue, and give them goals to make it work for everyone.
7. Listen – really listen – to your people
This one’s probably the most important. There’s no point in benchmarking, collecting exit survey data, doing engagement surveys, or reviewing processes if you’re going to ignore what people are telling you – and what the data are telling you.
Kindness and respect come from listening – really listening – to what your people are saying. Even if you can’t give them what they want, or what they need, you’ve got to communicate with them. If you want to promote a culture of respect and kindness at your company, it’s got to come from the top.
Lead by example, at every stage. Show kindness, listen, and respond – even if it’s hard to say no.
Get in control of your employee turnover rate
Want to get a handle on your company’s turnover rate? Use eqtble – the fastest, most powerful HR analytics platform ever developed. Calculator turnover rates instantly, and get deeper insight into why people leave your company.
Sign up for early access. It’s free!