Your employee turnover rate tells you the average percentage of your workforce leaving your company.
Employee turnover rate is the percent of employees who leave a company within a specific time period. Turnover rate is commonly calculated by month, quarter, or year and includes both voluntary and involuntary losses. Monthly and quarterly turnover rates are commonly expressed as averages, while annual turnover rate is usually cumulative.
Employee turnover rates can vary widely by industry, generation, and location, among other factors. At 74.9%, the service industry has the highest annual turnover rate, likely due to its reliance on part-time and temporary workers. Age matters, too. The Bureau of Labor Statistics’ news release, Tenure in 2018, reports that individuals aged 25-34 have an average tenure of 2.8 years at their current company, while employees aged 55-64 typically stick around for 10 years.
Employee turnover rate is a helpful metric, but should be viewed with context. While a higher national average turnover rate can signify a strong economy — with more options for viable employment, workers can be more selective — that’s not always the case. Take 2020, for example. With spikes in unemployment due to financial hardship wrought by the pandemic, organizations may have a higher than normal annual employee turnover rate, even though the economy has stalled. While a high employee turnover can signify a healthy economy, this year’s elevated rate is likely a little more straightforward: it’s been a rough year.
Replacing employees is costly and time consuming
Big companies have access to robust recruiting and training resources, but if you’re a small business owner or a one-person HR team, finding new workers can be especially burdensome. Here are some of the challenges.
Finding new employees is expensive
Expect to shell out about 30-50% of an unskilled worker’s salary to replace them. For technical and supervisor roles, the cost is closer to 100-150%. The Work Institute’s 2018 Retention Report estimates companies will spend $680 billion in turnover costs in 2020.
Expect to shell out about 30-50% of an unskilled worker’s salary to replace them. For technical and supervisor roles, the cost is closer to 100-150%.
You lose institutional knowledge
Replacing an employee comes with more than just training another individual to handle the tasks of the job. Institutional knowledge, the tips and tricks an employee learns over the course of their time with a company, takes time and experience to learn.
Employee morale takes a hit
High turnover affects the workplace beyond just the dearth of one person. The toll of regularly training or working with new colleagues can drag down employee morale, and in turn affect client relations and customer service.
Employees leave for better opportunities
If undue turnover is creating challenges at your org, dig deeper during offboarding to find out why.
Employee turnover rate can tell you a lot about your organization, if you’re willing to listen. Understanding your employees’ motivations for leaving is part of why a strong and consistent “offboarding” or exit interview process is non-negotiable. If undue turnover is creating challenges at your org, dig deeper during offboarding to find out why. Common reasons employees leave include:
- Career advancement opps: According to the Work Institute’s 2018 Retention Report options to take on new roles and responsibilities is the number one reason employees leave their current employer. 21% of employees said they left their employer for “opportunities for growth, achievement, and security.”
- Work-life balance: An inflexible schedule and work-first mindset doesn’t take employers far. The same survey from the Work Institute found that 13% of employees leave their company for improved work-life balance.
- Better pay and benefits: Social media and the internet have made discovering the salary and benefits of others in similar roles possible with a few keystrokes. While a higher salary isn’t the only consideration employees are making today, it still matters: 9% of survey respondents to the Work Institute’s report said they left for better pay elsewhere.
Calculate employee turnover rate
Calculate your employee turnover rate by dividing the number of employees who have left by the average number of employees, multiplied by 100. A traditional employee turnover rate includes both voluntary and involuntary talent loss, so include individuals who have left the company due to termination, retirement, disability, and by their own volition.
Employee Turnover Rate = (Number of Employees Who Left / Average Number of Employees) * 100
In order to calculate your employee turnover rate, you’ll have to first calculate the average number of employees in a given time span. To do so, add your starting headcount to your final headcount for the specified period of time, and divide by 2.
Average Number of Employees = (Headcount at the beginning of the timeframe + headcount at the end of the timeframe) / 2
Understand the facts
Careers aren’t static. Employees leave their company for many reasons, including better opportunities elsewhere or simply because they need a change. While staff loss is inevitable, understanding the facts — like your employee turnover rate and the reasons behind the separation — will help your HR team solve current workforce issues and better plan talent and workplace strategy for the future.