At some point, if your business is more than one person, you’re likely to deal with employee turnover.
According to a Gallup’s 2015 Workforce Panel study, 51% of employees are actively looking for a new job at any given time.
If and when any of those people actually leave, the cost isn’t trivial. And they and can hit smaller businesses hard. Analysts estimate backfilling roles costs employers roughly 20% of that position’s salary in hiring, recruiting, and onboarding costs. The hiring process takes 36 days on average.
But learning how to calculate employee turnover rates, assuming certain costs with lost staff, and building a business plan that anticipates some amount of employee turnover can better prepare you and your business for voluntary terminations.
In this article, we walk the basics of employee turnover, including how to calculate it, industry benchmarks, and how we can use turnover rates to better understand business or economies at large.
What is employee turnover?
A common definition of employee turnover is the loss of talent in the workforce over time. This includes any employee departure, including resignations, layoffs, terminations, retirements, location transfers, or even deaths.
Businesses often calculate their rate of employee turnover as a means of predicting the impact on productivity, customer service, or even morale. The U.S. Bureau of Labor Statistics (BLS) also calculates employee turnover at a national level.
How does the U.S. BLS calculate turnover?
Each organization, locale, and industry has an employee turnover rate. The BLS calculates turnover for the entire country, each region of the country, and a number of market sectors. The annual total separations rate is the number of total separations during the entire year as a percent of annual average employment.
It looks like this:
U.S. BLS Annual Total Separations Rate Calculation
| Annual avg # of employees
___________________ X 100 = total separations rate
# of employee departures
For example, in 2018, on average there were 149 million people employed in the U.S. During the same period, there were about 66 million separations, or people who left their jobs either voluntarily or involuntarily. This means that the U.S. annual total separations rate in 2018 was 44.3 percent.
What do 2019 employee turnover rates tell us?
Although we don’t know the 2019 annual total separations rate yet, the BLS has reported monthly turnover rates through March 2019. So far, the monthly employee turnover — for all U.S. regions and industries — has been about 3.6 to 3.7 percent per month. That’s pretty similar to the 2018 monthly turnover. However, turnover rates have increased steadily from about 3.1 percent in 2010.
Those numbers might look low considering the fact that the annual turnover rate for 2018 was a whopping 44.3 percent. But remember, the annual turnover rate is a cumulative result of all 12 months. Let’s take a look at the data in chart form.
Monthly and Annual Employee Turnover Rates in the U.S., 2010-2019
*Preliminary data from U.S. Bureau of Labor Statistics
As you can see, both the monthly and annual employee turnover rates have increased steadily over the last decade. What’s more, “quits” outweighed terminations and layoffs by more than 80%. In 2018, 40 million people chose to leave their jobs, vs. 21.9 million who were terminated or laid off by their employers. (There were 4.1 million “other” separations in 2018.)
So what does this say about the state of employment in our economy? In a way, the increasing turnover rates are a positive sign of a strong job market. For the first time since the 2008 financial crisis, workers have plenty of opportunities for employment. This means that talented people should be able to find a position in an organization they like for a good salary.
It also means that if your company isn’t a good fit, employees have options. And, increasingly, employees are taking advantage of those opportunities.
In fact, more than 50 percent of the world’s top companies report that they have difficulty retaining their most talented employees.
While it’s important to understand the total separations rate (or turnover rate) for your region or industry, you might be more concerned with your own business’s turnover rate. Employers measure this figure as a percentage rate. It is the percentage of employees who leave that particular workforce during a defined period of time, usually one year.
| Average # of employees
_________________ X 100 = Turnover rate
# of employee departures
For example, if Barb’s Business employed an average of 20 people over the course of one year, and had a total of three departures, her annual employee turnover rate would be 15%. Compared to the national average, that’s not bad.
What are the top reasons for employee turnover?
But what if your business has a higher than average employee turnover rate? If your best people frequently leave your organization for greener pastures, you need to ask yourself why.
The top reasons that employees give for quitting a job are:
- Lack of career advancement opportunity
- Poor management from their supervisors
- Lack of organizational fit
- Lack of training, support, or resources necessary to do their jobs well
These problems can all be addressed by improving your hiring, onboarding, and management practices.
One of the top reasons employees leave is that they aren’t the right fit for your organization. That’s why it is crucial that you hire people who are in alignment with your company culture, mission, and values.
Of course it’s important that your employees have the skills to do their jobs. But if they aren’t a match for your organization, they will soon disengage. Employees who feel out of place lose motivation and sense of purpose.
Research shows that employees who go through a structured onboarding process are 58% more likely to stay with the organization for three years or more. Why? Because a well-designed onboarding program increases employee engagement and helps new staff members feel like a part of the team.
When you put time and effort into onboarding your new employees, it shows the company’s interest in them. Showing gratitude, checking in, and making people feel as if they are contributing are all great ways to ensure your new hires feel like they fit in.
It also reassures your team that you are committed to providing them with the training and resources they’ll need to be successful, both with your company and in their careers.
According to a 2008 Gallup survey, 75 percent of people who quit do so for a reason that managers should’ve seen coming, but didn’t.
For 17 percent of those folks, the reason is simply that they don’t get along with their boss. If your employees feel like their manager’s expectations are unclear, that they are not treated with respect, or that you don’t provide adequate training and resources, you can expect to have a high level of turnover.
The solution to this problem is to prioritize supervisory relationships in your organization. Managers should aim to treat all employees with respect, regardless of their position in the organization. You should build trust with your staff by keeping promises and sharing information whenever possible. And offer your people opportunities to use their skills and contribute to the success of the organization.
When people feel that they are respected, both as people and as skilled professionals, they are more engaged and satisfied with their jobs.
This article is intended only for informational purposes. It is not a substitute for legal consultation. While we attempt to keep the information covered timely and accurate, laws and regulations are subject to change.