If you’ve worked in the areas of employee hiring and retention for any length of time, you’ve probably heard the term “employee turnover.” But what does it mean exactly? How does it affect your workplace culture? And what can you do to make it better? Read on to see how this measurement can reveal opportunities for improving your workplace.
What is Employee Turnover Rate?
Employee turnover rate is usually given as a percentage representing the number of employees who leave a company during a given period of time versus the total number of employees in the workplace for that same time period.
If the percentage, or rate, is higher, then more workers are leaving your employment, which also means fewer long-term, stable workers are staying. As an HR professional, one of your goals is to keep that turnover rate low so that your workers feel a sense of stability, and so you can keep hiring and training costs lower.
Voluntary vs Involuntary Turnover
While turnover can be bad for a company, not all turnover is the same. Voluntary turnover happens when an employee decides to leave the job on their own. Involuntary turnover occurs when the worker didn’t choose to leave but rather was fired or laid-off.
How to Calculate Employee Turnover Rate
The employee turnover rate follows a simple calculation that can be used for any length of time. You may choose to measure the rate for a business quarter or for the entire year. Whatever period you measure, make sure that all of your inputs for the calculation are for that same time period.
Step 1: Record the total active employees in your organization at the beginning of the time period. We’ll call that “A.”
Step 2: Record the total active employees in your organization at the end of the time period. We’ll call that “B.”
Step 3: Subtract B from A to get the number of workers who left during that time period. We’ll call that “C.”
Step 4: Find the average number of employees for the time period by adding (A) + (B) and then dividing the answer by 2. We’ll call this “D.”
Step 5: Divide the number of employees who left (C) by the average number of employees (D).
Step 6. Multiply this number by 100 to get a percentage, which is your turnover rate. You could also consider this your average turnover rate if the chosen time period is typical for your business.
What is a Healthy Employee Turnover Rate?
While any company’s aim is to keep good employees around, no industry has a zero-turnover rate. You certainly don’t want poor performing workers staying, either. For that reason, you’ll expect to have some turnover in any given period, but you’ll also want it to remain low. What’s healthy or low for you will depend on your industry, company size, and the type of worker you hire.
Average Employee Turnover Rate by Industry
There are many resources that provide a look at what different industries experience for turnover rates. The Bureau of Labor Statistics, for example, provides their “quit rates” report that shows the number of quits during the entire year as a percent of annual average employment. This doesn’t show firings or layoffs, but it can provide insight into the industries where people are most likely to leave on their own.
Industries with the highest quit rates include:
- Accommodations and foodservice hospitality (54.2%)
- Retail (38%)
- Professional and business services (36.2%)
- Mining and logging (33.2%)
Compare that to some of the industries with the lowest quit rates:
- Federal government employees (6.8%)
- Finance and insurance (13.4%)
- Educational services (15.2%)
- Manufacturing of durable goods (17.4%)
The average employee turnover rate is highly influenced by industry. Using these numbers can help you know what’s realistic for your workplace.
Understand the Reasons for High Turnover Rates
The industry is just one factor. You can consider other reasons for high turnover rates by asking yourself these questions.
- Does your company have a lack of opportunities? If your workers don’t feel that there is any upward mobility, an opportunity to earn more, or potential for career growth, they may leave to go somewhere that will provide those opportunities.
- Is your management qualified? If you can’t confidently say that you have competent leaders, the finest talent won’t stick around long. No one likes to be managed by underperformers.
- Is your pay competitive? At the end of the day, your workers are there to earn a living. If wages are stagnant or low for the industry, they may eventually seek out higher pay, even if everything else at your workplace is superior.
- Do you engage your workers? A full-time employee will spend a third of their life in the workplace. If they don’t feel valued or like they’re part of something bigger than the task at hand, this could lead to their dissatisfaction.
Other factors that may cause employees to reconsider their position include long commutes, lack of benefits, an unsafe or hostile work environment, inflexibility, or unclear boundaries. Addressing these issues can go along way toward keeping your best player on the team.
Tips for Reducing Turnover
Since there may be more than a dozen actionable things you can do now to reduce turnover, where do you start? The first thing you can do is analyze who is leaving. Is there a particular positing that is showing the highest turnover? Addressing issues with a specific job may help and can be highly effective compared to trying to improve overall workplace culture.
Second, see why they are leaving. The best way to know this is to ask. If you’re not doing exit interviews with your departing employees, start. A simple form can lead you to clues on why turnover is happening.
Finally, look for coincidences beyond the type of worker or position being abandoned. If many workers leave at one time, for example, that is usually indicative of a recent change or coordinated effort. Look to new management practices, a competing company benefit, or changes in your benefits as a sign of what went wrong.
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