Employee turnover is inevitable in running a business. Although it comes with its own set of costs, controlling these expenses can be done by managing involuntary departures.
Such turnovers are caused by decisions made by the higher-ups, whether that may be attributed to poor performance, budget cuts, or other reasons.
On the other hand, voluntary turnovers are more complex – they might serve the company’s purpose or not.
What determines such is based on how it affects the organization when employees start leaving of their own accord.
Functional turnover is acceptable for the company. Employees who choose to move on may only be part-time staff, or their performance isn’t as stellar – however, tasks will still be accomplished without difficulty.
In some cases, replacing them with higher-performing personnel might even improve the outcome of their job functions and benefit the company in the long run.
Generally speaking, the advantage derived from renewed staff outweighs any costs it incurs.
Dysfunctional turnover has a considerable impact on the company. There are financial losses and issues like the loss of valuable employees and a decrease in workforce diversity.
Top-performing or uniquely talented individuals can be hard to replace, as recruitment may be expensive.
Furthermore, these losses can lead to quality issues and customer complaints, causing further expenditure.
To prevent dysfunctional turnover, human resources managers should encourage functional turnover. They should implement an evaluation system to identify underperformers and those who excel.
If underperformers fail to improve, they should be terminated. The firm should provide them with challenging new opportunities and promotions to keep the top performers.
Turnover might be out of a company’s control due to employees needing to attend to family or health concerns, relocating, studying full-time, etc.
Conversely, turnover can be preventable when companies have the means; employees may leave because the workplace does not meet their job or career expectations. This could involve inadequate wages or limited advancement possibilities.
Firms that take measures to inhibit employee turnover can find their market value increasing, reflected in sales growth and enhanced profitability (as seen in SHRM on page 4).
While some turnover may be beneficial and not necessarily preventable, attention should be steered towards reducing dysfunctional and avoidable departures.
Executives aiming to implement changes should rigorously study exit interviews and benchmarking research. Determining why valuable resources are departing is essential, so appropriate measures can be taken to stop it.
Calculating Employee Turnover Using A Formula
There has to be a formula for calculating employee turnover to keep track of it. To replace a lost employee, managers must recruit applicants, conduct interviews, and invest in training and orientation. Replacing an employee costs money. Therefore, a high turnover rate reduces profits.
Another way to put it is that businesses with low turnover rates can gain a cost advantage over competitors with higher turnover rates.
How Does Employee Turnover Work?
The turnover of employees is a simple measure. Employee turnover refers to how many employees you have to replace due to resignations and other separations during a given period.
Employee turnover is expressed as employee turnover rate, the percentage of your employees who leave. Typically, employee turnover is measured every month.
The numbers might need to be more significant to show meaningful patterns for a small business, so a longer time frame, such as a quarter or even a year, might be more helpful. Turnover rates vary by industry, so there is no such thing as a high or low employee turnover rate.
Retail turnover was 4.6 percent as of May 2017, while education turnover was 2.7 percent. To find about employee turnover information for your industry, consult industry trade journals or the U.S. Bureau of Labor Statistics.
Costs Associated With Replacing Employees
If you lose an employee, it’s expensive. It would help if you found and screened potential new hires, conducted interviews, completed reference checks, and completed paperwork.
You face the prospect of lower productivity once the new employee is thoroughly familiar with her duties once she has been selected and hired. She must be trained as well as oriented to the job and internal business policies and procedures.
Turnover Of Overall Employees
To calculate employee turnover, add the number of employees at the beginning of the measurement period to the number at the end.
To calculate the employee turnover rate, divide by two the average number of employees, then by the average number of employees divided by the number of employees separated during the period.
R = S/((B + E)/2), R is the turnover rate, S is the total number of employees who have left their jobs, and B and E are the initial and final employee sizes.
If you start with 75 employees and end with 85, your average employee count is 80. If 16 workers quit, that’s 16/80, or 20% (multiplied by 100).
Turnover Of New Employees
A company’s overall employee turnover tells you whether it is high or low for your industry. For example, you can measure how many employees leave after less than one year as a percentage of total employee turnover.
You can also look at particular groups of employees.Thirty employees leave during your measurement period.
Twelve of them had been working with you for less than a year. Divide 12 by 30 and then multiply the result by 100 for getting the percentage of new employees who left, which is 40 percent in this example.
Those numbers may indicate problems retaining new employees, such as insufficient orientation and training if they are high for your industry.
Calculating Turnover Rate Percentage
A corporation can calculate its turnover rate for a specified period by dividing the total number of separations by the typical number of employees.
To avoid additional training and recruiting costs associated with high turnover, the business needs to analyze the reasons for a high turnover if turnover is higher than in previous years or exceeds industry norms.
Significance of turnover
A company’s turnover rate indicates the number of staff members that leave the organization periodically.
There are various explanations for this; for example, good or precise hiring processes can result in candidates failing to possess the necessary skills or entering the role with unrealistic expectations.
Sometimes, people seek more remunerative positions, want better work-life balance, or experience greater job satisfaction elsewhere. Additionally, retirement and discontentment with peers or managerial staff can play a role in an employee’s decision to resign.
Calculation Of Turnover Rate
The turnover rate percentage can be calculated by dividing the number of separations, e.g., resignations, layoffs, transfers to other companies, or retirement, by the average number of employees throughout the year.
That figure is determined by taking the total number of employees at the start and finish of the period – not including those promoted or moved between departments – and dividing it by two.
To illustrate, if, at the beginning of a year, there were 30 staff and 40 at its end, with five separating during that time, then the division would be 5/35 for a 14% turnover rate.
Turnover Rate Variations
Variations of the turnover rate formula permit you to pinpoint trends in particular kinds of departures.
The voluntary turnover rate only focuses on workers who left voluntarily and didn’t take those terminated or fired into account. Companies may dig even more profound and leave out retirees from their computation.
Work out turnover rates monthly, quarterly, or annually or evaluate year-to-date turnover. Examining turnover rates over different periods can assist the organization in anticipating when staff is liable to depart and when they should allocate time for recruitment.
Internal and external sources can be used to analyze the turnover rate. You can compare the current rate with industry averages, previous months, years, or even historical trends to see how it has changed.
If there is a considerable difference, look into your organization’s systemic issues. Exit interviews and employee surveys can be essential tools in identifying said problems.
Employee turnover is a common phenomenon in business operations, with both functional and dysfunctional consequences.
The former doesn’t threaten the company, while the latter has a considerable impact and can lead to financial losses, quality issues, and decreased workforce diversity.
Companies can prevent dysfunctional turnover by promoting functional turnover, providing opportunities for top performers, and analyzing exit interviews to determine the cause of departures.
Employee turnover can be measured using a formula and expressed as a rate that varies by industry.
The cost of returning a worker is high, including recruitment, interviewing, and training expenses. The overall and new employee turnover can also be measured to determine any patterns or issues in employee retention.
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Carol T. Mahaffey is a certified American Author And a creator of Theleaderboy. Carol is a Self-Taught Marketer with 10+ Years of Experience. She brings her decade of experience to her current role, where she is dedicated to writing books, blogs, and articles, inspiring the world on how to become a better Leader.