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A company can be likened to filling up a leaky bucket with water. Though you add water to the bucket, some is always dripping from the bottom. Similarly, when new employees arrive at a company, it’s only a matter of time before a handful of existing employees leave.
The percentage of employees leaving a company over a certain period of time is known as employee turnover rate. It’s an incredibly important figure to know. Calculating employee turnover allows you to fully prepare for growth or manage a downsizing.
So without further ado here’s how to calculate employee turnover.
How to calculate employee turnover?
To calculate monthly turnover, you need to determine three figures:
- The number of employees at the company at the beginning of the month (B)
- The number of employees at the company at the end of the month (E)
- The number of employees who left the company in that month (L).
Next you must work out your average number of employees (Avg). This can be calculated by adding B to E and dividing by two: (B+E)/2.
Then to calculate employee turnover divide the number of employees who left the company in that month (L) by the average number of employees and multiply by 100:
Employee turnover = (Avg / L) x 100
To calculate the annual turnover just work out the number of employees at the beginning or end of the year instead of the month. Simple!
What can the employee turnover rate tell you?
If a company has a high turnover rate compared to their competitors, this can be a bad sign. A higher employer turnover means employees have a shorter average tenure at the company. This means workers are leaving the company more frequently than other competing businesses.
Having a high employee turnover is bad for two main reasons. Firstly if employees are frequently leaving the company and being replaced by novices then this will reduce productivity. A lot of time and money will be wasted hiring and training the new employees. Whereas if the skilled employees had stayed all that time could be spent on more productive pursuits.
Secondly, a high employee turnover creates a bad reputation. If a potential candidate finds out a company has high turnover, they may avoid applying there. After putting in all the effort to get a job in the first place, most people want to feel their position is secure. At least for a few years.
Is my employee turnover healthy?
Trying to discern if your employee turnover is at an acceptable level can be quite tricky. For starters, employee turnover varies widely across industries and job sectors.
Employee turnover is normally highest in industries like hospitality which normally have a rate of about 20%. However, other industries like education have very low employee turnover rates, usually landing within the range of 5-10%.
Employee turnover is going to be specific to your job industry. This means you must work out if your employee turnover is healthy relative to other companies or institutions in your sector.
So if you have a lower employee turnover than your competitors this is a good sign. However, if you have a much higher turnover compared to your competitors you may want to take steps to better retain your skilled employees.
Obviously your competitors are not going to offer up this information willingly but there are databases that you can refer to. For the US, a good source of information on employee turnover is the Bureau of Labour Statistics. For Europe a good reference is the European Union’s database.
What’s the next step?
Now that you have determined the how (how many employees are leaving the company?) it is time to focus on the who, why, and where.
Who is leaving the company?
Higher employee turnover rates are expected amongst the unskilled workers of the company. For example, warehouse workers are going to leave the company much more frequently than office floor staff.
However, if you begin to notice a trend in increased employee turnover among skilled staff, it is time to act. Skilled workers take time and money to replace and a high employee turnover is going to hurt your bottom line.
Why are people leaving the company?
Employees leaving a company is inevitable. There are unavoidable reasons employees leave a company such as ill health, a change in family circumstances, and moving home.
However, if your employees are leaving the company for avoidable reasons, steps should be taken to counteract this. Employees may leave because the workload is too much, their managers are unreasonable, or the pay is too low.
These are factors a company can control. They can create a better work-life balance for their employees, they can retrain their managers or they can create monetary incentive schemes.
Where are the employees going?
If you can identify where your recently employed workers are moving to this can be very informative. If you can identify which companies your employees are moving to you can take steps to change your company so the alternative is no more attractive than what you offer.
It is also common corporate practice to poach employees from competitors. If you begin to notice that employees are leaving and joining one particular firm you can try and undercut what the other company is offering.