Employee turnover rate
Employee turnover rate is a metric used by management to measure the rate at which a company is losing and replacing employees. It is calculated by dividing the number of employees who have left the company in a given period of time by the average number of employees the company had during that same period. An organization's employee turnover rate is an important measure for the management team to assess the health and effectiveness of the organization. It reflects the level of employee satisfaction, organizational culture, and company performance. Monitoring the employee turnover rate can help management identify and address issues before they become larger problems.
Example of employee turnover rate
- An example of employee turnover rate is the rate at which an organization hires and fires employees in a given time period. For example, if a company has an average of 500 employees and 50 employees left in a given year, the employee turnover rate is 10%. This means that 10% of the employees left the company in the given year.
- Another example of employee turnover rate is the rate at which an organization hires and retains new employees. For example, if a company hires 100 new employees in a given year and retains 90 of them, the employee turnover rate is 10%. This means that 10% of the employees hired in the given year left the company.
- Finally, an example of employee turnover rate is the rate at which an organization experiences voluntary turnover. For example, if a company has an average of 500 employees and 50 employees left voluntarily in a given year, the employee turnover rate is 10%. This means that 10% of the employees left the company voluntarily in the given year.
Formula of employee turnover rate
Employee turnover rate is calculated by dividing the number of employees who have left the organization in a given period of time by the average number of employees the organization had during that same period. The formula for calculating employee turnover rate is as follows:
$$\text{Employee Turnover Rate} = \frac{\text{Number of Employees Who Left}}{\text{Average Number of Employees}} $$
The number of employees who left is the number of employees who have left the organization in a given period of time. The average number of employees is the average number of employees the organization had during that same period of time.
For example, if an organization had 100 employees in January and 90 employees in February, the number of employees who left is 10 and the average number of employees is 95. Therefore, the employee turnover rate would be 10/95 = 0.105, or 10.5%.
When to use employee turnover rate
Employee turnover rate is a useful metric for assessing the health of an organization. It can be used to identify and address issues before they become larger problems, as well as to measure the effectiveness of organizational policies and practices. Here are some examples of when to use employee turnover rate:
- To monitor the organization's ability to retain staff;
- To compare turnover rates to industry averages;
- To assess the impact of changes in policies or practices;
- To measure the effectiveness of recruitment efforts;
- To track the effectiveness of training and development programs;
- To identify problem areas or trends;
- To understand the reasons behind resignations or dismissals; and
- To evaluate the success of retention and incentive programs.
Types of employee turnover rate
Employee turnover rate is an important measure for the management team to assess the health and effectiveness of the organization. There are several types of employee turnover rate:
- Voluntary turnover rate which measures the percentage of employees who leave the organization willingly.
- Involuntary turnover rate which measures the percentage of employees who are terminated or laid off due to organizational downsizing or restructuring.
- Retention rate which measures the percentage of employees who remain with the same organization over a certain period of time.
- Replacement rate which measures the percentage of employees who have been replaced by new hires.
- Attrition rate which measures the percentage of employees who have left the organization due to retirement, death, or disability.
- Cost of turnover rate which measures the cost associated with replacing employees, including recruitment, training, and lost productivity.
Steps of employee turnover rate
- Calculate the total number of employees who have left the company in a given period of time.
- Calculate the average number of employees the company had during that same period.
- Divide the number of employees who have left the company in a given period of time by the average number of employees the company had during that same period.
- Determine the employee turnover rate by multiplying the result from step three by 100.
- Monitor the employee turnover rate over time to identify any trends or issues that may need to be addressed.
- Analyze the employee turnover rate to determine if it is too high or too low.
- Investigate the potential causes of any changes in the employee turnover rate.
- Examine the organization’s policies and practices to determine if they are contributing to the employee turnover rate.
- Develop strategies to reduce the employee turnover rate and improve employee satisfaction and retention.
Advantages of employee turnover rate
An employee turnover rate is a useful metric for management to measure the rate at which a company is losing and replacing employees. It can provide valuable insight into the health and effectiveness of the organization and help identify and address issues before they become larger problems. Here are some of the advantages of measuring the employee turnover rate:
- It helps to identify areas where improvements may be necessary, such as low employee satisfaction, weak organizational culture, or inadequate performance.
- It can be used to compare the turnover rate of different departments or teams, allowing management to identify which teams may need additional support or resources.
- It can be used to identify trends in employee turnover, such as changes in the rate over time or seasonal fluctuations.
- It can be used to inform decisions about recruitment, retention, and succession planning.
- It can be used to measure the success of initiatives designed to improve employee engagement and retention.
Limitations of employee turnover rate
Employee turnover rate is a useful metric for understanding the effectiveness of an organization. However, it has several limitations that need to be taken into account. These include:
- It does not take into account the quality of employees leaving the organization. If a company is losing high-performing employees, the turnover rate can remain low but the impact on the organization can still be significant.
- It does not consider the reasons for employee turnover, so it does not provide insight into why employees are leaving the organization.
- It does not account for the cost of replacing employees and the financial burden this can have on the organization.
- It is a lagging indicator, meaning that it does not provide insight into potential future employee turnover or how to prevent it.
- It can be affected by changes in the labor market and external factors, making it difficult to determine the true cause of fluctuations in turnover rate.
To better understand the employee turnover rate, it is important to look at other approaches related to this metric. These include:
- Employee Retention Analysis: It is a process of assessing the reasons why employees stay or leave an organization. This can help identify issues that need to be addressed in order to improve employee satisfaction and reduce turnover.
- Job Satisfaction Surveys: Job satisfaction surveys can provide valuable insights into the levels of satisfaction with their job and any issues that might be causing them to leave.
- Exit Interviews: Conducting exit interviews with departing employees can provide valuable information about the reasons why they are leaving and what management can do to improve employee retention.
- Employee Engagement Surveys: Employee engagement surveys can help identify areas of employee dissatisfaction and potential issues that need to be addressed in order to improve employee engagement and satisfaction.
In summary, understanding the employee turnover rate is an important part of assessing the health and effectiveness of the organization. It is important to look at other approaches such as employee retention analysis, job satisfaction surveys, exit interviews, and employee engagement surveys in order to gain a more complete picture of employee turnover.
| Employee turnover rate — recommended articles |
| Labor force participation — Market growth — Operational performance — Productivity report — Positive correlation — Economic impact analysis — Base effect — Unemployment costs — Job enlargement |
References
- Zhang, Y. (2016). A review of employee turnover influence factor and countermeasure. Journal of Human Resource and Sustainability Studies, 4(2), 85-91.
