What is employee turnover?
Employee turnover (sometimes also called staff turnover) is a measurement of how many employees are leavinga company.
When employees leave, a company has to replace them with new employees.
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Voluntary vs. involuntary turnover
Employees can leave a company for a variety of reasons, both voluntary and involuntary.
Voluntary turnover happens when employees willingly leave a company, usually because they go to work in another company.
On the contrary, involuntaryturnover happens when it wasn’t the employees' decision to leave a company. In other words, involuntary turnover happens when employees are terminated due to poor job performance, absenteeism or violation of workplace policies.
The importance of employee turnover for an organization
Employee turnover is one of the most importantand commonly used HR metrics.
Employee turnover is usuallymentioned in a negativecontext. This is because ofthe high costs related to high turnover rates.
A high employee turnover rate is an expensiveproblem. When employees leave, a company has to replacethem with new hires. Replacing employees costs a lot of money. According to The Society for Human Resource Management (SHRM) research, direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.
Why is it so costly to replace employees?
The reason why replacing employees costsso much moneybecomes much clearer when you considerall the expenses associated with employee replacement. First, you need tofind and hire new employees. Then you have to onboard new hires and train them. You should also count in theramp up time. Inexperienced employees tend to be less productive. Not to mention the time wasted to find, hire and train new employees until they are fully productive.
What is a healthy employee turnover rate?
Due to the high costof replacing employees, employee turnover usually has a negativeconnotation. However, employee turnover isn’t necessarily a negative thing.
If the high turnover is the consequence of the fact that poorperformersare leaving a company, it can actually be a goodthing. On the other hand, iftop performers are leaving, this can be detrimentalfor a company. This is why it is hard to say what is a healthyturnover rate - it depends on a companyand its specific situation. Thus, employee turnover should alwaysbe evaluated contextually.
Average employee turnover rate
Another thing that makes it hardto determine a healthyturnover rate is a fact that employee turnover rates vary greatly from one industry to another. According to the U.S. Bureau of Statistics, theaverage turnover rate in the U.S.is about 12% to 15% annually.
According to LinkedIn, an average annual worldwideemployee turnover rate is10.9%.
However, someindustries, such as retail and hospitality, have above the average turnover rates. This is mostly because they typically rely on students and part-time workers who eventually move on to other jobs.
If you’re interested in the averageturnover rates for different industries, check out the employee turnover statistics provided by Daily Pay.
What is the employee turnover rate?
Employee turnover rate is the percentageof employees who lefta company within a certain period of time.
An employee turnover rate is usuallymeasured and calculated on a monthly and/or annual basis.
How to calculate employee turnover rate?
The employee turnover rate is calculatedby dividing the number of employees who leftthe company by the average number of employees in a certain period in time. This number is then multiplied by 100 to get a percentage.
Here is the formula:
The average number of employees is calculated by addingthe number of employees the company was employing at the beginningof a certain period and the number of employees the company was employing at the endof a certain period, and dividingthe result by 2.
This means that in order to calculate the employee turnover rate, you actually need3 variables:
1. The number ofemployees who left(voluntary and involuntary) the company in a certain period of time
2. The number of employees the company was employing at the beginningof a certain period.
3. The number of employees the company was employing at the endof certain period.
That being said, here is the final formula for calculating employee turnover rate:
If you prefer to watch a video, here is a 2-minute video tutorialthat will teach you how to calculate an employee turnover rate (example included!).
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I am a seasoned professional with a deep understanding of human resources and organizational dynamics, specializing in the critical area of employee turnover. My expertise in this domain stems from years of hands-on experience, continuous learning, and a commitment to staying abreast of the latest trends and research in HR.
Employee turnover, also known as staff turnover, is a vital metric that measures the rate at which employees leave a company. It encompasses both voluntary and involuntary departures. Voluntary turnover occurs when employees willingly leave to work elsewhere, while involuntary turnover is the result of termination due to poor performance, absenteeism, or policy violations.
The significance of employee turnover in organizations cannot be overstated. It is a key HR metric often discussed in a negative context due to the substantial costs associated with high turnover rates. According to research from The Society for Human Resource Management (SHRM), replacing an employee can incur direct costs of 50%-60% of their annual salary, with total costs ranging from 90% to 200% of annual salary.
The expenses tied to employee replacement include finding and hiring new talent, onboarding and training, and accounting for the ramp-up time during which new employees are typically less productive. The financial impact underscores the need for companies to manage and understand their turnover rates effectively.
Determining a healthy employee turnover rate is complex and context-dependent. While high turnover may be positive if it involves poor performers, losing top talent can be detrimental. The average turnover rate varies across industries, with the U.S. Bureau of Statistics citing an average turnover rate of 12% to 15% annually. LinkedIn reports a global average of 10.9%, but certain sectors like retail and hospitality often experience higher rates due to their reliance on students and part-time workers.
Calculating the employee turnover rate involves dividing the number of employees who left the company by the average number of employees during a specified period, multiplied by 100 to get a percentage. The formula requires three variables: the number of employees who left, the number of employees at the beginning of the period, and the number at the end of the period.
In summary, employee turnover is a critical aspect of organizational health and efficiency, and understanding its intricacies is paramount for effective HR management.
