Does Your Company Have a Healthy Employee Turnover Rate?
Employee turnover is a natural part of any business. Contracts come to an end, employees move on, and you hire new people to replace them.
Ideally, you would like to keep your attrition rate as low as possible. Employee turnover has multiple associated costs, such as severance pay, loss in productivity, and the cost of recruiting and training a new hire. The total expense is a minimum of 33% of the outgoing employee's salary. That can rise to 200% if you’re replacing a highly specialized staff member.
The Great Resignation saw a surge in quit rates, and turnover has stayed high ever since. At the end of 2022, the Bureau of Labor Statistics reported a national monthly quit rate of 2.7%, or over 4 million people.
Some industries are hit harder than others, so the important question for most employers is whether your current company turnover rate is healthy and sustainable.
How to calculate employee turnover rate
Your turnover rate is the number of employee separations by the average number of employees over a defined period of time, expressed as a percentage.
You can work it out using three figures:
- S = Total employees at the start of the period
- E = Total employees at the end of the period
- Q = Number of employees separated during the period
This formula gives your turnover rate:
For example, say you start the year with 100 employees, and you finish with 102 employees. During that year, 10 employees separated from the business. Your annual turnover rate is given as:
So, now you have a percentage. But this doesn’t mean much without context.
What is a healthy employee turnover rate?
A study by ADP shows that the average monthly turnover rate across all sectors is 3.2%, or approximately 38.4% per year.
But averages don’t tell the whole story. To understand your performance as an employer, you need to look at the various factors that contribute to data:
- Industry benchmarking: Every industry has a different average attrition rate. Retail, hospitality, and customer service all have a high employee churn rate; medicine, accounting and government positions are much more stable. You can see an industry breakdown on the Bureau of Labor Statistics website.
- Age: Age is the biggest factor in employee turnover. ADP’s study shows that workers under 26 are five times more likely to resign voluntarily than workers aged 56-65.
- Tenure: Most separations – whether voluntary or involuntary – tend to happen in the first year of the employee’s contract. Therefore, companies with tenured employees should see a lower turnover rate than a business with lots of recent hires.
- Demographics: Race, gender and other demographic details should not impact your retention rates. However, if there is an unusual turnover rate within a particular group, it may indicate that you have a cultural issue.
- Voluntary vs. involuntary: These figures tell two very different stories. Voluntary turnover is related to your performance as an employer; involuntary turnover reflects your hiring practices and demand planning.
Once you start to break down your employee turnover rate, you’ll begin to see narratives emerging, such as:
- High turnover rates of tenured employees or skilled workers - Your total rewards package may no longer be competitive. If you’re not taking care of your best talent, recruiters or headhunters from rival companies will lure them away.
- High turnover of minority groups – Members of those groups may feel that your office culture isn’t inclusive, perhaps even hostile or unwelcoming. It’s so important to get to the root of why certain demographic groups don’t feel comfortable in your team. It’s also essential to ask why your human resources processes aren’t identifying and resolving any problems.
- Low turnover of younger employees – This may indicate that younger workers feel they have promising job prospects with your company, which means your professional development planning is successful. Keep looking for new opportunities to retain emerging talent.
- High rate of voluntary separation – First, establish whether you’re in line with the national quit rates for comparable jobs. If not, then ask why people are leaving. Do they report low levels of employee engagement? Or because there are better opportunities elsewhere?
- High rate of involuntary separation – This indicates a problem somewhere in your staffing plans. If you’re releasing people because you don’t need them, you need to review your demand planning. If you’re letting people go because they don’t meet expectations, it’s time to examine your hiring, training and onboarding processes.
A healthy employee turnover rate is whatever best suits your business. You might expect a low rate in some departments and a high rate in others. The important thing is to understand why people leave, and whether there’s anything you can do to make talented employees stay longer.
Related reading: The Complete Guide to Employee Retention
How to improve your turnover rate
Turnover is a result of many factors, but reducing turnover comes down to one thing: listening to your employees’ needs.
Here are some things you can do to bring down a high employee turnover rate.
- Make sure your total rewards package is competitive. If you can’t compete on salary, look at offering additional employee benefits, recognitions, work-life balance, and development opportunities.
- Use professional development as a retention tool. Career development plans show that you have a long-term commitment to the employee. In return, they’ll make a long-term commitment to you as they proceed along their career path.
- Perform exit interviews. Every time someone leaves, take a moment to ask them about their experience. This data is vital for your retention strategy.
- Promote a positive culture. Around half of people say that company culture is more important than salary. Work to promote a workplace culture that’s collaborative, trusting, and inclusive.
- Make your people part of your mission. Employees want a sense of purpose when they work. Share your vision with them, and help them understand why they’re an essential part of the strategy.
- Get your recruiting and onboarding right. The best way to reduce turnover is to hire the right people. Find candidates who are a good fit, and offer new employees a world-class onboarding experience.
- Promote a work-life balance. Burnout is often a contributing factor to why employees leave, especially since the pandemic. Offer mental health support through your Employee Assistance Program, and consider offering remote working and flexible hours.
While employee turnover is an unavoidable fact of life, most people would rather remain in their current role than look for a new job. If you can address their concerns – whether that’s salary, culture, workload, professional development, or something else – they’re likely to stay.
Maintaining a healthy turnover rate
Employee turnover is bad for your bottom line, especially if you lose high-performing employees. Not only will you have increased turnover costs, but you'll find yourself battling in the recruitment market for top talent.
If you're facing a high staff turnover rate, you may need to rethink your employee engagement and retention strategy from the ground up.
The good news is: you don't have to do it alone. Book a no-obligation consultation call with Helios HR today and find out how you can hold onto your top performers.