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.
BLS statistics show that 2.1% of people quit their jobs in September 2020, which is a 0.2% drop from September 2019. Turnover will continue to be a fact of life, in good times or bad.
So, the important question for most employers is whether your current 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, 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 turnover rate for the quarter 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 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 HR 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. Is it because they’re unsatisfied with their job? 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.
How to improve your turnover rate
Turnover is a result of many factors, but reducing turnover comes down to one thing: listen 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 benefits, recognitions, and development opportunities.
- Use professional development as a retention tool. Professional development plans show that you have a long-term commitment to the employee. In return, they’ll make a long-term commitment to you.
- 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 culture is more important than salary. Work to promote a 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 them world-class onboarding experience.
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.