As much as it’s often overlooked, one of the most essential HR metrics to monitor is employee turnover rate. In this story, we’ll tell you everything you should know about employee turnover rate. You would understand why employee turnover rate should not be ignored. You would also get to understand what employee turnover means and how it is calculated.

What is employee turnover?

Employee turnover - also referred to as staff turnover - is a measure of how many employees leave an organization. In most cases, when an employee leaves, the organization needs to hire new staff to replace them. An employee leaving an organization could be voluntary or involuntary. Hence, turnover rates could be categorised under voluntary turnover and involuntary turnover.

Voluntary turnover occurs when a staff member leaves an organization out of his/her own will. This is often because they go on to take an offer from another organisation.

Involuntary turnover occurs when a staff leaves an organisation out of compulsion. Essentially, involuntary turnover occurs when an organization terminates a staff’s contract due to absenteeism, violation of workplace ethics policies, or poor performance on the job.

The significance of employee turnover

Employee turnover is one of the most essential - but often overlooked - HR metrics. Usually, employee turnover is often talked about in a negative context. This is because high turnover rates of staff usually leads to increased costs for an organization. Having high employee turnover rates can be really expensive. When a staff member leaves, the organization has to worry about getting new hires. If all due diligence is done, replacing an employee usually costs quite a lot of money. After hiring, a new employee now has to learn on the job. Even experienced professionals still have to take time to get accustomed to the peculiarities and work ethics of your organization.

Why is it costly to replace employees?

When you consider all the costs associated with hiring a new employee, it becomes immediately clear why employee replacement costs so much money. First of all, you need to find and hire new employees. The stress and time it would require to find an employee who is a perfect fit cannot be predicted. Subsequently, deliberate efforts have to be put into onboarding and training these new hires. In terms of productivity, new employees tend to take a while before they begin to operate at full capacity within their role. This is often the case, especially when the new hire is not so experienced. 

What is a healthy turnover rate?
Due to the high cost that’s involved in replacing employees, employee turnover is often described using a negative connotation. However, employee turnover is not all negative in its own sense. If an organization has a high turnover because poor performers are leaving, then the high turnover rate could be a good thing after all. If however, the top performers are leaving, it is a clear sign of a red flag. This is why it is uneasy to state what turnover rate is a healthy one; as it depends on the peculiarities of each organization. Hence, employee turnover should always be evaluated in context of the realities of an organization.

Average employee turnover rate
Apparently, employee turnover rate varies significantly across industries. Hence, it is difficult to determine what a healthy turnover rate is. According to LinkedIn, the average employee turnover rate across the globe stands at 10.9%. In some industries however, the general employee turnover rate is significantly higher than the average turnover rates. This is because these industries rely predominantly on part-time workers and students who eventually move on to work elsewhere.

What is the employee turnover rate?
The employee turnover rate is the measure of employees who left an organization within a certain period. It is usually measured in percentage. Usually, the employee turnover rate is calculated on a monthly and/or annual basis.

How to calculate employee turnover rate
Employee turnover rate is calculated by dividing the number of employees who left the company by the average number of employees within a certain period. The value arrived at is then multiplied by 100 to generate a percentage value

In formula:
The average number of employees is calculated by adding the number of employees an organization had in employment at the beginning of a certain period to the number of employees the organization had in employment at the end of the desired period, and then dividing the resulting value by 2. 

Hence, to calculate your employee turnover rate, the following 3 variables should be considered:

1. The number of employees on your employment roll at the beginning of a certain period.
2. The number of employees on your employment roll at the end of a certain period.
3. The number of employees who left your organization (voluntary or involuntary) within the said period.

As such, the formula for calculating employee turnover rate is: (no of employees at beginning of period ÷ number of employees at end of period) x 100.

No of employees @start  x 100
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No of employees @ end