What is turnover rate in employees? Why does it matter?

In the bustling world of businesses, a crucial metric often lurks behind the scenes, shaping organizational landscapes: the employee turnover rate.

This enigmatic figure encapsulates the comings and goings of team members, revealing tales of engagement, contentment, and attrition. It's the measure of employees departing from a company within a certain time frame.

Delving into this metric isn't just about numbers; it's about deciphering the heartbeats of your workforce. In this blog we will uncover the mysteries of the employee turnover rate, why it matters, and how it can transform your workplace for the better.

What is employee turnover?

Employee turnover refers to the rate at which employees leave a company and must be replaced by new hires. It is usually expressed as a percentage and calculated over a specific period, such as a month or a year. This metric is essential for organizations as it reflects the health of their workforce and can impact overall productivity and profitability.

What is the meaning of turnover rate?

Turnover rate, also known as employee turnover rate, refers to the percentage of employees who leave an organization during a specific period, typically annually. It is a critical metric that measures the rate at which employees depart and need to be replaced within a company.

Monitoring and analyzing a company's employee turnover rate can help organizations identify underlying problems, improve employee retention strategies, and ultimately maintain a more engaged and productive workforce.

What are the types of employee turnover in a workplace?

Employee turnover in the workplace can be categorized into several types, each with its causes and implications. The primary types of employee voluntary and involuntary turnover, are:

Voluntary turnover

This occurs when employees willingly choose to leave the organization. Reasons for voluntary turnover can range from pursuing better career opportunities, dissatisfaction with the job or work environment, personal reasons, or retirement.

Involuntary turnover

Involuntary turnover happens when an employer initiates the separation of an employee. This can result from factors like poor performance, violations of company policies, downsizing, or layoffs.

Functional turnover

Functional turnover involves the departure of employees who are not contributing effectively to the organization. While they may not have performance issues that lead to termination, they choose to leave due to limited job satisfaction or personal reasons.

Dysfunctional turnover

Dysfunctional turnover refers to the departure of productive and high-performing employees, often due to dissatisfaction with the work environment, management, or other organizational factors. This type of turnover can be particularly costly for companies.

Controllable turnover

Controllable turnover is turnover that an organization has some influence over and can manage through effective HR practices. This includes addressing issues like job satisfaction, professional development, and compensation.

Uncontrollable turnover

Uncontrollable turnover occurs due to factors beyond the organization's control, such as retirement, family-related issues, or employees leaving for reasons unrelated to work.

Seasonal turnover

Some industries, like retail and agriculture, experience seasonal turnover as employees are hired for short-term or temporary positions during peak seasons and then let go afterward.

Understanding these different types of employee turnover is essential for organizations to develop strategies that address the specific causes and challenges associated with each type. By doing so, they can work towards reducing turnover rates and retaining valuable talent.

How to calculate the employee turnover rate?

It is crucial to calculate turnover rate for assessing workforce stability and identifying areas for improvement. To calculate the rate, use the following turnover rate formula:

Employee Turnover Rate (%) = (Number of Employees Who Left During a Period / Average Total Number of Employees During the Same Period) x 100

Here's a step-by-step guide on how to calculate it:

1. Determine the period: Decide the time frame for which you want to calculate the turnover rate. Common periods are monthly, quarterly, or annually.
2. Count departures: During the chosen period, count the number of employees who left the organization for any reason. This includes resignations, retirements, terminations, and any other forms of employee departures.
3. Calculate average total employees: Determine the average total number of employees during the same period. This should include all employees who were on your payroll during that time.
4. Plug into the formula: Insert the numbers into the formula mentioned above.
5. Multiply by 100: To express the result as a percentage, multiply the outcome by 100.

For example, if you had 250 employees at the beginning of the year, and 20 employees left during the year, the turnover rate would be:

Turnover Rate (%) = (20 / 250) x 100 = 8%

This means that 8% of your workforce left the organization during that year. Calculating turnover rates regularly can help organizations gauge the health of their workforce and identify trends that may need attention, such as high turnover in specific departments or job roles.

What is a good turnover rate?

A good turnover rate aligns with the specific goals and circumstances of an organization. There is no universal "good" turnover rate because what's acceptable varies greatly across industries, company sizes, and regions.

Several factors influence what can be considered a good turnover rate, including:

Industry norms

Different industries naturally have different turnover rates. For instance, industries like retail and hospitality typically have higher turnover rates due to the nature of the work.

Company size

Smaller companies may have higher turnover rates simply because the departure or entry of a few employees can significantly impact percentages. Larger companies might have lower turnover percentages but may still experience a large number of employees leaving.

Geographical location

Turnover rates can vary by region or country due to differences in labor markets, economic conditions, and job opportunities.

Job roles & company culture

Certain job roles may naturally have higher turnover due to factors like stress, demand, or competition. Besides a strong company culture that emphasizes employee engagement, well-being, and growth tends to have lower turnover rates.

Economic factors

Economic downturns or upswings can also affect turnover rates. In a strong job market, employees might be more likely to seek better opportunities, while in a recession, they may be more inclined to stay put.

Therefore, organizations should focus on understanding their unique context and needs when evaluating turnover rates. Rather than aiming for a specific percentage, the emphasis should be on monitoring trends, addressing any unusual spikes, and striving for a rate that supports the organization's overall goals, employee satisfaction, and productivity.

A good turnover rate allows an organization to maintain a healthy and productive workforce while keeping recruitment and training costs in check.

What does a healthy employee turnover rate look like?

A healthy employee turnover rate varies depending on the industry, organization size, and specific circumstances, but in general, it should strike a balance between stability and renewal. Here are some characteristics of a healthy turnover rate:

Industry alignment: It should be in line with industry benchmarks. Different industries have different norms; for instance, industries like automobile and healthcare tend to have higher turnover rates, while sectors like healthcare or government have lower ones.

Steady, manageable turnover: Healthy turnover is not erratic or volatile. It should exhibit a degree of stability, with occasional spikes related to seasonal or project-based hiring needs.

Retention of top talent: A healthy turnover rate should ensure that top-performing and high-potential employees are retained, and their departure is minimized. Losing key talent regularly is a sign of unhealthy turnover.

Alignment with business strategy: It should align with the organization's strategic objectives. For instance, if a company is in a growth phase, slightly higher turnover as it expands and hires new talent might be acceptable.

Reasonable costs: Healthy turnover minimizes excessive costs associated with recruitment, training, and onboarding. High turnover can result in significant financial burdens.

Positive workplace culture: A healthy turnover rate reflects a positive workplace culture that values and retains employees, providing opportunities for development and advancement.

Employee feedback: Regular employee feedback and exit interviews should be conducted to understand the reasons behind turnover and make improvements accordingly.

Gradual replacement: Employees who leave should be gradually replaced with well-qualified candidates, ensuring a smooth transition without overburdening the organization.

Low voluntary turnover: Voluntary turnover, where employees choose to leave, should be kept to a reasonable minimum. High voluntary turnover suggests dissatisfaction or attrition issues.

Strategic hiring: New hires should contribute positively to the organization and fit into the company culture, minimizing turnover caused by poor hiring decisions.

A healthy employee turnover rate strikes a balance between stability and adaptation, aligns with industry norms, minimizes costs, and reflects a positive workplace culture. It should be monitored and managed in a way that supports the organization's strategic objectives and long-term success.

Employee turnover statistics across industries

Employee turnover rates can vary significantly across industries due to differences in job characteristics, work environments, and labor market conditions. Here are some general trends in employee turnover statistics across industries:

1. Retail: Retail often experiences some of the highest turnover rates, ranging from 60% to 100% or more. This is due to the seasonal nature of the industry, entry-level positions, and limited opportunities for career advancement.
2. Hospitality: Similar to retail, the hospitality industry, which includes hotels and restaurants, typically faces high turnover rates. It can range from 70% to 100%, primarily driven by seasonal demand and the nature of part-time and hourly jobs.
3. Technology: The technology sector tends to have lower turnover rates, often below 10%. High demand for skilled workers, competitive salaries, and opportunities for career growth contribute to employee retention.
4. Healthcare: Employee turnover rates in healthcare vary by role. While registered nurses (RNs) may have turnover rates around 15%, lower-skilled positions in healthcare facilities, like nursing assistants, may experience higher turnover, approaching 30% or more.
5. Manufacturing: Turnover rates in manufacturing typically range from 10% to 20%. Factors like automation, job security, and the need for specialized skills can influence turnover.
6. Finance: The finance industry generally experiences moderate turnover rates, often around 10% to 15%. High salaries, career progression opportunities, and the specialized nature of roles contribute to lower turnover.
7. Government: Government and public sector jobs often have the lowest turnover rates, frequently below 5%. These positions offer stability, benefits, and retirement plans, making them attractive for long-term employment.
8. Education: Education has a range of turnover rates. K-12 teachers might see turnover rates around 10% to 15%, while higher education faculty and staff may have lower turnover, closer to 5%.
9. Construction: Turnover in the construction industry can vary but often falls between 20% and 30%. Seasonal work, project-based employment, and demand fluctuations influence turnover.
10. Professional Services: Fields like law, accounting, and consulting usually experience lower turnover rates, often below 10%. These roles demand specialized skills and offer substantial earning potential.

It's important to note that these figures are approximate and can vary based on factors like location, company size, and economic conditions.

Conclusion

Understanding turnover rate is crucial for organizations of all sizes and industries. It serves as a vital metric for evaluating workforce stability, recruitment effectiveness, and overall employee satisfaction. A high turnover rate can signify underlying issues that need attention, while a healthy rate reflects a stable and engaged workforce.

By analyzing turnover data and implementing effective retention strategies, businesses can reduce recruitment costs, improve employee morale, and ultimately achieve long-term success.