Calculating employee turnover is essential for any company that wants to effectively manage its human resources. It measures the rate of staff rotation and provides invaluable insights for making informed decisions and implementing preventive measures.
Several factors can impact the turnover rate and must therefore be taken into consideration when estimating and interpreting it. Otherwise, you may obtain inaccurate results and draw erroneous conclusions.
This article provides clarification on the concept of turnover rate, its usefulness, how to calculate turnover, as well as methods for interpreting the results.
What is the turnover rate?
The turnover rate is an HR indicator that measures the number of employee departures in a company over a given period. Expressed as a percentage, it allows you to assess the stability of the company’s workforce. Thus, a high rate may indicate that the company is struggling to retain its employees, while a low rate may indicate good employee retention. Generally, the turnover calculation is performed over a given period. This task falls to the human resources department, which is also obligated to regularly update this rate and monitor its evolution.
Why is it necessary to calculate this rate?
There are three main reasons that justify the need for a company to calculate turnover:
- First, the turnover rate allows you to know if the work environment within the company is good or bad and if the employees are satisfied. This information will allow the HR department to adjust its management system as well as its recruitment process;
- Second, calculating turnover shows the impact of staff renewal on the company’s performance. It allows you to determine whether this rotation reduces costs and improves productivity, or the opposite;
- Third, calculating turnover also helps to preserve the company’s image and prevent it from losing customers. Indeed, a disgruntled employee who leaves a company can damage its image.
By knowing the staff turnover rate, the HR department can make strategic decisions to improve employee job satisfaction and retain them. The goal? To enhance the company’s image, both in the eyes of customers and potential recruits.
What factors can influence the turnover rate?
Your company’s turnover rate can be influenced by various factors. Here are some of them:
- Job satisfaction: an employee who is not satisfied with the treatment they receive from the company will not want to stay;
- Relationships between colleagues: when tensions arise between colleagues for various reasons, some may consider leaving the company;
- Organisational commitment: when an employee is engaged at work, they are more likely to stay with the company even if they encounter difficulties. In this specific case, it may be useful to test the personality of employees to assess their commitment;
- Organisational justice: when an employee thinks that their superiors do not make fair and equitable decisions, they may resign from their job;
- The organisation’s reputation: employees tend to leave companies with a bad reputation more easily;
- Work overload: when an employee is overloaded with work, it impacts their life on different levels. This situation promotes psychosocial risks and can push them to look for a new job with less stress and more flexibility;
- Transfers and promotions: a mobile employee who regularly benefits from internal advancement opportunities is less likely to leave the company.
In general, the factors influencing the turnover rate can be personal (related to the employee) or internal/external to the company.
How to calculate turnover in a company?
The calculation of turnover in a company is done according to a specific methodology. This includes four steps, which are as follows.
Define the period for which the rate will be calculated
The first step in calculating turnover is to identify the period over which you want to estimate this rate. For the result to be as accurate as possible, this period should provide sufficient information about the company’s operations. It is possible to determine the turnover rate on a monthly, quarterly or annual basis. It all depends on the insights the company is looking for. Calculating turnover on a monthly basis gives an immediate overview of internal dynamics, while a quarterly calculation offers a medium-term perspective. To assess employee loyalty on a broader scale, it is recommended to calculate turnover annually.
Calculate the average workforce
For the next step in the turnover calculation process, you will now need to obtain the number of employees at the beginning and end of the period in question. You will find these two pieces of data in the reports of your company’s human resources department. Of course, it will always be easier if you have a modern human resource management system. Once you have these two pieces of data, calculate their average by adding them together and then dividing the result by 2.
Properly determine and include departures
Employee departures from a company over a given period can be divided into three categories: resignations, terminations and retirements. To obtain a complete and realistic view of the situation, you must include all of these departures in the turnover calculation. It is essential that the data collected is accurate. If you make an omission or any error, you will obtain results that have no relation to the current staffing situation within your company. Consequently, to avoid these errors in the turnover calculation, implement a mechanism for rigorous collection and verification of the data required for the turnover calculation. The human resources manager plays an important role in the accuracy of the results. They must regularly update the employee database.
Determine the turnover rate
The formula to use for calculating turnover is as follows: Number of departures / average workforce x 100 Let’s illustrate the use of this formula with an example. On January 1st, 2023, Company X had 200 employees. During the year, 10 left the company. However, it also hired 30 new employees and ended the year with 220 employees. The average workforce here is 210. The operation to be performed is as follows: (10/210) = 0.0476 x 100. We obtain a result of 4.76%. This number represents the turnover rate of this company over the period of 2023.
How to interpret the result after calculating turnover?
As mentioned earlier, calculating turnover allows you to know the social climate within the company. When the rate is moderate, it indicates a healthy and stable environment. The company then inspires confidence in job seekers. On the other hand, a high rate suggests internal social instability. The consequence is not long in coming: the company receives few job applications. Thus, there is a correlation between the recruitment KPIs and a company’s turnover. It should also be noted that a very low turnover rate shows that the company is stagnating and content to preserve its achievements. However, in a very dynamic market context, this approach is counterproductive. In fact, the company should rather innovate and recruit regularly to remain competitive and enrich itself with new skills. The previous explanations can guide you in interpreting the results of your company’s turnover calculation. However, they should not be considered absolutely accurate. For a precise interpretation, it is recommended to consider various factors such as the sector of activity, the particularities of the positions, the needs of the employees, the company’s strategy, etc. These elements offer a more complete perspective on the turnover rate.
How to reduce a high turnover rate?
There is no ideal turnover rate. However, a high rate implies significant financial losses for the company. For example, when positions remain vacant after an employee’s departure, productivity suffers. Recruitment 2.0 can help avoid this prolonged vacancy.To reduce a high turnover rate, companies must implement effective strategies to improve employee retention. Here are some measures that can be taken:
- Offer competitive salaries and benefits: Employees are more likely to stay with a company that provides fair compensation and attractive perks.
- Promote work-life balance: Flexible work arrangements, such as remote work or flexible schedules, can help employees better manage their personal and professional lives.
- Provide opportunities for growth and development: Employees value companies that invest in their professional growth through training programs, mentorship, and clear career paths.
- Foster a positive work culture: A supportive and inclusive work environment, where employees feel valued and respected, can significantly improve job satisfaction and retention.
- Encourage open communication: Regular feedback sessions and open dialogue between managers and employees can help address concerns and improve the overall work experience.
- Recognize and reward top performers: Implementing an effective recognition and reward system can motivate employees and make them feel appreciated for their contributions.
By implementing these strategies, companies can create a positive work environment that encourages employee loyalty and reduces the risk of high turnover rates.
What to remember about calculating employee turnover in a company?
In summary, employee turnover is an HR indicator that provides information on the rate of staff rotation within a company. It depends on several criteria such as job satisfaction, organisational justice, and work overload. Employee turnover is calculated by dividing the number of employee departures by the total workforce of the company over a given period. Its interpretation is very simple: a very high turnover rate is a threat to the company, while a low rate is proof of its stability.
Knowing the turnover rate is not the end of the equation. After calculating the turnover rate, companies must implement effective actions to retain their employees.
