How to calculate employee turnover – retention tips included

According to LinkedIn, employees are turning over in the highest numbers in nearly two decades, and this year, about a third of the workforce will hunt for a new job.

Modern workers are ambitious; they’re ready to jump ship in search of a company that fulfills their expectations. This is especially true in today’s competitive job market, where employers realize an employee-first approach is how to win over top talent.

Meanwhile, you want to grow your organization: attract new customers, penetrate new markets, and of course, increase revenue. But prioritizing profit over people is one reason why turnover happens in the first place. People are the main source of innovation, creation and wealth. If you want stellar ROI down the line, your employees’ job satisfaction comes first.

While a certain amount of turnover is expected, you want to avoid losing your top performers. This means properly defining turnover, calculating its rate, and taking active steps to curb it.

What is employee turnover?

Defining employee turnover

Employee turnover refers to the number or percentage of workers who leave an organization during a specific period of time (typically one year) and are replaced by new employees.

There are two main types of employee turnover:

1. Voluntary: This refers to an employee who willingly chooses to leave their job.
2. Involuntary: This refers to an employer deciding to terminate an employee’s contract.

But turnover is not just about people leaving; it includes replacing those who have left, and it can take up to two full years to complete the turnover process.

Like most company leaders, you may be concerned about people quitting, which is especially undesirable when this person was a strong employee. This has the potential to hurt your organization, as their replacements will have the most work ahead to make up for the loss. That being said, certain industries and job types are expected to have a higher turnover rate than others (retail and fast-food chains for example), so it’s important to consider this when evaluating your company’s turnover rate.

For different scenarios of turnover—old employees leaving or new ones checking out shortly after hiring—there are different causes and different solutions.

If people are leaving shortly after hiring, this may mean there’s an issue at the recruitment or onboarding phase. If vets are leaving, this may be due to issues with company culture or alignment during times of change. Alternatively, sometimes people have just run their course and have both given and received all they could from a company, and it’s ok to move on. Keep in mind that 100% retention is not your goal.

How does employee turnover affect my company?

1. It lowers company morale: A single person leaving voluntarily can affect the team spirit or shake the trust the rest of the team has in management.
2. It creates uncertainty: Involuntary terminations can create an atmosphere of fear: who might be next?
3. It can decrease productivity: New employees need training and guidance as they adapt to their role, which can impact the overall efficiency of the team.
4. It can cause burnout: older employees may feel overworked picking up the slack.
5. It takes time to adjust: While fresh faces and new ideas are generally positive, expect a period of team adjustment and even storming.

How to calculate employee turnover

To begin, add the number of employees at the start of the year with the number of you had at the end and divide that total by 2.

Then, divide the number of employees that left during the year by the outcome of the first equation. Multiply that by 100, and you‘ve got your employee turnover rate.

What’s an ideal rate? 10% according to Gallup.

You can even try out this employee turnover calculation for shorter time frames for easier comparison (eg: quarter to quarter). This way you don’t only get a static glance at the situation, but a dynamic understanding as to how employee turnover changes.

Of course, you need to think about the bottom line. To re-fill positions of good employees, hiring, onboarding and training can cost anywhere from one half to two-thirds of the position’s annual salary.

However, the retention costs of creating a great work experience ultimately return much more value than the costs of involuntary turnover.

What can you do about employee turnover?

Once you have a better understanding of your organization’s turnover patterns, and the reasons why employees might be leaving, you can start thinking about solutions. One area of focus that we can’t stress enough? Keeping a pulse on how your people feel and collecting feedback.

1. Better hiring

See beyond the CV. Suggest a work assignment as a “sample” to be done with some of your employees (ex: have the candidate join in on a brainstorm). This lets you see how well they collaborate with your team.

2. Proper onboarding

Recruits should get sit-downs with management. Start by exploring how their individual goals align with those of the organization, as this helps them envisage a long-term path with your company. On a human level, a team lunch is a great welcoming experience.

3. Management training

If you hire and promote managers from within, be sure to offer management training. No matter how skilled your employee was as an individual contributor, management is an entirely different trade.

4. Keep track of how people feel & collect feedback

Everyone wants to know that their opinions matter. Give your staff a safe and anonymous Pulse Survey platform for them to give feedback, so you can collect the insights you need to solve problems before people decide to leave.

Tracking data like eNPS (the amount of promoters vs. detractors you have in your organization) can shed some light on the current level of ambassadorship in your company. This single metric can be very telling to the overall health of your organization—the more your employees believe in your mission, the longer they’ll stick around.

Checking in with your employees in real-time (instead of conducting an annual survey) lets you solve problems as you go so you can jump on tackling team or company-wide issues before people begin to leave.

Reduce the impact of turnover by putting your people first

Employee-turnover fallout reverberates up to the executive level. And that experience can distract you from your more high-level responsibilities. As VP or department head, it’s up to you to define a work environment of open communication and mutual trust. That’s the company where people apply themselves and see a path for growth. It’s the foundation for a people-first approach to success.

This article has been updated to reflect current workplace and leadership best practices and trends.