What Is Employee Turnover And How To Calculate It

High employee turnover can be a formidable obstacle to your employee engagement initiatives.

Losing your top performers can drain resources, disrupt productivity, and hinder growth. That's why reducing employee turnover is fast becoming the primary concern among companies worldwide.

Thus, understanding employee turnover to its core is imperative. Equally important is to know how to calculate the turnover rate. Since, it helps in devising effective retention strategies and identifying areas of improvement.

In this blog, we'll explore the concept of employee turnover and its significance. Additionally, we'll provide a guide on calculating the turnover rate within your organization.

So, let's begin.

What is Employee Turnover?

Employee turnover refers to the departure of individuals from the organization where they're employed. Simply put, it's the rate of employees departing from an organization within a specific timeframe.

Various factors can contribute to employee turnover within an organization. Factors such as voluntary resignations, involuntary layoffs, terminations, transfers, or fatalities. Essentially, it includes any reason for exit other than natural causes such as retirement.

Employee turnover is an inherent aspect of business operations. Given that, it's prudent for every employer and HR practitioner to understand its different types. And also knows how to compute the employee turnover rate.

Why Employee Turnover Matters

Replacing an employee is far more costly than retaining one, as the recruitment process has to be repeated, consuming both time and resources. A high turnover rate can in reality lead to:

• Increased recruitment costs

• Decline in team morale among remaining staff

• A gap in skilled and experienced talent

• Reduced confidence in the team’s overall abilities

Given these significant downsides, closely monitoring employee turnover is essential. Addressing the issue early allows you to take corrective measures before it escalates and impacts the organization further.

Types of Employee Turnover

1. Voluntary Turnover

Voluntary turnover is when an employee decides to leave their current job for personal reasons. It can happen when employees switch to a different company, pursue further education, relocate to a different city, or various other reasons.

It's worth noting that voluntary turnover isn't limited to low performers. In fact, high-performing employees may choose to leave as well.

Thus, companies often prioritize efforts to understand and manage voluntary turnover rates effectively. Since, it helps to retain valuable talent and ensure organizational stability.

2. Involuntary Turnover

Involuntary turnover occurs when the employment of an employee is terminated by the employer. Now, this can happen due to various reasons, including

• Poor performance
• Restructuring or downsizing
• Disciplinary actions due to misconduct, or
• Retirement

Unlike voluntary turnover, involuntary turnover is typically initiated by the employer. In most cases, it may not be within the employee's control.

However, the way organizations handle involuntary turnover is very crucial. It has the potential to impact employee morale, employer branding and overall organizational culture.

3. Desirable vs Undesirable

Interestingly, employee turnover, whether voluntary or involuntary, can be further classified into desirable or undesirable.

Employees terminated due to poor performance or mismatch with organizational values are considered a desirable turnover. It's desirable since it enables the organization to address vacancies with new individuals possessing the right skills.

In contrast, undesirable turnover involves the loss of valuable employees to competitors or other opportunities. Such as top performers or individuals with critical skills. It can also be employees with long-term experience within the company.

Now, we know the meaning and types of employee turnover. But we also have to know how to calculate employee turnover rate.

So, below is a comprehensive guide to calculating the employee turnover rate.

How To Calculate Employee Turnover Rate?

Calculating employee turnover rate is no rocket science. It's easier than it seems. Here is the formula for the Yearly Employee Turnover Rate.

You'll need three variables. Let's consider

X= Total number of employees who left the organization in the given year
Y= Employees at the beginning of the year
Z= Employees at the end of the year

Now, to calculate the average number of employees in the given year, all you've to do is:

Turnover Rate= X/ (Y+Z)/ 2*100

So, the formula divides the number of employees who left the company by the average number of employees over a specific period. In order to obtain the percentage, the formula then multiplies the number by 100.

For Example

Suppose, on 1st April 2023, your organization had 60 employees. By 31st March 2024, the number of employees in your organization has grown to 90.

But over the course of the year, 10 employees left the company, then the employee turnover rate currently stands at

Employee Turnover Rate = 10 / (60+90)/2 * 100
= 13.33%

This implies that for the year 2023-24, the employee turnover rate is 13.33%

The above formula is the one that is widely used to calculate the turnover rate yearly.

But, if you want to research patterns during the year, like spikes during significant quarters or changes after implementing new policies, then calculating the turnover rate frequently helps.

The monthly calculation of the employee turnover rate helps to analyze and study the patterns that any new organizational change has brought about.

So, here is the formula to calculate the monthly employee turnover rate.

Monthly Employee Turnover Rate

To determine the monthly turnover rate, take the number of monthly separations. Then, divide it by the average number of employees on the payroll.

After obtaining the figure, multiply it by 100.

You’ll get the Monthly Turnover Rate.

For Example

Suppose, in the month of January, your organization has an average of 120 employees. But, in the same month, 8 employees decide to leave. The turnover rate in your organization for the month of January 2024 will be

Employee Turnover Rate for January = 8/120*100
= 6.67%

This implies that your employee turnover rate for the month of January is 6.67%

Although the monthly employee turnover rate helps to analyze certain short-term changes, organizations usually prefer calculating the turnover rate annually. Since the yearly turnover rate provides a figure obtained over a longer period, and hence, reflects a significant pattern or data.

You must have observed the methods to calculate the employee turnover rate well by now. But after obtaining the percentage of the employee turnover rate in your organization, the next crucial step is to understand the purpose of calculating employee turnover rate.

Do Give a Read: A Guide On How To Calculate The Employee Turnover Rate

Causes of Employee Turnover

1. Lack of Recognition

The most crucial aspect of recognition is stimulating the neural network. Whether monetary or non-monetary, what truly matters is how recognition makes our employees feel.
~Dr. Parvesh Toran, Head of Total Rewards, Performance & People Analytics, RAKBANK

66% of employees say they would leave their job if they didn't feel appreciated.

Yes, lack of recognition can be a major reason why employees leave. When people don’t feel appreciated for their hard work, it’s easy for them to become disengaged or frustrated.

Over time, this can lead to burnout and low morale. As a result, your employees will start to look for job elsewhere.

2. Lack of Learning & Development Opportunities

87% of millennials believe learning and development in the workplace is crucial. But the same report found that 74% of surveyed employees feel they aren’t reaching full potential at work due to lack of development opportunities.

No matter what, learning & development opportunities for your employees are very important in today’s time. In fact, it’s safe to say that it’s their right. Without it, it’s going to be difficult for you to attract and retain your employees for a long time.

3. Poor Work-Life Balance

Balance is not better time management, but better boundary management. Balance means making choices and enjoying those choices.
~Betsy Jacobson.

Work-life balance is crucial for everyone, including your employees. Without it, your employees may struggle to stay engaged and productive. In fact, if they don’t receive the flexibility and balance, they need, they’ll likely feel overwhelmed and eventually seek opportunities elsewhere where their personal well-being is prioritized.

4. Job Dissatisfaction

Job dissatisfaction has led to an increase in workplace absenteeism, with rates as high as 15% in some industries.

Job dissatisfaction is a major red flag for employee retention. When employees feel unfulfilled or unhappy in their roles, they start looking for jobs elsewhere.

So, if you want to retain your employees and reduce the overall employee turnover, you’ve to identify the causes leading to job dissatisfaction.

5. Inadequate Compensation

According to a report published by American Society of Employers,

Inadequate total compensation was the leading cause of employee turnover, with 74% of HR professionals ranking it among the top three reasons, and 39% identifying it as the number one factor.

Inadequate pay is a sure way to lose your employees. When people feel like they’re not being fairly compensated for the work they put in, it’s hard for them to stay motivated. Over time, that frustration adds up, and eventually, they’ll start looking for better-paying jobs where they feel more valued and appreciated.

Wrapping It Up!

High employee turnover has the capability of bringing an organization to a standstill. Understanding the root causes and implementing effective strategies can transform your organization into a retention powerhouse.

Retaining your employees is a long, overdue process, and it's okay! Good things need a period of effort to happen.

So, keep moving forward with confidence.

This article was co-authored by Nilotpal M Saharia and Sanjeevani Saikia, who work as Content Marketers at Vantage Circle. For any queries reach out to editor@vantagecircle.com.