In the business world, employees will come and go, and it can cost you a lot of time and money to try to find a replacement. Understanding your employee turnover and knowing how to navigate it is vital to running a successful business, as it will help you minimise your costs and time spent when employees leave to ensure your business continues functioning at the same capacity during the process.
So, to find out all you need to know about staff turnover and get some practical tips on how to manage it, then keep on reading this guide.
What is employee Turnover?
Employee turnover refers to the total amount of employees who leave a business within a certain period. This includes the employees who are laid off or fired and those who choose to resign. When calculating the employee turnover of a business, we consider two key terms: voluntary and involuntary turnover.
What is voluntary turnover?
Voluntary turnover refers to employees who leave a business on their own accord. This could be for a number of reasons, but it always involves the employee choosing to leave. Some reasons for voluntary turnover include:
Educational and career changes
What is involuntary turnover?
Involuntary turnover involves you or a company dismissing employees for fireable offences or due to financial constraints. This could include but is not limited to:
Employees breaching their contract
Employees are failing to meet key performance targets
Employees are no longer needed
Employees have committed misconduct
Why is it important to know your employee turnover rate?
Your employee turnover rate measures the amount of staff turnover you have over a certain period, and knowing the details surrounding your staff turnover will allow you to put systems into place to ensure you maintain a healthy staff turnover. This is vital for businesses that want to grow.
A high employee turnover rate can have a heavy impact on businesses due to the extra costs that accompany recruitment and training. A high staff turnover essentially decreases productivity due to less staff being available to work and the negative impact it can have on your staff morale as a whole.
In addition, you're also losing employees with valuable knowledge and experience, which is a massive downside, especially when there's voluntary turnover.
What is considered to be a healthy employee turnover rate?
On average a healthy staff turnover is between 10% and 15% in Australia. This rate varies considerably depending on the industry you're in. For instance, the hospitality industry usually experiences a higher staff turnover compared to other types of businesses because of the nature of their work. For example, some staff work half-time, and others have seasonal positions, which means there are less permanent staff.
The economic conditions of your country and the world will also influence your employment rate, depending on your industry. For example, countries in economic crisis often place more financial pressure on businesses, causing their turnover rate to increase because of the employees they've had to let go.
The same goes for the opposite. When the economy is thriving, and businesses can grow, they can hire more staff and retain them for longer, leading to a low employee turnover.
How to calculate the employee turnover rate?
When calculating employee turnover rates, it's essential to do it correctly to get accurate results. Once you've got a precise calculation, you can then implement effective strategies to improve on this at a later stage. Here's how to calculate employee turnover rate:
Decide on your calculation period - first, you need to decide the period you want to calculate employee turnover for and prepare to calculate the annual turnover rate. You can choose one or the other, but you may want to do it monthly for companies struggling with frequent staff turnover.
Collect relevant data - once you've decided on the time frame you want to use, you must collect all the relevant information regarding that specific period. You'll need to collect how many employees you had at the start of that period, the number of employees that left and how many you had left over at the end.
Find you average number of employees - now, we need to find the average number of employees you have by adding the number of employees you had at the beginning and the end together and dividing them by two.
Find your percentage - now, we calculate the turnover rate percentage by dividing the number of employees left by our average. So this would be 15 divided by 42.5 and multiplied by 100, giving us 35.2%, our turnover rate percentage. Given that the ideal turnover rate should be between 10% and 15%, this business has a high employee turnover.
Who is responsible for Employee turnover
Generally speaking, the employer would be the primary person responsible for staff turnover. However, in smaller businesses, it's understandable for this responsibility to rest on the employer alone, but larger corporations have several people responsible for employee turnover.
Human resources management, senior employees and team leaders all play a role in employee turnover and are vital to employee retention. HR, for instance, is generally a department dedicated to ensuring employees stay and are looked after within a company.
They are central to managing staff turnover, creating and implementing an employee development strategy and handling recruitment. You may also have senior staff supervising lower employees who are held responsible for the work environment employees have. Ultimately, it comes down to how the company is structured and who has delegated authority to manage employees.
What to do when your employee turnover rate is too high or low
Before we get into what to do when you're struggling with high employee turnovers or low turnovers, remember that Rome wasn't built in a day, and it may take time for you to level out, but it is possible.
High employee turnover is usually a sign that your employees aren't satisfied where they are. So the first step is to find out what the reason is behind why they are leaving. To improve employee retention, you could try to improve your hiring process to ensure that you choose an employee who is a good fit for your company.
You could also improve onboarding and training; employees who feel equipped to handle the work-life balance are far more content than those who don't know what they're doing.
Focusing on employee engagement and providing them with decent benefits and compensation are also efficient ways of improving employee retention. Finally, ensure that they have an excellent environment to work in. Employees are more likely to want to leave a stressful and unenjoyable work environment.
In regards to having a low employee turnover rate, this is usually a good thing. It means your employees are happy to stay where they are, and you won't need to spend time and money recruiting. However, it can present other issues as well.
A low employee turnover can sometimes represent complacency, which is equally as bad as having a high turnover. You want energised and excited staff to work for you, not someone who just wants to do the bare minimum and go home.
For this reason, it is crucial to provide staff with regular internal mobility and give them regular feedback and career development opportunities. Assessing your staff's performance should also give you an idea of anyone complacent within the company.
Assessing your company's employee turnover rate can be complex, especially for larger companies. So, when it comes down to it, hiring an HR consultant is an excellent way of getting things sorted efficiently and without bias. In addition, you can use our employee retention software to help you assess your employee turnover and provide valuable information to benefit your business in the long run.