Employee turnover is a common challenge that many employers face, and it can be costly if not managed effectively. Employee turnover refers to the rate at which employees leave an organization and are replaced by new hires. Understanding how to calculate employee turnover and the costs associated with it, can help employers make informed decisions on how to retain and attract the right employees.
Calculate employee turnover
There are different methods for calculating employee turnover, but a common method is to divide the number of employees who have left the organization during a certain period (usually one year) by the average number of employees during that period. The resulting number is then multiplied by 100 to get the turnover rate as a percentage. For example, if a company had 100 employees at the beginning of the year and 20 of them left during the year, the employee turnover would be:
(20 / 100) x 100 = 20%
This means that 20% of the company’s workforce left during the year. It’s important to note that employee turnover can vary depending on factors such as industry, job type, and geographic location.
Calculating the costs of employee turnover
The costs of employee turnover can be both direct and indirect. Direct costs include expenses related to recruiting, hiring, and training new employees. These costs may include job advertising, recruitment fees, background checks, drug testing, onboarding materials, and salaries for trainers and managers involved in the process. According to a study by the Center for American Progress, the average cost of replacing an employee is approximately 20% of their annual salary. (1)
Indirect costs are less tangible but can be equally significant. They include lost productivity during the time it takes to hire and train new employees, decreased morale and motivation among remaining employees, and potential damage to the company’s reputation as an attractive workplace. These costs may be difficult to quantify but can have a significant impact on the organization’s bottom line.
(1) Boushey, H., Glynn, S. J., & Schmitt, J. (2012). There Are Significant Business Costs to Replacing Employees. Center for American Progress.
How to reduce employee turnover?
Reducing employee turnover requires a comprehensive approach that addresses both the direct and indirect costs of turnover. Here are some strategies that employers can try to reduce employee turnover:
Improve the employee experience by offering competitive salaries, benefits, and other perks, and creating a positive work environment that promotes employee engagement and well-being.
Invest in skills development, both external and internal, to help employees grow and develop within the organization.
Provide opportunities for employees to feel involved, such as soliciting feedback from employees and involving them in decision-making processes.
Conduct exit interviews to understand why employees are leaving, and identify opportunities for improvement.
Implement effective onboarding programs to help new employees feel welcome, and quickly become productive in their team.
Employee turnover can be costly for employers, but with the right strategies and approach, this challenge can be managed. By understanding how to calculate employee turnover and its costs, employers can make informed decisions and take proactive measures to reduce it, as well as improve employee engagement and create teams that are both happier and perform better.