One of the most important metrics to track in your business is the employee turnover rate. So, in this article, I am going to show you how you can calculate your employee turnover rate and also why is it so important. Also, I will share with you a free calculator which you can use to track your employee turnover rates very easily.
Employee Turnover Rate: The Definition
Employee Turnover Rate simply means the number of employees leaving your organization within a specific time period. This is excluding the internal promotions and transfers within your company.
If you have a large company with a lot of employees, you should do this calculation at least once a month. But, with small to mid-sized businesses, this should be done quarterly or annually to find a more meaningful pattern.
To calculate the turnover rate, you should know how many employees you had at the beginning and end of that time period and also the number of employees that left your company within that specified time period.
Then we use this formula to calculate the turnover rate:
So, let’s say you had 45 employees at the start of the year and now you have 55 at the year-end. If 5 of your employees left during that year, then your annual turnover rate would be:
How to calculate your employee turnover cost?
Employee turnover cost means the amount of money you spent on replacing an employee with a new hire.
Here’s the formula we use to calculate the employee turnover cost:
Number of employees that left x (average replacement cost in % x average employee salary).
Example:
Let’s say a company has 82 employees and they have to fire 4 of them for some reason. If their average salary is $37,000 then employee turnover cost is:
4 x (.30 x 37,000) = $44,400.
Here, we have used 30% as the average cost of replacement of the calculation.
What makes employee turnover rate so important?
Australian and International research shows that turnover costs a business anywhere from 100% (for the blue-collar workers) to 200% (for white-collar workers) of the annual salary of the position.
The cost of turnover includes the following (as a minimum):
Direct Costs:
- Cost of Advertising.
- Fees paid to recruitment agencies.
- Fees paid to consultants for onboarding tests and assessments.
- Termination payouts. (LSL etc.)
Indirect Costs:
- Remuneration of employees used during the recruitment process.
- Training costs of new employees.
- Loss of productivity during early stages of employment.
- Loss of productivity during late stages of employment.
- Missed opportunities from new employees.
A high employee turnover rate is a burning problem. It is expensive to replace an existing employee with a new hire.
Types of Employee Turnover
Employee Turnover can be of different types:
Voluntary Turnover
When an employee voluntarily resigns or leaves your company to work at another company, or to start their own business, it is considered as voluntary turnover. In simple words, they quit.
This type of turnover is feared by most businesses. You should always investigate the reason behind why they left, especially if you lose valuable talent. Because the other staff may be facing similar problems as well.
Some of the main reasons why employees may leave your organisation:
Involuntary Turnover
This occurs when you have to fire your staff if they are underperforming or they have violated your workplace policies.
Desirable Turnover
When a new recruit starts performing better than your existing employee and you have to terminate your existing employee because they are not performing according to their standards, it is considered as a desirable turnover.
Top Talent Turnover
This happens when a company loses one of its top-performing employees. Attrition of top talents surely makes a huge negative impact on the business.
What is a healthy turnover rate for a company?
Now, once you have calculated your employee turnover rate. You might be thinking what now? What does this mean? How do I know if this rate is good or bad for my business?
The best way to find this out is to look at the average employee turnover rate in your industry.
Here are the average employee turnover rates for some industries in Australia:
So, here’s the employee turnover calculator as promised:Employee Turnover Calculator
Want to keep your employee turnover rates in control? Email me at: corinne@tweakhr.com.au.