Turnover Rate

What Is the Turnover Rate?

The turnover rate is the percentage of employees who leave an organization over a certain period, usually a year. While calculating the turnover rate, people include dismissals, voluntary resignations, non-certifications, and retirements.

The employee turnover rate is a key indicator of the efficacy of a firm's human resources management system and overall management.

How to Calculate Turnover Rate?

Calculating the turnover rate is fairly straightforward. To calculate, you will need the following information-

• The number of active employees at the beginning of the year
• The number of active employees at the end of the year
• The number of departing employees for that year
  

First, you need to calculate the average number of employees by adding your beginning and ending employee numbers and then dividing by 2.

The next step is to divide the number of employees who left the company during a year by your average number of employees.

The final step is multiplying by 100 to get your annual turnover percentage.

So, the formula is,

Annual Turnover Rate = Number of Employees who left / ((beginning + Ending number of employees)/2) ✖ 100

For example,  if you have 70 employees at the start of the year and 60 at the end, and 10 employees left during that year, your annual turnover rate would be:

Annual Turnover Rate = 10/((70+ 60)/2) ✖ 100, which is 15.39%

What Is a Good Employee Turnover Rate?

As many benchmarks do, good and poor turnover KPIs vary greatly by industry, function, and region. Furthermore, context plays a key role in establishing an acceptable turnover rate. And if you only measure the company-wide turnover rate, it won't reflect the whole picture. 

However, you can identify turnover hotspots using formulas to measure combinations of certain periods and employees.

According to a study by analyst firm Mercer the average annual turnover in the U.S. is estimated to be around 20%, with almost two-thirds of that being voluntary. 

Usually, turnover in businesses like retail, wholesale distribution, or hospitality is likely to trend higher than in education or finance. According to Mercer, customer service/contact center (17%), manufacturing and operations (15%), sales (14%) or similar kinds of job functions have the highest annual voluntary turnover rates. 

So to find trends in your sector, you need to look to industry sources and consult analysts.

Causes of High Turnover Rate

Many causes contribute to the high turnover rate. Here is a list of some common causes.

• Retirement of baby boomers
• Poor compensation and benefits
• Lack of recognition
• Employees burdened with an overwhelming workload
• Poor company culture
• Limited opportunity for career growth and development
• Rigid company policy and lack of workplace flexibility
• A hostile relationship with supervisor and colleagues
• An unskilled manager who doesn't provide the necessary guidance
• Poor work-life balance
• Bad hiring and onboarding process
• The communication gap between team members and higher authorities

Effects of High Turnover on an Organization?

High employee turnover can leave far-reaching negative impacts on organizations, including:

• Loss of valuable skill and knowledge.
• Loss of faith in the team’s competence and performance. 
• Loss of morale and motivation for those left on the team.
• Decreasing overall productivity.
• Waste of time, energy, and money to hire and train new employees.
• Stressing out remaining employees to cover up the departing employees’ workload.
• Decreasing employee trust in the organization.
• Weakening company culture.
• Worsening the relationship among employees and between employees and managers.