Employee Turnover: How to Calculate, Reduce & Prevent It

Employee turnover is a constant challenge many companies are facing these days. The rapid change in work culture and technology exacerbated the case. And because it may negatively impact business, HR leaders must look after this.

Let’s take a closer look at what employee turnover is, what the formula is to calculate it in your business, reasons, and tips to reduce turnover of employees.

What is Employee Turnover?

The employee turnover meaning is simple: when an employee leaves, you need to find a replacement immediately.

Furthermore, the employee turnover rate is a measure of the number of people leaving a company in a particular range of time. This is a very important figure when making strategic decisions in people management. However, it will only be useful if we put it into context with the appropriate references.

Types of Employee Turnover

Involuntary Turnover

When a company lets go of an employee, it is involuntary turnover or involuntary rotation. In simple terms, it is the laying off of an employee due to

• poor performance,
• violation of internal policies or work regulations, or
• other issues that employee has caused.

Put simply, the employee did not choose to leave the organization, but because the management decided to terminate her or him as they did not meet company standards. This is involuntary employee turnover.

Voluntary Turnover

If an employee decides to leave the company on their own will, it is a type of voluntary turnover. There are multiple reasons why an employee might make this decision, including

• receiving a better job offer,
• experiencing a stressful work environment,
• unclear goals and tasks, and/or
• health issues, or even personal reasons.

This type of turnover is also known as natural turnover.

Desirable Turnover

When the companies desire to terminate certain workers because of unproductive, disruptive, or have a negative attitude. The costs of keeping such employees in their regular positions are high, not only financially but also in terms of their impact on other valuable resources such as time, productivity, and even the rest of the team. Therefore, a company ‘s desire to end duties of such employees and find replacement is desirable turnover.

Undesirable Turnover

When certain high-performing employees voluntarily leave their positions, the company faces undesirable turnover. As a Huffington Post article says, replacing a high-performing talent with a new hire costs 1.2 to 2 times the previous employee’s annual salary, which is expensive for the company. Hence, in undesirable employee turnover, the company loses a talented individual and must find a replacement who fits the work style and meets the expectations left by the previous employee.

Other Types of Turnover

• Retirement: When an employee chooses to retire from the company.
• Internal Transfer: This type of turnover occurs when workers change positions within the same organization upon acquiring new skills or promotion within the department.
• Functional Employee Turnover: When an employee leaves a specific department or function within the company.
• Dysfunctional Turnover: When an employee leaves due to a toxic work environment or other negative factors.

What Are the Main Reasons for Employee Turnover?

Many employees leave their jobs because they don’t feel engaged with the company culture. This will increase the turnover in the company. Let’s learn more reasons for turnover rates.

Another Job Offer

When an employee receives an offer with a higher salary, more flexibility, better benefits, or that represents career advancement, this is a case of voluntary employee turnover if they ultimately decide to leave.

For this reason, it’s important for companies to watch their employees through satisfaction surveys and set up a proper employee engagement framework. Also, companies need to incorporate employees into their regular performance evaluation cycles. This way, they can analyze their employees’ positions, skills, and professional development to prevent talented employees from seeking new opportunities and leaving their current positions. This can be avoided with proper talent management practices.

Work Stress

Sometimes employees face stressful situations or excessive workloads. They can feel overwhelmed and unmotivated. Sure, sometimes work can become hectic and stressful, but they should have limits. Excessive stress due to work can cause burnout, which ultimately yields serious physical and psychological consequences that negatively affect productivity. This may be the reason for the contact employee turnover rate. Integrating work-life balance strategies into the company’s culture is a beneficial technique.

Disorganized Work Culture

No one likes disorganized work. Companies and HRs also expect work from employees that is organized and clear. The same goes with company to employees. Meaning, a company must create and maintain a clear, communicable company culture that will increase employee loyalty. When loyalty increases, employee satisfaction increases. Likewise, maintaining clear objectives will organize employee tasks more efficiently which should be non-negotiable to create a positive work culture.

Other Causes

• Bad Hiring Practices: The root cause of increased employee turnover is hiring the wrong candidates.
• Poor Compensation: When employees are not offered competitive salaries or the right benefits.
• Little Recognition: When employees are not provided with recognition for their work.
• Lack of Employee Purpose: When employees do not feel connected to the company’s mission or values.
• No Feedback: When employees are not provided with constructive feedback to improve their performance.
• Boredom: When employees are not challenged or engaged with their work.
• Bad Managers: When managers are ineffective or abusive.

How to Calculate the Employee Turnover Rate Formula?

The formula for calculating the turnover rate is relatively quite simple. The staff turnover rate formula is calculated by dividing the number of employees who left by the average number of employees, then multiplying by 100, as expressed by the International Labor Organization (ILO).

Thus, it can be expressed as:

Employee Turnover Rate Formula = (Number of Employees Who Left / Average Number of Employees) × 100

Now you will average the number of employees in a given period of time as:

Number of employees at the beginning of the period + Number of employees at the end of the period / 2 = Average number of employees in the period.

Example: Employee Turnover Rate Calculation

Let’s imagine a company with 120 employees on January 1, 2024, ending the year with 122 employees. And eleven people left the organization during the year.

For this case, the employee turnover rate in 2024 would be 9.09%. The result we can get using the formula is

Number of professionals at the beginning of the year (120) + professionals at the end of the year (122) = 242 / 2 = 121 (average number of employees)

Number of people who left / average of the previous step = 11 / 121 = 0.09

Since the turnover rate is a percentage, the above figure is multiplied by 100 = 9.09%.

What is Considered a Healthy Employee Turnover Rate?

The analysis and consulting firm Gallup considers 10% as an acceptable value for staff turnover rate. However, it emphasizes the need to contextualize the data. As they explain, if we have a 10% turnover rate in our sales team, but those who leave are those who generate the most sales, we have a problem.

This other LinkedIn analysis establishes the turnover rate by professional area. The average for all positions analyzed is 10.6%. The following areas have the highest turnover rates:

• People management area: 14.6%
• Research Area: 13.1%
• Product Management: 13%
• Marketing: 12.9%
• Consulting: 11.7%

The Cost of Employee Turnover

Turnover entails high costs for the company. Some of these costs include:

• Costs associated with human resources processes: When staff turnover is high, higher financial, time, and resource costs are incurred within the HR department, which will have to recruit and select new staff more frequently.
• Emotional costs: Employees’ feelings of fear or insecurity can increase if the company has a high turnover rate. For example, employees may feel there are better opportunities in the market for them and view their current role as temporary.
• Economic costs: Employee turnover can lead to low employee participation in the company’s production processes and, as a result, affect production.
• Costs to the company’s image: A company with high and unwanted turnover can create a negative image for its employer brand. Some people may feel that the company doesn’t care for or listen to its employees properly.
• Time costs: The team will have to adapt to new colleagues, train them, and educate them so they can perform their tasks properly. These processes take time that could have been used for other tasks.

Tips to End Employee Turnover That Has Adverse Impacts on the Company

Below we mention nine factors that can cause high staff turnover that is detrimental to your company:

Refine your search and hiring strategy

Asking key questions, accurately targeting profiles, and improving your company’s interview processes. These hiring practices will set clear expectations that can improve staff retention and reduce turnover. Finding the right person for a position can take some time. But the company will save costs and resources by finding the right talent for each position when the right recruitment process is owned.

Some suggestions you can add to the selection process are:

• Conduct selection tests for the specialty of the position.
• Orient the profile as detailed as possible.
• Describe the necessary skills for the position.
• Ask specific questions about how they would react to a certain situation that is common in the position.

Perfect the onboarding and training process

Incorporating new employees into the company through a planned onboarding process. Because the first impression is the last impression, the onboarding process must be just right. Or, if personalized, the better. This way, you can reduce employee turnover by up to 20%.

Some of the practices to make onboarding effective and just right

• introducing employees to the rest of the team,
• training them and giving them dedicated expert support,
• conducting daily or weekly follow-ups,
• checking in on how they feel in their new positions, and
• use of any HR techniques that can help them feel comfortable within their first 45 days at the company.

Know the opinion of your workers

Receiving frequent feedback from your employees helps improve company processes. This feedback will also help you identify medium- and long-term problems earliest so that you develop possible solutions.

It can also be helpful to learn about the reasons why employees decide to leave their jobs. This information can provide ideas on how to improve your company culture.

Offers reward and recognition programs

Implementing rewards and recognition programs for long-term employees will motivate newer generations of workers to commit to long-term goals and strengthen employee engagement throughout the organization.

Exit interviews

The exit interview is an information-sharing process that allows you to understand the reasons why a person has decided to leave the organization. Some HR professionals believe that the information about a departing employee may be “contaminated” for various reasons:

• Negligence due to no longer caring about the situation of the company he is leaving.
• Lack of confidence to share the true reasons for leaving.
• Lack of motivation to convey what one really thinks.

Prevention. Another excellent solution

One last recommendation to prevent the employee turnover rate from skyrocketing is to anticipate the reasons that could lead to this increase. This is an excellent reason to promote and standardize performance evaluation and feedback processes. You will gain vital information that will allow you to address team needs before they become a problem.

In this way, we have the opportunity to minimize, to the extent possible, the reasons that cause a person to decide to leave the company.

HRMS Software: The Easiest, Automated Way to Combat Employee Turnover

Trying to reduce turnover is a task that involves monitoring several key aspects. Therefore, it’s ideal to find a tool that not only helps combat it but also detects and prevents the problems that can lead to high turnover. An HR software like the NYGGS HRMS Software help you:

• Manage your employees’ training plans with tracking of status, cost, duration, and location.
• Continuously evaluate employee performance through 90º, 180º, and 360º evaluations.
• Find out the reasons for the most frequent sick leave through a customized report by team, office, or work area.
• Through scheduled surveys, we find out what social benefits the team needs.
• Obtain reports with data on the ages and gender of each team member to avoid imbalances at the hierarchical level.
• Send a personalized exit survey to the employee who is leaving the company to detect behavioral patterns.

At NYGGS, we have built an HRMS software solution by collecting inputs from HR and performance evaluation professionals. Combining the expertise with the power of a technology, our HR software solution captures and analyzes strategically valuable data; we offer you the winning formula for combating employee turnover in your company. Would you like to see that foolproof formula in action? Request a free demo!

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