Employee turnover has a big impact on the running costs of all businesses. This is because there is an associated recruitment cost involved in replacing people who leave their employment for whatever reason. When you are talking about an SME with just a few employees, just one or two people leaving in the course of a year could equate to a churn rate of as much as half – or even more – of the total number of workers on the payroll. Even in larger organisations which will inevitably see people coming and going, higher rates of staff turnover cause significant overheads. Bearing down on this is, therefore, in all commercial organisations’ interests. Consequently, knowing how to calculate your current employee turnover rate is something that all HR departments need to establish.
What Is an Employee Turnover Rate?
The turnover of employees in a business has nothing to do with its financial turnover. The latter relates to the total sum of all its sales in a given period regardless of how profitable, or otherwise, they may be. Instead, the turnover of employees relates to the number of workers who have ceased to work for an organisation in a certain period, usually a financial year, a quarter or a month. This is the bald figure of people who have been fired, made redundant, left for another job, resigned or taken retirement. People who go on parental leave and who have the legal right to return to their job later on do not count as staff turnover, however.
Needless to say, companies with hundreds or thousands of employees will necessarily have a higher turnover figure than smaller enterprises with just a dozen or so people on the payroll. Therefore, HR managers and company directors really need to know how great the rate of their turnover is compared to the number of employees they have on their books. This is where a calculation is necessary. Don’t worry, though, because the maths is quite simple.
How to Use a Staff Turnover Calculator
Any staff turnover calculation can be done quite simply with a pen and paper or with a formula in a spreadsheet. Remember that the idea here is not to work out how many people have left in a given period but to work out the rate of their departure when compared to the size of the workforce. This way, an SME with twenty or so workers can compare their turnover rate directly with a multinational organisation that has hundreds of employees.
To do this, take the total number of people who have left your company in a given period. Let’s say, for example, that in June your company had five people retire, six people resign and you had to fire one employee. That would be a turnover figure of 12. Next, you need to divide that figure by the average number of employees you would expect to have on your books at any given time. Businesses with seasonal rates of employment should take an average figure based on a full year’s trading if they are calculating the last month’s turnover rate.
So, in this example, if your company had 160 average employees in the summer months but only employed 80 workers in the winter, the yearly average number would be 120 employees. To calculate the staff turnover rate, take the number of people who have left – in this example, 12 – and divide it by the average number of workers on the payroll, 120 in this example. For the avoidance of doubt, the figure you would arrive at in this instance would be 0.1. All you need to do to express this figure as a percentage is to multiply it by 100 to get 10%.
If the next month the same company shed 30 employees but maintained its average number of workers at 120, then the calculation would result in a percentage figure of 25%. This would indicate that recruitment costs are likely to rise in the coming period and appropriate action should be taken.
What Can You Do to Lower Rates of Staff Turnover?
Understanding what is driving people to leave any organisation with a rising turnover rate will help decision-makers in it to take the right steps to turn the situation around. According to WorkBuzz, an online employee feedback platform service provider, simply paying people more to keep them loyal often isn’t enough to bear down on increasing rates of employee churn. Modern businesses need a more nuanced approach to assess things like employee well-being, worker engagement, inclusivity and diversity in the workplace culture and how staff members feel valued in a wider context that goes beyond what they see in their pay packets. Only by asking their workforce what they truly think can directors make such assessments.