How to Calculate Turnover Rate?

Oksana Zabolotna
HBD at Qubit Labs

Being aware of reasons for employee turnover is important for any business because attracting and retaining talented staff is essential if you want to succeed.

cost of turnover

Moreover, companies need to invest in both recruitment and retention strategies if they are willing to thrive in the modern economy. At the same time, finding the best tech talents is especially challenging for smaller businesses because they have to compete with larger companies and budgets for professionals.

Providing staff with a high annual salary is not the only way to compete with enterprises. This goal can also be achieved via benefits and the implementation of proper strategies, which play a great role in the reduction of employee turnover rate.

Here, you are going to learn all the important information about employee turnover, including its definition, how to calculate it, reasons for it, and more.

 

What Is Employee Turnover?

So, the first question people usually ask is – what is employee turnover? It happens when a worker leaves your company. This situation may occur for any reason, such as retirement, quitting for better opportunities, or termination. The rate of employee turnover accounts for how many workers decide to leave your company in a certain period.

At the same time, employee turnover can be subdivided into two categories – involuntary and voluntary turnover. The first one implies that you terminate an employee, while the second category means that the employee chooses to leave your company.

 

Employee Turnover Statistics

Knowing some numbers associated with employee turnover may be useful, so you should look at this section.

As reported by the Bureau of Labor Statistics, the number of employees who decide to leave their jobs has grown since 2021, which is a trend known as the Great Resignation. 

Even though it has slowed down recently, many employees still keep on quitting their jobs voluntarily. In November 2022, more than 4.2 million people in the United States left their jobs. Frequent voluntary employee turnover rates tend to have a negative impact on companies in more than one way; consequently, it is worth knowing what things may lead to this kind of situation.

 

Reasons for Employee Turnover

The truth is that there are a lot of reasons for employee turnover, and they can vary from one company to another. At the same time, it is possible to highlight the main reasons, and here they are:

  •   Poor company culture.
  •   Lack of employee engagement.
  •   Lack of career development opportunities.
  •   Disagreements with management or co-workers.
  •   Lack of or poor employee benefits and annual compensation.
  •   Workers have a feeling that their honest thoughts and feedback are not considered.
  •   There are no clear business goals or direction.

Under a Pew Research carried out in 2021, employees were asked why they decided to quit their jobs. According to the results, around 63 percent of people said that the main factors were no opportunities for advancement and low pay. In addition to that, 43 percent of respondents claimed that their previous employers offered benefits that were not good enough.

 

What Is the Real Cost of Turnover?

Obviously, the cost is extremely high, but still, what is the real cost of turnover? The truth is that losing a worker may cost a business one-half to two times the worker’s salary. The financial burden fluctuates depending on the person’s level of seniority. In the case of technical positions, the cost can be up to 150 percent of salary. For hourly workers, the number can be $1,500 per individual.

However, you should always remember that the most substantial impact of this issue is not the financial cost, but the damage to your remaining employees. Your workers are an essential part of your company’s success. Without them, current staff has to take on extra responsibilities, which means that your organization might have to postpone or abandon plans. So, what is employee turnover cost from this point of view?

When talking about the cost of turnover, you should consider the following factors:

  •   Lost productivity.

When one of your workers leaves, the workload must go somewhere. It means that either the projects will be paused until you hire a new professional or other team members have to take on more responsibilities. Therefore, the real cost of turnover implies the risk of missing targets and facing a negative impact on customer service. Moreover, stalled projects result in lost revenue and delayed releases. That is why a reduction in employee turnover can make a significant difference between achieving your goals or missing them.

  •   Depleted employee morale. 

When talking about the cost of turnover, you should also remember that if one of the employees quits, it may have a significant impact on employee morale. The thing is that losing a colleague and a friend may leave a hole in the staff dynamic. In addition to that, workers might start looking for problems because someone they respect and trust left.


  •   Diminished employer brand. 

The reputation of a business with employee turnover will not attract new professionals to your team. This problem may result in low-quality candidates – those who are not interested in long-term positions or those who are not willing to make a significant impact. These workers may demotivate others, so the employee turnover rate will increase because you will have to hire new employees in a short period of time.


  •   More turnover. 

You must have already realized that employee turnover is cyclical. If someone leaves, the departure impacts the company’s culture and the workload of the staff. Unengaged and overworked professionals are always susceptible to burnout, and this will result in more employee turnover. Regardless of organization and industry, there will always be some turnover, but it is critical to know how to reduce employee turnover and take measures.

 

How to Calculate Turnover Rate?

If you are familiar with this topic, you must have heard that there is no ‘right’ way to calculate this rate. If you try to look for it on the internet, you will definitely see loads of websites that offer a variety of formulas. The same is happening at the professional bodies.

For example, the American National Standards Institute, which is an institute that facilitates consensus standards, utilizes a definition that differs from the one offered by the International Organization for Standardization. The formula provided by the latter also poses some ambiguity and may be calculated in a few ways.

Therefore, it is not surprising that HR practitioners are a bit confused when it comes to the question of how to calculate turnover rate. Since it is challenging to figure it out, having a clear formula should help tremendously.

To understand how to calculate turnover cost, you should look through the following examples and explanations. Let’s assume that at the start of a quarter, a company had 100 workers. During this certain quarter, five people left and ten joined. At the end of the mentioned period, the company had 105 employees. So, how to calculate turnover rate in this organization?

The first question is whether it is necessary to include everyone in the turnover rate denominator or if it is only required to add the existing workers.

That is why it is critical to make a clear distinction between hires, employees, and terminations. You should consider that there are three different categories with three different metrics. Hires are individuals who became a part of the company during a certain period of time, which means that there is a separate set of metrics for them.

To show this, hires happen to be a part of the hiring rate for the period. If they leave earlier, they should be included in a three-month turnover metric as well as in the first-year turnover rate. If we get back to our example, we see that there were 100 workers and five termination hires. It implies that employee turnover makes up 5 percent.

How to Calculate Turnover Rate

That is why we offer the following formula: turnover rate = #terminates during period / #employees at the start of the period. It is easy to understand how to use it as well as how to calculate turnover rate easily. Furthermore, this approach is in line with the description provided in ISO 30414, a general norm for Human Capital Reporting in 2018. It takes the total leavers` number over a certain period and divides this amount by the total number of individuals in the company.

If you want to know how to calculate cost of turnover over a year, you should use the following formula:

Turnover rate (annual) = #terminates (annual) / #employees at the start of the annual period.

 

How to Reduce Employee Turnover?

The good news is that it is possible to prevent this problem, but you should know how to reduce employee turnover. There is one thing you should bear in mind when trying to cut the turnover, and it is that every little thing at an organization matters because engaged workers tend to stick around.

It is recommended to use the following tips to enhance retention:

 

  •     Recognize your employees. 

Using an employee recognition program can help you increase engagement and lower turnover because workers who feel more appreciated by the company are not likely to leave. You can integrate this approach into feedback sessions between direct reports and their managers. At the same time, you can even improve things by establishing a formal recognition program with peer-to-peer recognition opportunities and employee spotlights. Employee turnover can also be prevented by using communication platforms to encourage staff to give shoutouts and thank them for doing a great job. One more means to improve things is rewards, which may not only be monetary prizes.


  •     You should establish a feedback process. 

Thinking that the staff is happy and engaged is the first mistake made by many companies. Instead of assuming, you should provide your employees with the chance to raise concerns and address problems before they become too significant. Thanks to software developments, it is extremely easy to conduct employee surveys on a regular basis and collect anonymous feedback.


  •     You should promote your core values. 

This aspect should never be ignored because values play an important role when it comes to establishing a strong company culture. If you do that correctly, these core values give purpose to your mission statement, guide business decisions, and let the staff interact with one another properly. Another benefit is that having core values will not only help you reduce employee turnover, but they will also help you hire the right professionals for your business. You should not be in a hurry when considering the list of core values. Another good idea is to engage the members of the HR department, the leadership team, and some of the most successful employees to take part in the conversation. It is critical to keep this list concise so that it is actionable and intentional. After you finish it, you should instruct the staff on the new core values and include them in the onboarding process.


  •     You should use your company mission. 

Employees are always willing to see the impact of their own work on the success of the business, and they also want to be a part of the company that makes a difference. That is why you should finalize the mission in such a way that every person can work toward a common goal. This is also a great means when it comes to the reduction of employee turnover.


  •     You should improve your benefits package. 

The perks and benefits you give to your staff are essential when it comes to the employee value proposition. You should utilize the information received during stay and exit interviews to refine your offering with perks that people want. When showing your care about staff as individuals, not just the workforce, you will earn their respect and trust as an empathetic employer. Thanks to this kind of reputation, you will also be able to attract and retain more outstanding professionals.


  •     You should not forget to conduct exit interviews. 

In fact, this is one of the most effective solutions to employee turnover, but many companies overlook it. You should never miss the chance to learn from your mistakes by dismissing a great professional without asking them where things went wrong. When leaving the company, people tend to be more candid and deliver honest feedback. At the same time, you can utilize this information to improve the situation for those who are sticking around.

 

Qubit Labs Hires Remote IT Teams and Cares About Retention

As you can see, it is critical to know the cost of turnover for any sort of business because it helps them see how things really are. Knowing this information helps companies figure out where they made mistakes and look for ways to improve the situation.

We at Qubit Labs have enough experience in hiring offshore developers, and we care about retention. If you decide to use our services, we will help you get the best professionals possible and make sure that they want to stay. Qubit Labs is a great solution if you want to reduce employee turnover because we will provide you with efficient strategies.

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Oksana Zabolotna
HBD at Qubit Labs

HBD and Head of Partnerships at Qubit Labs. Oksana is proficient at Search Engine Optimization; performs as a speaker for international tech conferences; author of webinars and guides on peculiarities of remote recruitment, top markets for hiring IT experts, and latest tech trends. Oksana is one of the partners of Women in Tech Ukraine – large-scale social project created to increase the number of women in IT industry.