What is employee turnover, and why does it matter?

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When people discuss workplace satisfaction, employee turnover is a term that gets brought up a lot. If you haven’t spent a lot of time in HR, you might not know how to calculate employee turnover. However, it is very important to understand employee turnover rates since they have a huge impact on a company’s efficiency. Below, we explain what is meant by employee turnover. We also explain when and why high turnover rates matter.

What does employee turnover mean?

Employee turnover is a phrase that describes how many people are leaving a workplace. It includes far more than just the number of employees who quit. Employee turnover also takes into account fired, laid off, transferred, or retired workers. Any time an employee departs a business for any means, it becomes part of the employee turnover rate.

The Reason Employee Turnover Rates Matter

Employee turnover says a lot about how well a business is run. It is tempting to blame individual employees for quitting or having such a poor performance that they require termination. However, the reality is that if a company has a high turnover rate, it is usually a sign of other issues.

Often, employee turnover is linked to managerial styles. If all the waiters in a restaurant leave, it may be a sign that the managers are making work too unpleasant for employees to stay. Employee turnover also provides insight into company culture and workplace goals. Especially with all the tensions raised by COVID, a high turnover rate may indicate that employees feel their needs are being ignored or given low priority.

High turnover does more than just indicate most employees are unhappy. It also leads to problems in a workplace. When you have a lot of people choosing to leave an organization, the long-term effects may be disastrous. It often ends up meaning that a lot of time is wasted training new workers on your store’s or restaurant’s policies. Many customers are dissatisfied when they lose their favorite server or clerk and have to work with a new one who isn’t up to speed.

If there is high turnover among management, companies may end up paying a lot due to severance pay or the need to offer higher salaries to new employees. According to some estimates, the cost to replace an employee is around 6-9 months’ of their salary, due to time and money spent on recruitment and training.

How do you calculate employee turnover?

When a business looks at employee turnover, they need to do more than just consider the number of employees leaving. They also need to look at how many employees a business had in the first place. For example, three people leaving from a small coffee shop could cripple the workplace while three people leaving from a massive retail store would be fairly commonplace.

Therefore, it is necessary to look at the percentage of employees leaving, not just the flat number. The U.S. Bureau of Labor Statistics has a simple formula for doing turnover calculations. You just need to divide the average number of employees by the number of employee departures. Multiply this number by 100, and you get the total separations rate. Depending on whether you want the annual or the monthly turnover rate, you can use either the number of employee departures in a year or the number of departures in a month.

When should you start worrying about high turnover?

The average turnover is around 5-10% depending on the business and industry. However, COVID-19 has definitely been affecting these rates. The early months of the pandemic showed a sharp rise as employees were laid off or quit due to concerns over their company’s lack of safety measures. As the pandemic has progressed, turnover rates have actually dropped below average since more people are desperate for a job.

Comparing your business to national average turnover rates is a good place to start. Just keep in mind that it does not give you a full picture of how your company is doing. In any business, it is important to pay attention to turnover rates over time. A sharp increase in turnover indicates new issues you may need to worry about. If possible, try to find local turnover rates for your industry. This can give you more data on how you do compared to your competitors.

How to Lower Your Annual Turnover Rate

Lowering your turnover rates can do a lot to improve workplace morale, save you money, and keep customers happier. An important thing is to simply recognize the hard work your employees do. Developing strategies to thank them for their service and highlight exemplary behavior can lower turnover and improve retention. It is also a good idea to listen to your employees. Anonymous surveys can help you learn about workplace policies that may be leading to dissatisfaction. By focusing on employee satisfaction, it may actually be possible to increase overall efficiency.

Keeping track of your turnover rates can help you pay attention to your employees’ needs. With TimeForge’s workforce management solutions, it is easy to look at your employee turnover rates and identify potential issues before they become major problems. In addition to analytic reports, our software platform also makes it easy to handle scheduling, attendance, team communication, and more. To learn more about our services, contact us today or schedule a demo.

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