Employer's guide to employee turnover

Employees leaving your business is unavoidable, but every time someone does it costs valuable time and money. So you must know how many of your staff are moving on.

To understand how many employees are leaving your company, it's vital you calculate turnover rate successfully. Measuring turnover can help you to increase staff retention in the future.

In this guide, we'll discuss what employee turnover is, how to calculate staff turnover rate, and how to increase yours.

What is staff turnover?

Also known as employee turnover, staff turnover is the number of employees leaving their roles who need replacing in your business. The leaving employee can be replaced by either external or internal candidates.

There are two key terms in employee turnover that can help you understand the issue better. They are:

Voluntary turnover

Voluntary turnover counts employees who leave a company by their own choice. This includes:

• Voluntary resignations

• Educational opportunities

• Changing their career path

• Personal reasons

• Retirement

Involuntary turnover

Involuntary turnover is when employees leave a company following dismissal. This can include:

• Failing to meet performance standards

• Committing misconduct

• Redundancy

Who is responsible for employee turnover?

As an employer, employee turnover is ultimately your responsibility. However, it also comes down to your senior staff.

You hire senior employees for your business to manage your staff and increase their performance. But, poor management is one of the main reasons behind an employee's choice to move on.

So, it's both your and the senior staff in your company's responsibility to ensure employees don't regularly leave.

What is employee turnover rate?

Employee turnover is a way to measure the rate at which employees leave your company over a specific time period.

Understanding the factors behind the rate can go a long way towards lowering the number of employees that are leaving your business.

Why are employee turnover rates important?

Employee turnover rates are vitally important as replacing employees with new hires is costly. A higher rate can bring a cost of both hiring and training new employees. As well as having to build new working relationships.

Having a lower rate can bring many benefits. Such as a stronger workplace culture, an increase in morale, and strong relationships.

What is a healthy employee turnover rate?

As a company, you should aim to hit a healthy turnover rate each year. In Australia, the average turnover rate is between 10% and 15%.

However, it's important you understand your industry average. Rates will vary widely across industries. Some will have a higher turnover rate than others, so you must compare yours correctly.

How to calculate staff turnover rate

To fully understand how many employees are leaving your company, it's vital you calculate the annual turnover rate correctly.

You need to decide the certain period of time you want to find the rate for. As well as annually, you can measure yours quarterly or monthly. Most companies choose to calculate theirs on an annual basis, but for a company suffering from frequent departures, monthly is also an option.

When it comes to calculating employee turnover rate, you can follow the basic below steps:

Step One - Collect information

The first step in calculating your employee turnover rate is to collect essential information. The information from the specific period (monthly, annually, or quarterly) will form the basis of your rate.

You need the following three pieces of information:

• The number of employees at the beginning of the period

• The number of employees at the end of the period

• The total number of employees that left during the period

Step Two - Calculate the average number of employees

The second step of the process is to find the average number of employees.

To do this you need to add the number of employees at the beginning of the time period, with the number of employees at the end. Then you must divide that number by two.

For example: 40 employees at the start + 30 employees at the end = 70 employees. Divided by 2, gives you 35 employees (40+30= 70, 70÷2=35).

Step Three - Calculate the turnover rate percentage

The third step of the process is to calculate the turnover rate percentage.

To do this you need to divide the number of employees who left, by your average number of employees. Then you must multiply that number by 100.

For example: 10 employees left ÷ 35 average number of employees = 0.28. Multiplied by 100, gives you 28% (10÷35=0.28, 0.28x 100=28).

For a full guide to employee turnover calculations see, our article on calculating staff turnover rates.

How to analyse your turnover rate

To successfully reduce employee turnover in your company, you need to analyse the rate at which your employees are leaving. Remember, employee turnover is a great way to see how your business is performing.

There are three main questions that you should look to answer on the back of calculating the percentage. Let's discuss them in more detail: Which Employees Are Leaving?

It's crucial you understand which employees are leaving your workforce. It should be alarming to you if you find more senior staff are regularly leaving.

For example, if managers vacate your business there will be higher costs involved to hire and train their replacements.

Why are employees leaving?

Losing employees should be important to you. So, you need to analyse why employees are leaving your company.

For example, it should be concerning to you if new employees are choosing to leave. There are many reasons why this is the case, such as:

• The gap between what they're expected to do and what they're actually doing

• Insufficient training was provided

• The job description wasn't fully accurate

If more senior employees are moving on, it may be because the compensation package you're providing isn't enough to encourage them to stay.

Are there any patterns?

Use all the data provided to discover any patterns to when your employees choose to leave. For example, there may be an increase just after annual appraisals. This may be because employees aren't happy with the feedback given, meaning extra training for senior staff is required.

Reasons for a high turnover rate

If you're suffering from high turnover rates in your company, you must understand the reasons why. Doing so can help you to turn the issues around.

Common reasons for high turnover rates include:

• Lack of work-life balance

• Employees feeling overwhelmed by the amount of work or unrealistic expectations

• Lack of employee recognition

• A poor or toxic workplace culture

• Poor working relationships with colleagues or management

• Poor pay or benefits

• Lack of career development opportunities

• Poor overall employee experience

• Outdated HR policies, such as a lack of a flexible working option

If you find any of the above are active in your company, then you need to make a change.

Reasons for a low turnover tate

If your company has a low turnover rate, then you're doing something right. But you may be wondering what has led to this. Common examples include:

• Employees feel well paid

• A healthy workplace culture

• Enhanced employee entitlement

• Employees feel engaged

• Open communication between employer and employee

• Incentives, such as a cycle-to-work scheme

• Small benefits, such as free fruit

How to increase employee retention

A low employee turnover rate is the aim for all companies. Especially if you're finding your top performers are looking for a way out.

So, let's discuss the ways that you can keep your top talent:

• Keeping your employees engaged is a great way to keep them in your business for longer.

• Make sure you're regularly praising your employees for the hard work they put into your business. Remember, they're a vital part of your company.

• Encourage your staff to raise any concerns they have. However, it's vital you listen to them, act accordingly, and make changes where required.

• Hold regular meetings with your employees to discuss their performance and how they can further develop.

• If possible, offer your employees flexible working. This can ease the burden of childcare and family life.

• Do competitor research to make sure you're paying your employees the salary they deserve. Pay is arguably the biggest reason why employees look to move on.

• Conduct exit interviews to find out why employees are leaving your company and how you can improve their working life.

For more advice on how you can retain your staff, see our aticle on employee retention.

Get advice on staff turnover with BrightHR

As a business owner, it's unavoidable that employees will move on. But, rehiring for their replacement costs both time and money. So understanding how many employees choose to leave is vital.

To understand , it's vital you calculate turnover rate successfully. Measuring your turnover correctly can go a long way in keeping your best employees.

If you need any advice when employees resign, we are on hand to help. Check out our 24/7 HR advice line.