How your employee turnover rate impacts your business

Leaders are increasingly taking note of their organization’s employee turnover rate as a metric of employee retention. It’s of no surprise, given that retaining employees is top of mind due to The Great Resignation. In this article, we unpack how you should interpret your turnover rates and explain how they can both benefit and mislead your employee retention strategy.

What is an employee turnover rate?

An employee turnover rate represents how many employees have departed an organization in a fixed period of time, usually measured annually.

Employee turnover is typically viewed negatively. It’s an expensive problem because the loss of an employee leaves an open position that businesses carry the burden to fill. The reasons and types of employee departures are vast. Resignations, layoffs, terminations, retirements, relocations, and even deaths constitute this loss of talent.

How to calculate employee turnover rate

Many leaders rely on monitoring their turnover statistics to gauge whether their turnover is normal. While some level of employee turnover is natural for all businesses, this might provide indicators to improve management or surface patterns of exit.

Want to determine your employee turnover? Start with dividing the total number of departures by your average number of employees. Multiply that number by 100, and that’ll get you to the percentage of staff turnover.  

Wondering where to get the “average number of total employees” figure? Take the number of employees at the beginning of the period (say the start of the month), add the number of employees at the end of the period (end of the month), and divide the total by 2 to reach the average number of employees of that month.

Here’s the exact employee turnover rate formula:

Monthly employee turnover rate = (Number of leavers/ Average number of total employees) x 100

Employee turnover by industry

According to the U.S. Bureau of Labor Statistics, the 2020 annual total turnover rate stands at a whopping 57.3%. You may be tempted to compare your company’s situation to this statistic, but that’s just taking the aggregate number and ignoring the nuances.

For a critical HR metric, finding out the meaning of your employee turnover rate is quite a complicated quest. The fact is, the percentage of employees leaving varies dramatically from one industry to the next. Throw in a wildcard like the COVID-19 pandemic, and it can be overwhelming. That’s why we’re discussing some industries benchmarks to help you evaluate where your organization stands.

The retail and hospitality sectors typically have high annual turnover rates (up to 73% in 2020!) due to the shifting nature of work when it relates to entry-level, temporary, and seasonal jobs. A lack of advancement opportunities is often cited as reasons employees leave. And many businesses were forced to furlough or lay off employees amidst the COVID-19 pandemic, skyrocketing turnover even further.

Talent competition in the tech market creates luring opportunities, making it one of the sectors with the highest turnover before the pandemic. Even prestigious companies such as Google and Amazon report a short median tenure of just one year.

Having an in-depth understanding of the talent landscape in your particular industry will help you determine how your company compares with those in the field.

Understanding turnover causes and signals

Regardless of what industry benchmark you use to evaluate your employee turnover, it’s ultimately a starting point to uncover how departures impact your bottom line and company culture.

Take note of demographics and other behaviors

Employee engagement and turnover were already some of the most important HR areas of focus when Gen Zs and Millennials entered the workforce. Often known as “job-hoppers”, keeping track of certain demographic factors can help predict turnover intentions or red flag indicators.

Furthermore, if there’s one department experiencing an odd amount of attrition lately, try to investigate and see if there’s an opportunity to address troublesome relationships, correct inefficient processes, and strengthen impacted morale.

Pre-empting turnover

Keeping note of your employee turnover rate can help inform strategies that eliminate the costs of turnover. One of these is proactive succession planning, which helps showcase internal growth opportunities and challenges top performers. Not only does this help fill critical role gaps, but those who are being trained to advance and replace positions will have a more positive outlook on the company, which means they’re likely to stick around for longer.

Should low turnover be a goal?

A high turnover rate often sounds the alarm, but it’s not the end-all-be-all. As long as you’re familiar with the nuances, you’ll understand that evaluating this metric requires considering your unique circumstances and what your business is going through.

Employee turnover could be a significant step forward if every poor performer left, and a detrimental tragedy if those leaving are all long-tenured managers of influence. This is specifically why it’s incredibly challenging to establish a healthy turnover rate at the end of the day—context matters.

Perhaps you can determine an acceptable level of turnover for your organization. Either way, I encourage you to challenge your retention mindset further; employees leave for all sorts of reasons, voluntary or otherwise. When you dig deeper and evaluate your employee retention rate according to your unique scenarios, you’re ultimately working towards a better retention strategy.