All businesses experience employee turnover. After all, nobody works forever. However, understanding your business’ rate of employee turnover is important to its overall success. Businesses with high turnover are chronically short-staffed. The remaining employees experience worse working conditions, making it harder to attract new talent, and that creates a cycle that can spell disaster for the company. A reasonable rate of turnover varies dramatically depending on the organization and industry, so it’s important to understand what kind of turnover your business should be aiming for.
Here's what you need to know about employee turnover, how to calculate it, how to understand whether your employee turnover is too high, and what to do about it.
Employee turnover, or staffing turnover, measures how many employees leave in a particular time period. It refers to all employees who have left the business, including people who were fired or laid off or who left for other reasons, such as transferring, retiring, or changing to a different career.
To calculate employee turnover, divide the number of people who left the company in a time period by your average number of employees in that time period. Then, multiply by 100.
Here’s an example. Say you started the month with 30 employees. Five left and you replaced four of them. Your monthly total employees is 29. Divide 5 by 29, and you get .17. Multiply by 100, and you find that your monthly employee turnover is 17%.
Only include employees who have permanently left to the best of your knowledge. Temporary employees or employees on leave should not be counted as staff turnovers.
All organizations experience both voluntary and involuntary turnover. Voluntary turnover is any situation in which an employee chooses to leave. Involuntary turnover is when it is the employer's choice to terminate the relationship.
Does the reason matter when you're thinking about how many employees have left your company? Possibly. It can be helpful to calculate these kinds of staff turnovers separately. If you find that your company has many more employees that leave by quitting than firing, or vice versa, it may be an opportunity to examine how you’re handling employee relations.
This is also a chance to more closely examine the circumstances under which people leave your company. This kind of investigation can be hugely beneficial when it comes to reducing employee turnover and improving work experiences at your company.
The expected employee turnover for a business depends on what kind of company it is. Some industries, such as hotels or restaurants, have higher turnover than others, like government jobs or white-collar industries. For instance, the monthly employee turnover rate in fast food restaurants was 144% this year. So, if a fast food restaurant typically staffs about 30 people, 43 people left the team in just one month.
If you're in the fast food industry and comparing yourself to most other industries, you probably think your turnover is terrible at a rate of over 100%, but it’s actually very reasonable for your business. Acceptable turnover for your company depends entirely on what line of work you're in.
A variety of factors specific to your business can also affect turnover. For instance, if you’re doing business somewhere with a high seasonal population, such as a college town, you'll likely see higher turnover than similar companies in places with more stable populations.
The best way to understand whether your employee turnover is acceptable is to compare your turnover to that of businesses that are as similar to yours as possible.
For the vast majority of industries, a turnover of 20% is reasonable but on the higher side of what’s acceptable. The majority of organizations have a turnover rate between 12% and 20%. Of course, as discussed above, many industries have much higher turnover rates.
Whether the rate is too high for your business depends on the employee turnover cost. For companies that invest little into training and recruiting their workers, losing an employee isn't a significant loss. However, for companies that aggressively search for the best talent and put a lot of energy into training them, a high turnover rate can be devastating for the company's bottom line.
In general, businesses that employ highly technical and experienced workers would see 20% turnover as the highest they would be willing to tolerate, whereas businesses employing employees with less experience and training are typically OK with higher turnover rates, even rates over 100%.
Employee turnover is a perfectly natural part of any business. However, understanding the reasons employees leave is valuable. Knowing about your company's employee turnover can enable you to anticipate and reduce employee turnover. Here are a few of the primary reasons employees leave a company.
Regardless of what kind of business you run, you want employee turnover to be as low as possible. It's true that some businesses are chronically plagued by high employee turnover. However, it reflects very well on your likelihood of success if your company has lower turnover rates than your competition. Here are some of the consequences of a high turnover rate.
What is employee retention? Reducing employee turnover by even a few points can make a difference in how smoothly your business operates. While some types of businesses will always experience higher turnover than others, there are things you can do to bring down your company's turnover rate, regardless of what industry you're in.
Regardless of your business, it is beneficial to reduce employee turnover. There's nothing you can do to eliminate turnover at your company completely, but by recruiting carefully, communicating well, actively building loyalty, and giving employees plenty of reasons to stay, you'll likely find that you can significantly reduce your company's turnover. You'll find that you spend less time and money hiring and training and that business runs more smoothly when you commit to reducing employee turnover.