Employee turnover is part of running a business. Very few employees stay on for their entire careers, yet keeping them around as long as possible is generally good for the bottom line. This suggests that employers need to pay attention to their turnover rates. If turnover is too high, it will negatively impact a company in more ways than one.
Turnover rate is simply the percentage of employees who leave a company’s employ in a given amount of time. Let’s say you wanted to calculate turnover rate annually. You would first count the total number of workers on the payroll for that year– both full- and part-time (you would not count contractors). Next, you would count the number of employees who left the company within the last year. Divide the second number by the first and you have your turnover rate.
Here is a quick example: your company had 100 total employees who worked at some point within the past year. Fifty of those employees have left. Dividing 50 by 100 gives you a turnover rate of 50%.
It is a simple example, but it makes the point. What is key to understand is that turnover rates are important. If you have never stopped to consider why, check out these three reasons turnover rate should matter to every employer:
1. Turnover Rate Effects Competitiveness
A company’s competitiveness is affected every time an employee leaves. Not only is there no one to do that employee’s work, but the company has to invest time and effort in replacing that worker. Both scenarios reduce productivity, at least temporarily. If a company isn’t consistently productive, it’s also not very competitive.
Another thing to consider is that high turnover rates prevent consistency in the workplace. If you run a company with an exceptionally high turnover rate – we’ll say 50% just for example – you and your management team are probably in a constant state of onboarding and training new workers. How can you compete for business when you spend so much time and effort recruiting and hiring?
2. Turnover Rate Quantifies Employee Happiness
Next, every company should care about turnover rate because it is a quantifiable measurement of employee happiness. Happy employees are likely to stick around for the long term. Because they are happy, they have no incentive to look around for something better.
On the other hand, a turnover rate higher than the industry average indicates employees are not happy at a given company. They tend to stay just long enough to realize their unhappiness and find another job. Then they are off like a shot.
3. Turnover Rate Affects the Bottom Line
Lastly, a company’s turnover rate has a direct impact on the bottom line. According to the HR Digest, entry-level employees cost anywhere between 30% and 50% of their annual salary to replace. Mid-level employees can cost up to 150% while highly skilled employees can cost up to 400% of what you pay them to replace.
BenefitMall, a Dallas company that provides payroll and HR services, explains that working harder to retain employees is a better long-term strategy. They say that retention is a better policy even if companies have to spend a little bit more in terms of pay and benefits to keep their best workers around.
Turnover rate is extremely easy to calculate. It is also a critical measurement of how a company is doing in relation to its employees. What is your company’s turnover rate? If you do not know, now is the time to figure it out. Then do something with that information.