Employee Turnover: How to Calculate and Reduce

Employee Turnover: How to Calculate and Reduce

Published on
August 17, 2022
Updated on
October 7, 2022
Author
Luan Campos
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We composed this guide to help you understand and reduce employee turnover at the time of greatest need.

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People are the most significant asset of your business. Successfully recruiting, hiring, and retaining the best talent is essential to your company's growth. Because employee turnover costs time, money, and resources you could invest elsewhere, measuring and reducing it should be a top priority for your organization.

Businesses have always had to deal with employee turnover, but with the Great Resignation and subsequent labor shortage, retaining talent has become crucial across industries. Finding talent to fill positions is no longer an easy feat. That's why we composed this guide to help you understand and reduce employee turnover at the time of greatest need.

What Is Employee Turnover?

Employee turnover measures how many employees leave your company during a specific period. It includes a split between an employer and an employee for any reason, whether voluntary or involuntary. Resignations, terminations, layoffs, and retirement are all included in the employee turnover rate.

Although some employee turnover is an inevitable part of doing business, minimizing it as much as possible with formal strategies for improving the employee experience can save you time, money, and other resources. Employee behaviors and attitudes are changing, and companies that recognize and adapt to this shift rather than complain about it have the best chance of navigating the uncertain economy ahead.

How Much Does Employee Turnover Cost?

The cost of employee turnover varies based on the role and industry, but Gallop estimates it's between one-half and two times the employee's salary. However, as much as the upfront costs of employee turnover are high, organizations should also consider hidden expenses that are hard to measure but no less impactful.

Losing talented people can mean losing your most creative and innovative thinkers and problem-solvers. When valued employees resign, you may experience a progress stall on your big projects, a negative impact on customer relationships, and an interruption in your team momentum. A high turnover rate can also damage your reputation and make it harder for you to recruit new talent.

How to Calculate Employee Turnover Rate

The formula for calculating the employee turnover rate is simple. You only need to divide the total number of employee separations by the average number of employees times 100. However, this can be a little more complicated if you have many different types of employees, so knowing whom to include can help you get more accurate results.

Establish Your Monthly Employee Turnover Rate

The following will cover figuring out your monthly employee turnover rate. Here are the two primary steps to follow:

Calculate the Average Number of Employees

Before finding the average number of employees, you need to know how many workers you have. The total number of employees in your business is referred to as an employee headcount, and you should compute it at regular intervals, such as weekly or at the beginning, middle, and end of the month.

Your headcount should include all employees on the payroll, including temporary workers that were direct hires and workers on leave, furlough, or temporary layoff. Don't include temporary workers hired through a staffing agency or independent contractors in your headcount.

Calculate your average number of employees by adding all your monthly employee head counts and dividing by the number of reports. So if you do head counts at the beginning, middle, and end of the month, you add the totals of all three reports and divide by three to get your average number of employees for that month.

Estimate the Number of Separations

Next, you'll need to know the number of employees who permanently leave your organization in a month. This should include all terminations, resignations, or retirements. The number of separations should not contain employees on leave, furlough, or those temporarily laid off.

Why Is It Important to Measure Employee Turnover?

As with any key performance indicator (KPI), you have to measure employee turnover to know where you stand and if you're progressing toward your goal. Employee turnover is extremely costly for your business and can damage your reputation. It's also largely preventable.

Over half of all voluntarily exiting employees say that their organization could have done something to prevent them from leaving. Measuring your employee turnover rate is the first step to implementing a comprehensive program to reduce it.

Learn More: No Code Development: Is It Worth It?

How to Reduce Employee Turnover

There are tangible steps you can take to reduce employee turnover. However, it has to be a top-down effort to create a culture that aims to optimize your employees' experience. Here's what you can do:

Understand Why Employees Leave

The first step in reducing employee turnover is understanding why your employees are quitting. Conducting exit interviews with departing employees can give you more specific data, but the Pew Research survey found that the most common reasons employees cite for leaving their jobs in 2021 include:

Low pay

The biggest reason most employees leave their jobs is dissatisfaction with their current compensation. With the current labor shortage in general and the tech talent shortage in particular, skilled employees are highly sought after across industries. The competition to hire valuable workers can be intense.

You may not feel like you can afford to pay more, but after calculating the cost of employee turnover, you may change your mind. The costs associated with employee turnover are avoidable and wasteful. On the other hand, the expenses of attracting and retaining talented workers are an investment in the future of your business.

Lack of opportunities for advancement

If you have the type of employees that benefit every business — ambitious, hardworking, and curious — you should know they're going to want to advance their careers. Experienced workers won't be satisfied treading water for years on end. Implementing a career planning and talent development program will increase job satisfaction for your employees and provide your company with the skilled workforce you need.

Unhealthy work culture

The Great Resignation has highlighted that people prioritize work/life balance and happiness over work. If your employees are stressed out, worried about being belittled for making mistakes, and feel unappreciated by management, their morale and motivation will plummet. This is an area where employee turnover can be a vicious cycle. If your current staff is overworked because you're shorthanded, they're more likely to feel dissatisfied with their jobs and leave, making the problem worse.

Not enough flexibility

Working from home is a trend that's here to stay. There are currently over 11 million job openings in the US, and the existing hypercompetitive labor market heavily favors employees. However, the vast majority of employees — up to 70% — won't even consider a job if there aren't options for flexible working conditions.

Employees are ready to leave their jobs if businesses don't provide a flexible work environment. They seek more control over where and how their work than ever before. Therefore, companies should meet these needs if they don't want to risk losing talented workers.

Learb More: Employee Offboarding Checklist: The Ultimate Guide

Implement a Comprehensive Employee-Retention Action Plan

Creating a workplace culture that prioritizes employee retention is a mindset that has to permeate all levels of your organization. It will require broad-based strategies that start before you hire an employee and targeted strategies based on the specifics of your company. An effective employee-retention program will include the following:

Performing a Retention Research

Although you can benefit from the guidance of professional human resource organizations, your most valuable research will be gathered from your company. Keeping track of KPIs such as employee turnover rate should be a starting point. Without a solid starting point, you won't be able to determine if your plan is successful.

It's impossible to determine if your employee-turnover rate is too high based only on numbers. A 15% turnover rate may be abysmal for one business and exemplary for another. Many external factors influence employee turnovers, such as location, job role, and industry. You'll need to benchmark your results against industry standards to understand where you stand.

Gather as much data as possible about why employees are leaving your business. When employees quit, conduct an exit interview to find out the reasons. However, you shouldn't wait for your employees to resign to ask why they are unsatisfied with their jobs. Consider conducting a company-wide job satisfaction survey or "stay" interviews with current employees to determine their satisfaction levels. Use the feedback to improve employee experience, acting proactively rather than reactively.

Keep in mind that it's essential to collect your own data so you can determine any specific issues you need to address. For instance, if your data shows that women leave at higher rates than men, you need to examine the underlying reasons and develop strategies to deal with the issues causing this.

Establishing an Action Plan

Once you perform your research, identify broad and targeted strategies based on the results. The specific strategies you should implement will depend on the feedback you get from your employees. However, you are most likely to need some of the broad-based ones that apply to most workplaces:

Create an Optimal Hiring Strategy

Improving your employee retention rate starts with hiring the right people. Ensure your candidate persona aligns with your company's needs and culture. A smooth and efficient hiring process that respectfully treats applicants will help you attract high-quality candidates.

Use a Structured Onboarding Process

Employees who undergo a structured onboarding process are 58% more likely to remain with a company for three years or longer. A thorough onboarding system improves employee engagement and makes new staff members feel like a valued part of your team.

An onboarding plan shows your employees that you're ready to invest in them. It also provides a clear structure so that your leaders don't get caught up in day-to-day business operations and overlook small efforts that can make a difference in job satisfaction.

Offer Competitive Compensation Packages

Consider the costs of employee turnover when you're calculating wages. Attracting highly-qualified talent by offering higher pay will likely improve your bottom line. Good employees pay for themselves many times over.

Implement a Career and Talent Development Program

Helping your employees advance in their careers by offering training and mentoring program will make them more likely to stay. People want to know that they can move ahead in their careers. Making it clear that they can do that with your company and that you'll provide the training and opportunities they need are powerful incentives for attracting and retaining employees.

A bonus of a talent development program is that you can create the workforce you need. If you have loyal employees with outdated skills, you can train them to meet your precise goals.

According to Gartner, 58% of employees will need additional training to do their jobs. If you don't have a talent development program, even your best employees will eventually become underqualified. Working with a talent development partner such as Revelo can simplify the process of reskilling and upskilling your current workforce.

Offer a Flexible Work Environment

As a result of the pandemic, tech innovations for working at home exploded. Most employees want to continue to have the flexibility to work from home, at least partially. People want their work, family, and leisure time. Giving your employees the ability to choose when, where, and how to perform their duties can improve their job satisfaction and productivity.

There's no downside to offering your employees the flexibility to work from home or in a hybrid environment, yet the benefits are significant. Work flexibility reduces the costs of maintaining office space, increases productivity, and helps employees balance work and life for greater satisfaction.

Create a Positive Workplace Culture

A toxic working environment can drive massive employee turnover. Your company's culture includes the values, attitudes, and beliefs that drive your organization. No matter how many other initiatives you launch, your employees will leave if your company culture is hostile, disrespectful, or demeaning. To lower the turnover rate, invest in your workplace culture.

Take Your Employee Retention Strategy to the Next Level

Attracting and retaining high-value employees needs to be a top priority for every business. Fortunately, creating a warm and welcoming workplace doesn't need to be complicated if you have the right employee-retention action plan.

Start by gathering data on your current employee turnover rate and the reasons behind your employees' resignations. Next, implement programs based on your findings and your employees' feedback. You can design programs in-house or work with a partner to provide services.

Revelo is a talent development platform that helps you attract, hire, onboard, and retain top tech talent. Understanding what your employees want and providing it will go a long way toward decreasing your employee turnover rate. Contact us today to learn how Revelo can help.

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Full-Stack developer with 6 years of experience working with MERN stack. Worked for multiple transnational companies focused on web and cloud, technology services, and R&D. Major professional experience in Frontend with Javascript, Node.js, React.js, and Vue.js

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