What is Employee Turnover?
Employee turnover is a measure of how many people leave an organization within a given period of time. Typically expressed as a rate or percentage, turnover can signal a lot of things (both good and bad) about the general effectiveness of an organization.
Turnover can be divided into two basic types. The first type, voluntary turnover, occurs when employees choose to leave a company on their own. For example, an employee might find another job, move away, or quit for any other reason. If voluntary turnover is particularly high, it could be a symptom of deeper issues within the company.
The second type, involuntary turnover, occurs when employees are terminated from a position. The termination could be for any number of reasons, from poor performance to disciplinary issues. High involuntary turnover may be a result of a less-than-effective hiring process. For example, a high turnover rate could signal that the company is struggling to both attract and identify job candidates who are the right fit for their positions.
How to Calculate Turnover
A company’s turnover rate is the percentage of employees leaving the company within a given period of time. While it’s typically calculated on an annual basis, you can segment out turnover rates for any amount of time that feels relevant to your organization, such as 90-day turnover or 3-year turnover. You can also calculate all turnover in aggregate or break out separate rates for voluntary or involuntary turnover.
Here’s a basic formula for calculating a turnover rate:
Let’s do an example. Say your company has 120 total employees within one year. Within that year, 14 of them left the company, either voluntarily or involuntarily. Your general turnover rate for that year would be equal to (14 ÷ 120) x 100%, which equals about 11.7%.
What’s a “Good” Turnover Rate?
This really varies by industry. Some industries have higher than average turnover when compared to other industries. Average turnover across all industries typically sits at around 15%, so striving for that number is a good place to start. However, companies in high-turnover industries (like call centers or hospitality) may be better off using industry standards to set realistic goals. Nevertheless, most organizations will agree that the lower the turnover, the better.
How to Improve Turnover
Turnover can be difficult to improve because there are so many potential factors involved. Pinpointing a cause is a good place to start. As we mentioned earlier, the type of turnover your organization is experiencing can suggest a potential source of the problem. High voluntary turnover means that potentially good employees are choosing to leave the company of their own volition. This type of turnover could hint at organizational issues – from poor management to lack of growth opportunities. If you’re in HR or you’re responsible for hiring, it can be really daunting to effectively change a problem that’s happening on an organization-wide level.
If your company is experiencing particularly high involuntary turnover levels, however, it means that your company is having to let go of a high proportion of employees who aren’t meeting performance standards. Involuntary turnover is a sign that the hiring process could use some fine-tuning because it ultimately suggests that these employees weren’t the right hires for the job. Reducing turnover through the hiring process often involves incorporating more predictive hiring tactics that can help you identify the candidates who are the right fit for the role before you hire them.
Examples of more predictive hiring strategies include structured interviews and pre-employment tests. Pre-employment tests are particularly predictive of job performance and retention. For example, one company used pre-employment tests to reduce turnover by 65% in just one year; tests helped the company identify which candidates were mostly likely to succeed AND were more likely to stick around longer. This is one example of how changes in the hiring process can dramatically move the needle on turnover, which represents a major hiring metric.
Ultimately, reducing turnover starts with identifying potential causes and working to improve them. While turnover can be the result of larger organization-wide issues, the hiring process is often the most tangible place to start making meaningful improvements on your turnover rate.
