Turnover Rate 101: What Does it Tell You About Your Business?

The Great Resignation just keeps on getting greater. According to the Bureau of Labor Statistics (BLS), almost 4 million people voluntarily resigned from their jobs in April 2021. September 2021 quickly usurped that record, with around 4.4 million people quitting their jobs.

The Great Resignation has led to a new paradigm in staffing. It means every organization—regardless of size or industry—needs a solid headcount planning strategy more than ever.

Along the way, it’s essential to monitor your employee turnover rate — specifically, gauging whether or not it’s healthy and what you can do to improve it.

Your employees are your biggest assets, since your company’s profitability and growth depend on them, and the war for talent means you need to pay closer attention than ever to what will make them stick around. As a result, turnover rate is one of the most important HR metrics you should be tracking right now.

Read on to learn what employee turnover rate means, how to calculate it, and how you can use that information to improve retention.

What is Employee Turnover Rate?

Employee turnover rate is the percentage of employees who leave your company in a given time period. Most organizations calculate this metric on a monthly basis. Turnover rate can be split into three types:

• Voluntary turnover: Separations resulting from employees resigning from their jobs
• Involuntary turnover: Separations resulting from layoffs or furloughs
• Total turnover: The combination of both voluntary and involuntary turnover

Overall, it’s healthy to have turnover. We no longer live in a world where people have one job for their entire career, and that makes turnover a necessity. And some turnover is healthy. While your team should always do what you can to engage and retain employees, if it’s not the right fit and they can find a better fit elsewhere, that’s okay and your team should be comfortable with that.

That said, an unusually high turnover rate—especially if it’s voluntary—should be a cause for concern for your business. It shows that your organization’s overall employee experience lacks something. While the reasons vary from company to company, according to Beamery’s Talent Index, some potential culprits include:

• Lack of career growth (83% of employees want employers to help them progress in their careers)
• Lack of flexibility (49% of employees demand flexible working hours)
• Lack of wellness benefits (31% of employees want better mental health support initiatives from their employers)

Low employee engagement is also another probable cause. According to Gallup’s State of the Global Workplace 2021 report, global employee engagement decreased by 9% between 2019 and 2020.

Why Does Turnover Rate Matter?

Employee turnover rate is one of the most critical HR metrics. When tracked and used correctly, it can help your business save money, get an objective picture of what your employees think, and avoid a shortage of top talent. Here’s why that’s the case:

It directly impacts business costs

Businesses in the U.S. collectively lose a whopping $1 trillion every year to voluntary turnover.

Josh Bersin, founder of The Josh Bersin Company, notes that the cost of losing an employee is equal to 1.5–2X their annual salary. While it’s easy to think that separations reduce overall costs (and this may be somewhat true if you let go of a few personnel not pulling their weight), it’s actually the opposite when top-performers walk away. Additionally, regardless of the individual’s performance, you likely still need someone with those skills to support business goals—meaning backfilling a position due to voluntary or involuntary turnover still costs money.

Specifically, these costs include running job ads, recruiting replacements, and administering training and onboarding from scratch to the new hires. Keep in mind that this does not even include signing bonuses to attract the top talent in your industry.

It takes 42 days on average to fill a new position. And once you do hire new employees, it takes time for them to fully assume their roles, which can lead to lost revenue and missed growth opportunities in the process.

It serves as a barometer for your people strategy efforts

A rise in turnover—especially voluntary turnover—reflects gaps in your employee experience. Employees may be quitting because they were offered better compensation packages, experienced a lack of support from their superiors, or felt their growth had plateaued. The reasons will vary, but they always tie back to your people strategy efforts.

A high turnover rate should prompt an investigation to find out why your employees are quitting. This is the first step to fixing internal issues and giving your employees a reason to stick around and thrive at your company.

Similarly, a reduction in employee turnover rate shows that your people strategy initiatives, such as compensation strategies (including rewards and benefits programs), manager training, and career development programs are working. From there, it’s only a matter of digging deeper and finding out how you can further improve. Sai Blackbyrn, CEO of Coach Foundation, says, “A low turnover rate means that your company has put together good practices to retain your staff; you can either leave the policies as they are or introduce even more of them to complement the existing procedures.”

How to Calculate Your Turnover Rate

Using a people analytics solution is the fastest and easiest way to calculate your turnover rate, since the platform’s automated reporting capabilities aggregate all the data and return the number you’re looking for – no data pulling, spreadsheets, calculations, or anything else. As a result, you can not only get your turnover rate in a matter of clicks, but you can also easily track how it’s trending over time.

To calculate employee turnover rate without a people analytics solution (and to understand what goes into this number), you need the following data:

• Number of separations: To gauge how many employees quit in a given time period
• Type of separations: To calculate voluntary turnover, involuntary turnover, and total turnover
• Average number of employees: To see how many employees were on your payroll in that same period

Follow this step-by-step process to get your rate:

Step 1: Determine the number of separations

Start by calculating your total number of separations in a given time period.

This should not include employees on temporary leaves. Only include the total number of employees who permanently left your organization. You should have three numbers (one for each turnover measure – voluntary, involuntary, and total) to get the complete picture.

Step 2: Calculate the average number of employees

To calculate your average number of employees, you will need the total headcount at the beginning of the time period and at the end of that time period. Make sure to count the full-time and part-time employees on your payroll. Also include direct-to-hire temporary employees in your calculation.

A good practice is not to count independent contractors, as they are bound to leave your organization when their contracts expire. Including them will throw off your results.

Once you have those numbers, calculate the average number of employees using the following formula:

(Employees at the beginning + Employees at the end)/2

Step 3: Run the numbers

Finally, plug the total numbers for each type of separation and average number of employees into the appropriate turnover rate formula:

Voluntary turnover rate = (Number of voluntary separations/Average number of employees) x 100

Involuntary turnover rate = (Number of involuntary separations/Average number of employees) x 100

Total turnover rate = (Total number of separations/Average number of employees) x 100

For example, if your company experienced a total of three separations in one month and the average number of employees for that same month is 151, then your total turnover rate for that month will be:

(3/151) x 100 = 1.98%

How Can You Use Your Turnover Rate to Your Advantage?

Any company can calculate its turnover rate. But how can you use this metric to your advantage to make more informed decisions? Here are three best practices to make it happen.

Compare your turnover rate with industry averages and your historical data

First and foremost, you should determine whether or not your existing turnover rate is a cause for concern.

Start by comparing your rate with your industry’s average turnover rate. If it’s well below the average rate, you’re at least doing better than most of your competitors. If it’s higher than the industry average, you should make it a priority to get it under control.

It’s also important to compare your existing turnover rate with your historical rates to see if it has improved. If it’s above the industry average but below your historical rates, you’re making progress and should continue with your efforts. On the flip side, even if your current turnover is below the industry rate, if it’s higher than your previous month’s rate, that’s an indication that something is wrong.

As part of these efforts, you should also consider the balance between voluntary and involuntary turnover as well as the reasons for turnover, as some fluctuations over time are normal and even healthy.

Leverage exit interviews and people data to identify culprits

Once you understand how your company’s turnover rate stacks up, it’s important to dig into what might be causing turnover, as understanding the root cause is the only way to fix those issues.

Amy Wampler, HR manager at Spartan Mechanical, says, “The main responsibility of HR here is to analyze the exit interviews of employees about to quit and address their issues in order to reduce that turnover.”

To get meaningful data, you need to make your exit interviews count. And to do that, you have to ask the right questions to get honest feedback from your soon-to-be-ex-employees about what:

• Prompted them to resign
• Makes their new job more attractive
• Could have been done differently to make them stay

Make your questions as specific as possible. You want to dig deep and find out the exact root problems as opposed to receiving vague answers.

Collect your responses in a single source of truth, such as a people analytics solution, which should also make it easy to comb through the data and identify common culprits.

Additionally, it’s helpful to overlay metrics like eNPS scores, recent performance reviews, and demographics to identify any trends among these factors. For instance, if you find a spike in turnover from employees of a similar demographic group, this could indicate a DEI issue. A people analytics solution can help you effortlessly make sense of this information by bringing together all of these data points and allowing you to quickly visualize them on a graph.

Address the causes for a high turnover rate

Once you identify what’s contributing to your employee turnover rate, you can take action to fix those issues. Whether it’s an unpopular policy or a deep-rooted problem, such as a broken culture, you must act quickly. Otherwise, you’ll continue to lose your talent.

If you uncover multiple issues, it’s important to prioritize them based on urgency since you can’t fix everything at once.

For example, if only one employee quit because of a time-off policy, don’t change it immediately, as that could backfire. Instead, gather feedback from existing employees about the policy and then take action (if needed). On the flip side, if several ex-employees cited “lack of professional learning” as their reason for quitting, it likely makes sense to prioritize changes to your employee development program.

Regardless of priority, it’s important to consult existing employees along the way, as these are the people who any changes will affect. Conducting interviews with employees and sending surveys about options can help ensure that the changes your team puts in place reflect what your employees actually want to see -- that way you don’t replace one problem with another.

As you implement changes, it also helps to be transparent with your employees about what you’ve heard and the steps you’re taking to address the situation. This transparency not only builds trust, but it also indicates to your existing team that change is on the way.

Together, these efforts should help reduce your turnover rate. Depending on your problem, it may take some time to see results. For instance, a simple policy change is a quick fix and can start reducing the turnover rate immediately. But fixing deep-rooted cultural issues takes time and effort.

Communicate with stakeholders about turnover

Given that some turnover is inevitable (and even healthy!), you need to prepare for how you will handle it. In this sense, communication about turnover to stakeholders both on and off that person's team is important for a variety of reasons.

First, this type of communication can help people plan for that person’s departure and fill any gaps it might create. Giving people as much time as possible to develop this coverage plan is critical to ensuring continued business operations.

Second, communicating the circumstances for someone’s departure (as appropriate) and how your organization plans to respond can help keep others engaged. For example, you should be clear about your plans to backfill the newly open role. This includes sharing details like whether you plan to hire someone externally, have someone internally move into the role, or dissolve the role and split the responsibilities among a group of people. You should also be prepared to explain why you chose that route and what the timing for that change looks like.

Take Proactive Measures to Keep Turnover Under Control

You shouldn’t only act when your company experiences a spike in its turnover rate. The right approach is to take proactive measures to prevent that from happening in the first place.

To that end, it’s imperative that you consistently collect feedback from your employees, using employee Net Promoter Score (eNPS) and satisfaction surveys to identify and fix potential problems before they get out of hand.