Employee Turnover: Calculating and Understanding the Costs

Jun 10, 2019 | Culture and Engagement, Talent management

What is employee turnover?

 

Employee turnover measures the number of employees who have left the organization, either voluntarily or involuntarily, as a percentage of headcount.

 

  • Voluntary = Turnover initiated by the employee
  • Involuntary = Turnover initiated by the employer, where the employee has no choice in their termination

 

Resource: For more information on HR metrics, visit http://www.hrmetricsservice.org/wp-content/uploads/2013/07/HR-Metrics-Interpretation-Guide-v7.1.pdf

 

How do we calculate it?

 

Monthly Turnover

 

Monthly Turnover % =

Total # of employees separated in the month

   X 100

Average total # of employees in the company

 

Example:

You have 8 employees who have left your company in January 2019. In January 2019, you had a total of 200 employees.

8

   X 100 = 4% monthly turnover

200

 

 

Annual Turnover

 

Annual Turnover % =

Total # of employees separated in the year

   X 100

(Beginning + ending total # of employees) /2

 

Example:

You have 42 employees who have left your company in 2019 (January 1 to December 31, 2019). In January 2019, you had a total of 200 employees and at the end of December 2019, you had a total of 260 employees).

42

   X 100 = 18.26% annual turnover

(200 +260)/2

 

 

First Year Turnover

 

First Year Turnover % =

Total # of employees separated after less than 1 year of employment

   X 100

Total # of separations during the same period

 

Example:

Out of 42 employees who left in 2019, 6 of them left within their first year of employment.

6

   X 100 = 14.28% monthly employee turnover

42

 

What are the direct and indirect costs of turnover?

 

There are significant costs associated with turnover, whether voluntary or involuntary. We have to remember that employee turnover costs can have a significant impact on your bottom line. Here are some (not an exhaustive list) direct and indirect costs associated with turnover to consider when calculating the cost of turnover in your organization. This is the cost to replace each employee who leaves your organization.

 

Direct costs:

 

Separation costs

  • Exit interviews
  • Severance pay
  • Benefits continuation

 

Replacement/hiring costs

  • Recruiting/sourcing
  • Advertising
  • Interviewing
  • Pre-employment screening
  • Reference checking
  • Agency fees
  • Employment costs
    • Signing bonus
    • Relocation costs

 

Training costs

  • Onboarding/orientation of new employee

 

Indirect costs:

 

  • Productivity
  • Engagement
  • Customer satisfaction and service
  • Lost knowledge
  • Reduced morale
  • Company culture impact

 

How do you analyze the turnover rates?

 

 

It’s crucial that turnover rates are measured, analyzed and addressed. Use the metrics to better understand the reasoning behind the departures and possible trends in turnover.

 

Ask:

  • Who is leaving?
  • What positions do they hold?
  • When are they leaving?
  • Why are they leaving?

 

Answers to these questions will allow you to be more proactive in retaining employees and developing a solid employee retention strategy moving forward.

 

Here are just two examples:

 

  • If you are finding a high turnover rate within a department, position or supervisor/reporting line, these should signal that more attention is required to address underlying issues. Potentially the department may need a restructuring, or the position in question needs to be further analyzed for job scope/expectations/training, or a direct Manager/Supervisor requires further training on managing their direct reports.
  • If you are noticing that many of your voluntary exits are leaving due to family reasons, then you may need to re-evaluate your family-friendly policies/practices.

 

It’s only when you begin to delve into the turnover data that you begin to shed light on why employees are leaving.

 

 

Contact us to help you better analyze and address employee turnover. We can help:

  • Review, compile and conduct a deep dive on employee turnover data
  • Identify key areas of strength and opportunity and develop employee retention focus areas and strategies
  • Draft detailed project plans and facilitate meetings to deliver on employee retention objectives
  • Compile employee turnover and retention measures and metrics to regularly assess progress

 

Visit: https://upskillconsulting.ca/contact/

 

 

Sofia Arisheh
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