“Employee turnover” may sound like a simple term, but when asked, most HR people cannot explain the concept concisely. Often, this question prompts another in response: “what turnover rate are you talking about?”
Turnover is not a single figure. It can be determined on multiple levels and for different reasons. What are some of these areas?
Often, overall turnover is too simplistic of a number because it doesn’t tell you anything about your organization. Turnover, according to Jac Fitz-Enz, is made up of two parts: accessions and separations. Accessions are your new hires, while separations are those people that leave your employment for a variety of reasons. This is generally what people first think of when they say “turnover.” Your accession rate is Total Hires / Average Headcount. Your separation rate is Total Terminations / Average Headcount.
Separation rate, the rate at which people leave the organization, is also not a standalone metric. Yes, you need to know it, and if the CEO ever asks, it should roll off your tongue without hesitation. However, there are multiple ways to look at separation. This value involves two major methods: voluntary separation and involuntary separation. Even these subcategories can be looked at more closely to give a more refined picture of your organization.
Voluntary separations include personnel who, of their own volition, leave your employment to seek other opportunities or to retire. There are several ways of looking at voluntary separations. These include:
Involuntary separations must also be considered. In this regard, involuntary means involuntary on behalf of the employee. These include lay-offs, firing for performance, firing for rule violations, seasonal business variation, retirements (if forced), or death. These can also be looked at using the categories listed above. With involuntary separations, it is especially important to pay close attention to your EEO categories.
One of the key numbers necessary to calculate any turnover is the average headcount. To obtain this value, add the monthly employment for the prior 12 months and divide by 12 to calculate the average monthly employment or headcount. The monthly employment could be simply the average number of payroll deposits per month. If you pay your employees twice a month, add the number of deposits for each payroll and divide by two to get the average employment for a particular month.
Then, take the specific separation number for the year that you have and divide it by the average headcount. The resulting percentage is your turnover.
Another important metric to look at is retention. You want to determine how well you are keeping vital people. Turnover, regardless of the kind, is expensive. The costs associated with turnover include termination costs, replacement costs (which can include onboarding and training), vacancy costs; and opportunity/productivity costs.
To avoid these costs, implement strategies to improve your hiring practices. Refining your screening tools will really help streamline your organization’s workflow. Using assessments to match candidates with the skills and cultural aspects of a job can further reduce negative turnover.
Understanding your separation and turnover rates can help you identify why people may leave or be dismissed from your organization. This small effort could improve hiring operations in your organization considerably.
The fight for top talent is raging in the ranks of recruiters. It’s a competitive market, and if you’re not prepared, you may lose the war. That’s why it’s so important to assess your talent management program to make sure you have a winning strategy and all of your best weapons at hand.
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When establishing targets and taking steps to manage employee turnover, it’s important to first identify whether your current turnover is healthy or unhealthy. Average turnover rates vary according to things like discipline/profession, industry, region, and country, and are impacted by factors such as economic conditions, geography, and politics.
The truth is that there is no optimal level of turnover for full-time employees. While there are undoubtedly costs of turnover, the total cost depends on the job and the performance level of the individual doing the job. The benefits of turnover vary too. For example, if we consider a poorly performing employee, the benefits of them leaving may outweigh the cost.
It’s important for any organization to see an ongoing, regular influx of new talent that brings fresh ideas and experience along with a different perspective. Turnover can help rejuvenate an organization and invites everyone to continually examine and challenge common practices and assumptions, looking for ways to improve.