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Retention and Turnover

What Is Employee Turnover and Why Companies Should Track It?

Written by:Milica Jovic
Published on: 07 July 2020 Reading time: 3 minutes

Employee turnover is always a hot topic of discussion among business leaders. Turnover can be very expensive, it disrupts the workflow and is the cause of heartburn for many HR professionals. If you are not sure about employee turnover meaning, we are here to help.

 

What is Employee Turnover and How to Calculate It?

 

So what does employee turnover mean?

 

A common employee turnover definition is the loss of talent in the workforce over time. This includes layoffs, terminations, retirements, location transfers, resignations and even deaths.

 

The term “Turnover Rate” refers to the percentage of employees who leave an organisation during a certain period of time. To make a turnover calculation, you need to include dismissals, voluntary resignations and retirements. This process is pretty simple.

 

All you need are three numbers:

1. the number of employees who left that month (L),

2. the numbers of active employees at the beginning (B) and

3. the numbers of active employees at the end of the month (E).

 

Next thing you need is an average number of employees, which is calculated by adding your beginning and ending workforce and dividing it by two:

Avg = [B+E]/2 

 

Average number of employees = [# of active employees at the beginning of the month + # of active employees at the end of the month]/2

Finally, you need to divide the number of employees who left by your average number of employees and multiply by 100 to get your turnover percentage:

[L/Avg] x 100

 

Turnover rate =  [# of employees who left that month/average # of employees] x 100

Some business leaders and companies like to calculate Annual Turnover Rate.

 

So, if you have 45 employees at the beginning of the year and 55 at the end of the year, and if 5 employees left during the year, this is how your annual turnover rate would look like:

 

First, we calculate the average number of employees per year:

 

AVG = [45+55]/2 = 50

 

When we get this number we can calculate the annual turnover rate:

 

Annual turnover rate = 5 / 50 * 100 = 10%

 

What Types of Employee Turnover Are There?

 

Turnover can cost organisations large amounts of money. Any company which is committed to addressing employee turnover is more likely to stay engaged and retain its employees. So, companies which are willing to gather feedback from employees who want to exit the company will be ahead of the game. However, you need to keep in mind there are different types of employee turnovers, different scenarios that may lead to an employee’s exit.

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Voluntary VS Involuntary

 

When an employee leaves the company because he or she wants to, it’s called voluntary turnover. The reasons why they decide to leave are different. Some of them find better-paid jobs or are relocating to a new area, or having some personal issues they are unable to cope with at work. Once an employee decides to resign, he or she will give verbal or written notice to the employer explaining that they have decided to leave the company.

 

On the other hand, involuntary turnover rate is when an employee is discharged or fired because of either poor job performance, absenteeism or violation of workplace policies. It is called involuntarily turnover because it wasn’t the employee who decided to leave the company. Layoffs can also be considered involuntarily terminations, although they are handled in a different way than actual termination.

 

External VS Internal

 

When employees leave their current positions in the company and take new positions within that same company, this is called internal turnover. This type of turnover can be controlled by HR department and is also called an internal transfer. Internal transfers are usually considered as an opportunity given to employees to grow in their career while minimising the external turnover rate. Also, if there is a large number of external transfers from a certain department, this may signal that there are some issues in that specific department that need to be taken into consideration.

 

External turnover is when employees decide to leave their current job positions and start a new job in another company or organisation.

 

Desirable VS Undesirable

 

When we hear the phrase “employee turnover” we almost instantly think of something negative and bad. But turnover does not necessarily have to have a negative connotation. For instance, a desirable turnover happens when an employee whose performance is lower than the company’s expectations is replaced with a new employee whose performance is acceptable or goes beyond expectations. This is considered to be a desirable turnover because the new employee’s performance, willingness and ambition to contribute to the company improve the company’s profitability.

 

On the other hand, undesirable turnover is when employees who are proficient at what they do and have exceptional skills and knowledge to handle their job decide to leave the company. In other words, the company starts losing employees who are valuable sources and who can help the company grow in so many ways.

 

Why Should You Track Employee Turnover?

 

Although the employee turnover is a common thing in most companies, there are many reasons why people leave organisations. To discover the main reason why some of your employees decide to quit their jobs, you need to take many factors, as well as the existing circumstances and trends into account and do an in-depth analysis. The next step is to measure the turnover rate and compare it with your industry or location average. In this way, you can come to some conclusions and act on the results on time.

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