Employee Turnover/Separation

Employee Turnover (ET) rate is a efficient indicator of an organization’s work culture, the effectiveness of hiring policies and overall employee management. In this article, we will discuss how you can calculate employee turnover rate and what those numbers indicate or reflect about your organization.

What does it mean?

Employee turnover is the percentage of employees that leave your organization during a definite time frame (Typically - Financial Year). Organizations typically calculate turnover rates annually or quarterly. We can also choose to calculate turnover for Infant (New Hires) to evaluate the effectiveness of the Recruitment/Hiring Policy.

Why ET is Important?

Can we run an organization without people or employee? Can we stop recruitment for the left employee? I am sure the answers of these question are negative. We should comparing the Recruitment Cost Vs the Retaining Cost, and the result will be in favour of Retention as Replacing an employee is expensive. The whole recruitment process must start again, which requires lot of time, cost, and resources.

If our turnover rate is on a high side - i.e., lots of people are leaving, it can result in:

• Additional expense for a replacement
• Demotivates employees.
• Additional Work Pressure / target for active employees
• Shortage of skilled experience employees
• Dissatisfaction inside teams
• Additional Training Cost - New Hires
• No Productivity in the starting period

When employee turnover has so many serious consequences, it makes sense for the management team and HR to keep a tab on it so that you can take necessary actions.

How many types of Employee Turnover/Separation?

When employees leave an organization of their own will without any additional force (typically this act of them is their wishful thought and planned activity), it is called Voluntary Turnover/Separation.

When employees leave an organization because they were asked to do so, or employee don’t have any control over that event/cause then it is called Involuntary Turnover/Separation. i.e. Retirement, Termination, Death etc.

To get a deeper understanding of their turnover rate, organizations may choose to calculate voluntary and involuntary turnover rates separately.

How to Calculate Over All Employee Turnover Rate?

Before starting with employee turnover rate calculations, you need to decide the period for which you want to calculate. It could be Monthly, Quarterly, or Annually.

To calculate employee turnover rate, we should follow the three simple steps to start with we will calculate for Annually (Apr 2022 - Mar 2023) 1st then we will calculate for others.

Step 1. Collect Necessary Information

To calculate employee turnover, you will need to collect three pieces of information.

First Step - The number of employees of your organization had at the beginning of the time period Apr 2022.

Second Step - The number of employees your organization had at the end of the time period Mar 2023.

Third Step - The total numbers of employees who left your organization during the said time period Apr 2022 - Mar 2023.

?

Step 2. Calculate the Average Number of Employees

Please calculate number of Average employees = [(number of employees at the beginning Apr 2022 + number of employees at the end Mar 2023)/2]

Or

You can use Excel Formula = AVERAGE(**No. of Employees Apr 2022,**No of Employees Mar 2023)

** Select the Excel Cells where these 2 values are available.

Example: - Your organization had 5000 employees at the beginning of the year and 6200 at the end of it. And 1496 employees left during the same period.

Manual - Average number of employees = (5000+6200)/2 = 5600

Excel Formula=AVERAGE(5000,6200)

Step 3. Calculate the Turnover Rate Percentage

Next, use your average number of employees to calculate your turnover rate. To do so, divide the number of employees who left by your average number of employees. Then multiply that answer by 100 to get your turnover rate percentage.

Annual turnover = [(number of employees who left/average number of employees)*100]

Annual turnover - ?(1496/5600)*100 = 26.71

Here the annual turnover rate is rounded to whole number 27% of this organization.

How To Analyze Your Turnover Rate?

How good or how bad the turnover rate you have calculated depends upon your industry. If we continue with our example, the turnover rate is 27%. Now for a lay man this number looks scary. But if you are in Manufacturing, Retail or NBFC then you are doing really well because those industries turn over rate is on higher side. However, if you are in any industry where the benchmark turnover rate is 10%, then you need to investigate the reasons behind the high turnover rate.

Turnover rate is not just a metric. You should analyze it from different angles for better understand and insights those are hidden behind that number.

To begin, ask these questions:

Q1 - Who are the employees? Is it the new hires that are leaving or is it the senior ones?

Q2 - Why are the employees leaving? Find the actual reason for leaving by conducting a quick and specific exit interview. Then categories them into broad categories.

Reasons might be- Career Change, Career Growth, Better Opportunity, Health Reason, Manager Issues, Expectation Mismatch, Job Stress, Work From Home, Salary, Training & Feedback, Appraisal Issues, Trust on Management, Job Security, Rewards & Recognition etc.

Then Check if it is the new hires or tenured employee that are leaving. Further we can analyse the date by mapping the reasons to your employees and categories them based on the tenure they served, PMS rating, Age, Distance Travel, Engagement Score etc.

Is there any pattern in their separation? For instance, if more employees are leaving just before or after the annual appraisal, maybe they are not satisfied with the process or your standard increment rates.

What is most used Retention Strategy?

Therefore, there are several employee retention strategies, such as good management systems, provision of training, job involvement, job rotation, job satisfaction, provision of rewards and benefits, high job engagement, good management systems and high employee participation. Wherefore, that would ensure improved performance of individual employees and organizations. It is more effective for the human resource system to promote competence, motivation, and opportunities among the employees to create sustainable employee performance.

How to Conclude Employee Turnover?

Turnover rate is an excellent tool or mechanism to get the pulse of what is right or wrong with our human resources policies and the organization. There are many reasons why an employee leaves their job, and some of these reasons might be- Career Change, Career Growth, Better Opportunity, Health Reason, Manager Issues, Expectation Mismatch, Job Stress, No Work from Home, biased Salary, No Training & Feedback, vague Appraisal policy, less trust on Management, Job Security, lack of Rewards & Recognition, poor working environment, poor leader & manager. Therefore, the organization must understand the needs of its employees, which will help organizations, adopt certain strategies to improve employee performance and reduce turnover.