Employee turnover rate

Turnover rate (also referred to as employee turnover rate or staff turnover rate) is a metric that measures the rate at which employees leave an organisation within a period of time (usually a year). 

Turnover rate is typically a percentage and is calculated by dividing the number of employees who leave the company during a specific period by the average number of employees during that same period. To determine the average number of employees during a given period, add the number of employees on the first day of the period in question and the employee headcount from the last day of the period, then divide by two.

The formula for calculating turnover rate is as follows:

Turnover rate = (number of employees who left / average number of employees) x 100

For example, if your company had 50 employees at the beginning of the year, 46 employees on the last day of the year, and 10 employees left during the year, you can calculate your turnover rate in three steps:

1. Find the average number of employees: (50 employees on January 1 + 46 employees on December 31) = 96

2. Divide by 2 = 48

3. Calculate the turnover rate as follows: (employees left: 10 / average number of employees: 48) x 100 = 20.8% turnover rate

A high turnover rate can be an indicator of potential issues within a company, such as poor working conditions, low job satisfaction, inadequate compensation, or lack of career development opportunities. Conversely, a low turnover rate may suggest that the company has success with employee retention, which can be a positive sign for its stability, company culture, and work environment. 

Turnover rate is an important metric for HR and management. It enables companies to make improvements and adjustments to retain talent and maintain a stable workforce.

A high employee turnover rate can significantly impact an organisation in various ways: 

Financial costs

High turnover is expensive. The costs associated with recruiting, hiring, and training new employees can be substantial, and they only add up as turnover increases. Moreover, the loss of experienced staff can disrupt operations, leading to decreased productivity and potential revenue loss.

Productivity and performance

Frequent turnover can lead to disruptions in workflow and decreased employee morale. New employees typically take time to reach the same level of productivity and proficiency as their predecessors, which can affect the organisation's overall performance and profitability.

Employee strain

Turnover stresses existing employees, who often must shoulder the departing employee's responsibilities.

Company culture

High turnover can negatively impact company culture. When employees see their colleagues leaving frequently, it can create a sense of instability and insecurity, leading to lower employee morale and engagement. A stable and positive work culture is crucial for employee satisfaction and long-term success.

Knowledge loss

When experienced employees leave, they take with them institutional knowledge and expertise. This loss can hinder decision-making, problem-solving, and innovation, as new employees must start from scratch to acquire this knowledge.

Customer relations

High turnover can also affect customer relations. Frequent changes in personnel can disrupt client relationships and lead to a decrease in customer satisfaction, ultimately impacting the organisation's reputation and revenue.

Talent attraction

High turnover rates can deter potential candidates from applying to the organisation. A reputation for high turnover can make it difficult to attract top talent, as job seekers may perceive it as a sign of internal issues.

Employee development

Organisations may be less inclined to invest in employee development and training if they anticipate high turnover. This can lead to a lack of skill development and growth opportunities for remaining employees.