How does the Employee Turnover Rate Effect the Bottom-line?

Turnover rateIf your employee turnover rate is high, then your bottom-line will be significantly affected. Unexpected resignations cost between 100% & 300% of the person’s salary to replace. The costs that feed in to these percentages include recruitment costs, lost knowledge and productivity, down time to hire and train new hires and so on.

What is considered a high turnover rate for your company will depend on the industry you are in. Check with your Industry Body for trending data. Generally though, a staff turnover rate of 15% or higher can add significant cost to your business.


Measuring and Benchmarking the Turnover Rate

This is done in percentage terms. Firstly, calculate the average number of employees.  Add together the number of employees working at the beginning of the time period and the number of employees working at the end of the period and divide by two.

120 + 130 = 250/2 = 125 average number of staff

 

Annualised Employee Turnover Rate

Let’s say your average number of employees is 125 permanent full time employees, and you have had 30 permanent employees leave in the last year. The calculation would be:

(30/125) X 100 = 24% staff turnover rate per annum

 

Monthly Employee Turnover Rate

Using the above example: 125 permanent full time employees, and you have 3 employees leave in the last month. The calculation would be:

(3/125) X 100 = 2.4% per month, to annualise multiply the 2.4% by 12 months = 28.8% employee turnover rate

If you’d like to reduce your employee turnover rate, here are a few suggestions as to how to collect data that will help you prepare a strategy:   

  • Exit interviews can be carried out and can expose common reasons for people leaving, and highlight any patterns or themes.
  • Engagement surveys of all employees can often indicate general satisfaction levels, refer to employee engagement blog article
  • Analyse your recruitment and selection procedures to see if you can identify expectations or potential problems earlier. For example, if employees are leaving because the job didn’t match their expectations, then you may need to clarify expectations at the recruitment stage.
  • Have focus group discussions with employees to find the cause of any underlying problems and causes of dissatisfaction.

It is recommended you track your monthly turnover rate, as a key indicator of the health of your business.