January 28, 2019
Companies must determine their levels of employee turnover as a starting point for listening to their employees, meeting their needs, understanding their motivations, and striving to improve their workplaces. Using the employee turnover rate over a given period of time, companies can determine the savings that can result from reducing turnover.
How is employee turnover calculated? We present two methods.
1) Simple Formula
This formula offers a typical method used by companies to determine employee turnover.
Suppose that ABC Manufacturing maintained a frontline workforce of 1,000 employees during 2018. However, 200 employees left during that period.
Using the simple formula, ABC Manufacturing’s turnover would equal 20%.
2) Retention-Driven Formula
Instead of considering overall exits, this formula calculates employee turnover by evaluating how many original workers remained with the company. Additionally, companies do not need to compute an average workforce size using this method.
Suppose that ABC Manufacturing started 2018 with a workforce of 1,000 people, hired 200 new employees, yet ended 2018 with 800 workers.
Considering only employees who stayed with ABC Manufacturing for the full duration of 2018, turnover equals 40%.
Interpreting Employee Turnover
Why is understanding employee turnover important?
From a cost perspective, excessive turnover presents an enormous monetary and logistical burden to businesses—especially those in frontline industries such as manufacturing, construction, and retail. The cost of replacing one hourly employee is, on average, between $2,000 and $7,000.
Continuing the example of ABC Manufacturing—assuming that 200 employees exited during 2018 and turnover was therefore 20%—the cost of turnover would lie between $400,000 and $1,400,000 annually.
From a human resources perspective, employee turnover is often indicative of lackluster nonmonetary conditions. Surprisingly, only 22% of frontline workers quit due to wages. Over three-quarters of workers exit their jobs due to lack of engagement, scant career advancement opportunities, or other factors.
If ABC Manufacturing calculated an employee turnover of 20% and estimates that it loses $4,000 for every employee that exits, a 15% reduction in turnover will save $120,000 per year.
How can ABC Manufacturing—or any other enterprise—cut turnover and improve their workforce? Listening to employees frequently and meaningfully can provide employees with a voice, improve worker satisfaction, and increase productivity.
Learn how Qlicket equips businesses to listen to employees and boost retention.