Like many aspects of life, employee movement within a company has natural ups and downs. But that doesn’t lessen the frustration of a workplace that constantly sees people coming and going. So, what can you control, and what’s outside your influence?
It all starts with understanding your employee turnover rate. We’ll break down the concept and provide the labour turnover formula so you can calculate it for your company. This will equip you with the data you need to focus on what truly matters: building a strong retention strategy to keep your valuable employees engaged and on board for the long term.
What Is Labour Turnover?
Labour turnover is the rate at which employees depart an organisation during a specific period.
Your organisation may experience:
- Voluntary labour turnover: This is when a team member leaves at their own will.
- Involuntary labour turnover: In this case, the company ends someone’s employment. Examples include dismissals and layoffs.
- Retirement: While this is usually considered voluntary labour turnover, many organisations may choose to analyse retirement separately.
- Internal movement: This is when someone moves on to a different role within the organisation. While this type of turnover can be a good thing, it may be worth including in your analysis since you’ll likely need to fill the vacated role.
Impact on Businesses
Turnover is a vital metric that helps business leaders identify areas for improvement and elevate their retention strategies.
For example:
- High turnover can incur high costs related to recruitment, training, and productivity losses. It’s also often linked to low morale and a weakened company culture. To minimise these losses, leaders should take the time to understand what their workforce wants and needs to stick around for the long haul.
- Low turnover often indicates a business is doing a good job retaining top talent. Companies can tap into their turnover data to find additional ways to optimise their retention strategies. This might include investing more in reward and recognition programs or leadership development programs.
Whatever the case in your organisation, turnover data helps you understand the workplace environment and make better decisions.
Factors Contributing to Labour Turnover
Turnover isn’t exactly a comfortable topic. No one likes to see or even think about top talent leaving. But remember, knowledge is power. By understanding what makes people stay and what makes them jump ship, you can focus on creating a workplace that keeps your team happy and thriving.
Internal Factors
A variety of factors can play a role in labour turnover rates. Some of them come from within the organisation, such as:
- Job satisfaction: Employees who are unhappy in their roles are less likely to put their best foot forward. This may lead to productivity declines, absenteeism and eventually turnover.
- Work-life balance: Long hours or rigid policies around work schedules, remote work options and vacation time can make it hard for employees to maintain a work-life balance. As a result, they might look elsewhere to help fill that gap.
- Unfairness: When people feel they’re being treated unfairly (e.g., others are getting better opportunities, recognition or promotions), it brews resentment and a feeling of not being valued. Why would anyone want to stick around for that?
- Management style: Micromanagers can stifle creativity, autonomy and motivation. The same goes for managers who communicate poorly or overlook recognition. Employees may seek out a more empowering work environment.
External Factors
Factors outside the organisation can contribute to labour turnover as well. In particular, you may feel the impact of economic conditions and industry trends.
Economic Conditions
The state of the economy can impact job availability and, thereby, turnover.
For example:
- In a booming economy, employees may have more job options available to them. This can lead to high turnover—people are more likely to leave their jobs for roles with better pay, benefits or career advancement opportunities.
- During an economic downturn, people might be less likely to leave their current jobs due to a fear of being unable to find another one. This can lead to lower turnover for a period of time. But keep in mind that it can be a double-edged sword—people might be present but not have the drive to be productive and engaged.
Industry Trends
Rapid growth in certain industries may lead to higher turnover. Individuals are more likely to be offered more attractive positions and benefits at other companies.
Conversely, industries facing a decline might have lower turnover. People may fear losing their roles and thus decide to stay at the job they’ve already secured.
How to Calculate Labour Turnover
Now comes the pivotal part—calculating labour turnover. Get the numbers in your hands to start making impactful decisions for your business.
Basic Calculation
The basic labour turnover equation is as follows:
(# of departed employees / average # of employees) × 100 = labour turnover rate
Using this equation requires identifying the time period you wish to explore and collecting three variables:
- The number of employees who left (voluntarily or involuntarily) during that period
- The number of employees the company was employing at the beginning of that period
- The number of employees the company was employing at the end of that period
The last two numbers will help determine your average number of employees. Once you have all three numbers, plug them into the following formula:
Variations of the Formula
Depending on the needs and goals of your organisation, you can pursue different uses for the labour turnover formula. For example, you may want to do a monthly, quarterly or annual turnover calculation.
Whatever the case, as long as you clearly establish the time period you’re looking at and acquire the three variables above, you can plug them into the formula to gain new insights.
Example
Let’s say you want to conduct an annual turnover calculation from 1 January to 31 December.
Say you had 100 employees on 1 January. By the end of the year, 20 had left, so there were 80 remaining. Plugging the numbers into the denominator (100 + 80)/2 gives you 90 average employees.
Now plug the 20 staff members your company lost into the numerator to complete the calculation. The turnover rate would be (20/90) × 100 = 22.2%.
Interpretation of Results
What is considered good or bad turnover depends on your industry, so we encourage you to benchmark against your industry average.
As a general rule of thumb, an annual turnover rate of 15% or less indicates a happy team.
Leverage Recognition the Right Way to Retain Employees
Most employees could use a bit more TLC from their workplaces. For companies, it’s a matter of finding the right tools. We encourage you to start with Awardco. Recognition is one of the greatest motivators for team members and a powerful tool for employee retention.
Our platform enables you to build a fair, consistent, and rewarding recognition program. Get your demo today.
