What Is Employee Turnover? - Definition, Cost & Reasons

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  • 0:24 Calculating Employee Turnover
  • 2:07 Causes of Employee Turnover
  • 2:42 A Reasonable Level of Turnover
  • 3:15 Impact of Turnover on…
  • 4:10 Cost and Preventing Turnover
  • 5:32 Lesson Summary
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Lesson Transcript
Instructor: Carol Woods

Carol has taught college Finance, Accounting, Management and Business courses and has a MBA in Finance.

In this lesson, we will discuss employee turnover. Do you know why employers want to reduce turnover? Do you know how to calculate it for your workplace? Read on to learn what it is, what it costs, and how to prevent it.

What is Employee Turnover?

In human resource terms, employee turnover is a measurement of how long your employees stay with your company and how often you have to replace them. Any time an employee leaves your company, for any reason, they are called a turnover or separation.

Calculating Employee Turnover

Employee turnover is calculated by dividing separations by the total staff: employee turnover = number of separations / average number of employees.

Generally, it is stated as an annual percentage. If you lost three staffers in the past year out of your staff of 46, your annual turnover would be: employee turnover = 3 separations / 46 employees = .0652 = 6.52% annual turnover.

If instead you had three staffers quit last month, and your total team is 46 employees, your turnover rate would be: employee turnover = 3 separations in a month / 46 employees = .0652 = 6.52% monthly. You would multiply this by 12 to calculate an annual rate, which assumes this same turnover rate will continue for the entire year: 6.52% monthly * 12 months = 78.24% annually, for a loss of three staffers each month.

As a double check - if this turnover continued, we would lose three staffers per month * 12 months = 36 for the year. And if we divide the 36 turnovers by our total staff of 46, we would get 78.26% (the very slight difference is due to rounding).

What does this mean to you as a manager? Well, A 78% turnover rate in a team of 46 people means that you will have to hire and train 36 new people a year. That is a lot of time you could be using otherwise to manage your department and improve your own skills!

Causes of Employee Turnover

There are two main categories of turnover: voluntary and involuntary. Each of them has different causes.

Voluntary turnover is when an employee quits. This can be due to finding a better position at another company, a conflict with a supervisor or a personal reason, such as needing to stay home with a family member.

Involuntary turnover is when an employee is laid off or fired, generally due to reducing staff because of a business downturn or change in business focus or because of an employee taking some action that is cause for termination, such as theft.

A Reasonable Level of Turnover

There will be times where employees leave the company, and so a goal of zero percent turnover is a recipe for disappointment. To come up with a level that is reasonable, companies often look to industry averages. A goal might be to keep turnover to a level no higher than the average for the industry.

They might also come up with some additional metrics based on level of responsibility - so, for example, the turnover for audit staff in an accounting firm might be evaluated separately from that of audit partners.

Impact of a Turnover on a Company

The specific impact of replacing an employee varies based on many factors, including the difficulty of filling the position, the amount of training required for new employees and specific costs, such as recruiter fees or advertisements.

In the fast food industry, it may be necessary to fill some positions every few months or even more frequently. Workers in this industry tend to be unskilled and may change positions often since there are many similar options available. In terms of costs, these positions generally require limited training to reach full productivity, so replacing personnel will not tend to have much impact on the business.

On the other hand, company presidents have often been with the same company for much of their career and tend to be in the position for years, leading to very low turnover in that position. When a company president leaves a tremendous amount of skill and knowledge will leave, which can impact the business for years to come.

The Cost of Turnover

Turnover costs can be both direct and indirect.

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