What is the turnover rate and what are its causes?

The turnover rate is one of the most important metrics in the Human resources world. It has a direct influence over the company’s budget and also its performance. This is why talent management professionals always have to keep an eye on this number. Do you know what is the turnover rate exactly? 

At T2W we have a wide experience in talent management and we can help you have a better understanding of this concept. Here we show you all you need to know about the turnover rate, the formula you have to follow to find it and the main factors that cause it. 

What does turnover rate mean? 

Turnover rate is a term that refers to the exact percentage of employees that leave a company in a specific period of time. While the frequency for its calculation is different for each organization, it can be done after a year, a semester, a quarter or, in some cases, in a monthly basis. 

We have two different types of turnover rate: voluntary and involuntary. Voluntary turnover happens when employees leave the organization on their own, perhaps due to a better job opportunity. On the other hand, involuntary happens when people is discharged or when the company does not extend the contract. 

It’s is important to notice that generally this metric is calculated based on the number of people leaving the company voluntarily. People that has been let go due to bad performance or similar situations are not usually considered here. Turnover rate will always exist since changing jobs is part of the professional life. 

Here, what is important is to keep that figure as low as possible. A high turnover rate results in additional costs for the organization. After all, the different stages of the recruitment process require an investment of time and money. For Human Resources professionals, finding a new employee who can replace the person that just left is not easy. 

How to calculate turnover rate? 

There is a turnover rate formula, which is very simple. First, count the number of people who left the company in a given time. Then, divide that figure by the average number of employees inside the company in the same period of time. That’s it. 

To find the average number of employees you have to take the number of employees inside the organization at the beginning of that specific period of time and add the number of employees inside the organization at the ending of that same period. Finally, the result has to be divided by 2. 

Let’s say that during the first quarter of the year (January-March) 10 employees left the organization. The company begun January with 100 workers, but by the end of March only had 96. That would give us an average of 98 workers in that quarter. According to that information, you have to divide the number of people that left the organization (10) by the average number of employees (98). As a result, the turnover rate for that quarter would be 10.2% 

What is a good turnover rate? Ok, the average turnover rate worldwide is 10.9%. However, that is a number that can’t be applied to all companies. The reason is that each professional field is different and, as a result, this rate will vary significantly. 

Causes for a high turnover rate 

1. High stress levels 

One of the most frequent reasons for a high turnover rate is stress. High stress levels affect employees’ performance and they generally leave the company to find peace of mind. While all organizations have periods of stress, if these extend for too long it will have a negative impact on mental health. A great way to solve this issue is implementing employee wellness programs. 

2. Bad work environment 

Another common factor that causes high turnover is a bad work environment. That has influence over employee performance and the retention rate. After all, employees don’t want to spend 8 to 9 hours each day in a place where they feel uncomfortable. Respect, communication and leadership are key values to create a good work environment. 

3. Low economic compensation 

Finally, one of the most important factors that cause a high turnover is a low salary. Compensation is a key aspect for any person. Keep in mind that this is the most basic form of acknowledge employees’ effort. If it doesn’t fit the standard salary in the field or does not reflects the responsibilities of employees, they will end up leaving. 

Now you know what is employee turnover rate, how to calculate it and the main aspects that cause it. Keeping an eye on it will help you get the best performance from the organization. 

At Talent2Win, we strive to align your company’s business objectives with the best Talent Acquisition strategies available. If you want to learn more about the services we offer, do not hesitate to contact us.