Have you ever wondered how much employee turnover costs your business? Hiring and retraining employees can be a huge expense to any organization. Unfortunately, many managers ignore this, assuming turnover is inevitable.
But as preeminent management consultant Peter Drucker once said, “If you can’t measure it, you can’t improve it.”
Measuring turnover can be a simple action, but it can lead to real change in your staffing, management, and training practices.
What does employee turnover really cost?
The true expense of employee turnover is far more than just the cost of hiring someone new. You also have the costs of onboarding and training, lost productivity, temporary shift or work coverage in the time between employees, potentially higher employee turnover taxes, lost engagement from other employees who are demotivated by high turnover, and more customer service errors.
A Center for American Progress study found that the overall cost of employee turnover depends on the type of employee, but remains a major expense at any level. Employers can expect the following average costs:
- 16% of annual pay to replace an employee for a high-turnover, low-paying job (e.g. entry-level retail)
- 20% of annual pay to replace a midrange employee (e.g. a store department manager earning $40K)
- Up to 213% (not a typo) of annual pay to replace a highly educated executive (e.g. an executive)
In 2019, 42 million US employees left their jobs voluntarily, according to the 2020 Work Institute Retention Report. While the job market has changed dramatically since then, there are still industries that have been doing well. If your industry is experiencing stiff competition for talent in this new economy, it may be wise to think about what you can do to reduce your employee turnover rate.
How to Calculate Your Employee Turnover Rate
The calculation for your company’s employee turnover rate is fairly simple: Take the average number of employees leaving per month and divide by the average number of employees at any given time. Multiply that number by 100, and you have your monthly employee turnover rate.
For example, if you have an average of 2 employees leaving per month and 20 current employees at any given time, your employee turnover rate is 2 / 20 * 100 = 10%.
You can also calculate your employee retention rate. Start by subtracting the number of employees who left or were terminated over a given time period from the total number of employees at the beginning of the period, then divide the resulting number by the total number of employees at the beginning of the period. Multiply by 100 to get your employee turnover rate.
For example, if you had 25 employees at the beginning of Q3 and 10 of them left by the end of Q3, your quarterly employee retention rate is (25-10) / 25 * 100 = 60%.
How You Can Improve Your Employee Retention
Rework Your Staffing Practices
Sometimes employee turnover happens because the employee was never right for the job in the first place. If you often find employees leaving or being terminated because they can’t adequately handle the job, you may need a more selective hiring process or to work with an experienced partner to add extra vetting to your hiring.
Focus on Employee Engagement and Satisfaction
Employee engagement not only leads to higher productivity but also means employees are more likely to stay. To boost your engagement at your company, try creating more opportunities for employees to develop their skills, encouraging employee initiatives, and boosting opportunities to celebrate.
Work With an Experienced Staffing Agency
LG Resources provides temporary, temp-to-permanent, and direct-hire staffing solutions for employers throughout Utah. As a result of our strong emphasis on providing high-caliber candidates, our partners often see increased production and retention. Request an employee from LG today!