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Employee Turnover Rate – Everything you Need to Know

Human capital is one of the most important assets that any company has because a workforce made up of talented people can help make a difference in the market and gain a competitive advantage. Hence, HR leaders are increasingly concerned with keeping the employee turnover rate low.

It is better for the company to keep the staff turnover rate lower so The lower the turnover figures, the better for the company. This means that there is a good fit between the organization and its employees, everyone is happy and the expectations they had when entering work or hiring are met.

We cannot forget that every selection process has costs for the company. The direct costs are those that are related to the search for the ideal candidate: publication of advertisements, screening of resumes, conducting interviews, etc. While indirect costs are those that the company has to bear when an employee leaves his position. For example, severance pay or reduced productivity because another worker has to take over the tasks of the vacant position while the best candidate is found.

Therefore, the objective of the Human Resources department should be to try to make the employee turnover rate as low as possible, thus saving costs.

What is the Employee Turnover Rate? Why is it so important?

Employee Turnover Rate is a parameter that indicates the number of people entering and leaving a company (voluntarily or by decision of the organization) within a given time and concerning the total average number of employees.

If the index is high, it is a sign that something is not working well.

If it is the company that is forced to do without a large number of employees, this may be a sign that the selection process is not being carried out correctly and that the most suitable candidates for each position are not being found.

If the employees are the ones who leave the company voluntarily, this may be due to multiple factors such as a bad work environment, lack of prospects to develop a professional career, a corporate culture that is not capable of giving rise to a feeling of loyalty in workers, bad pay policies, etc.

How is the staff turnover rate measured?

The formula is as follows: R = S / ((I + F) / 2) x 100

Where

  • R: the employee turnover rate.
  • S: the staff that left the organization in the period to be measured.
  • I: the staff at the beginning of the period
  • F: the staff at the end of the period.

By multiplying the result by 100, what we get is a percentage.

Another way to do the calculation is R = (S / P) x 100

Where

  • R: the employee turnover rate.
  • S: the staff that left the organization in the period to be measured.
  • P: the average number of employees. To calculate this figure, we have to add the employees that were at the beginning and end of the period to be measured and divide it by 2.

Types of Employee Turnover

When it comes to delving into the turnover in a business, it must be taken into account that not all employee exits are the same. There is unwanted turnover, which is what occurs when valuable workers leave the company; but one can also speak of voluntary and involuntary turnover, which differentiates between those who leave the company voluntarily and those who have been fired or their contract has not been renewed.

And we must not forget to compare the inevitable turnover with the avoidable and the functional with the dysfunctional, which will tell us if those who left the organization were people who contributed high value or if, on the contrary, they performed basic functions.

Another factor, to keep in mind, is that not all rotations are necessarily bad. For example, a company may be hurt by the fact that there is a talent drain from valuable employees, but it will not be too important a problem if the turnover is occurring in employees who did not add much value, because it gives them a new opportunity to search for quality talent.

Practical application of the Employee turnover rate

It is not enough for the Human Resources department to know the percentage of employees who have left the company for some reason or others in a given period, it has to go a little further and analyze the causes why this is happening.

The organization’s goal in personnel management is to achieve the highest possible employee retention rate. This implies being able to ensure that those employees who truly add value feel satisfied with their work and do not want to leave.

If the company finds that its turnover rate is high among talented workers, it should get down to work as soon as possible to try to find solutions. This implies taking measures such as offering a good remuneration, improving the work-life balance, offering career plans, improving the emotional salary, etc.

Even if those who leave the most are the least valuable employees, you also have to make changes. Because you have to achieve a personnel selection process that achieves a higher success rate when choosing the person who will fill a position.

Keeping the employee turnover rate low is synonymous with the Human Resources department doing its job well.

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Ahmed Ismail

I'm a Civil Engineer. I like reading everything related to Business so I decided to launch the "Fast Grow Company" website to help Entrepreneurs in their business journey. Keep updated and follow us.

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