What Is Employee Turnover and Why Does It Matter?

Employee turnover, or employee turnover rate, measures the number of employees who leave an organization during a specified time period, typically one year.

While an organization usually measures the total number of employees who leave, turnover can also apply to subcategories within an organization like individual departments or demographic groups.

What Is Employee Turnover?

In the context of human resources, employee turnover is the act of replacing an employee with a new employee. Partings between organizations and employees may consist of termination, retirement, demise, transfers and resignations.

An organization’s turnover is measured as a percentage rate, which is referred to as its turnover rate. Turnover rate is the percentage of employees in a workforce that leave during a certain period of time. Organizations and industries as a whole measure their turnover rate during a fiscal or calendar year.

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If an employer is said to have a high turnover rate relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry.

High employee turnover may be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novices. Companies track voluntary turnover more accurately by presenting parting employees with surveys, thus identifying specific reasons as to why they may be choosing to resign.

How Do You Calculate Employee Turnover?

In order to calculate your employee turnover, follow the steps given below 

Step 1 – Divide the sum total of the number of employees that leave within a particular period of time (month, quarter, year, etc.) by the average number of employees that work within the selected time frame.

Step 2 – Multiply that number by 100 to calculate the employee turnover rate. i.e.

Employee Turnover = (Total Number of Employees that leave within the time period / Total number of employees that work within the time period) x 100

 

For example, 

if you have an average of 150 employees working during a month’s time and 30 employees leave,

your turnover rate can be calculated by following the above mentioned formula

(30/150) x 100 = 20%

 

So the Employee Turnover rate of the company is 20% 

Note – while calculating this turnover do not include temporary hires or employees who go on temporary leave in either factor of the equation. Incorporating these kinds of temporary shifts in workforce numbers will skew your turnover rate higher than it really is.

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Why is Employee Turnover a Problem for a Business?

Employee turnover is one of the grossest problems in today’s cutthroat IT talent marketplace. Unfortunately, many businesses have no one but to blame themselves for high employee turnover rates.

Employee turnover rates tend to shoot up when the economy is at its peak because IT professionals tend to be more confident in higher pay, or cultural fit. Employee turnover rates have become a constant headache for hiring securing a better job,  managers, talent acquisition experts, recruiters, and HR professionals.

Often a high employee turnover rate costs businesses loads of finances in lost resources, productivity, training, and recruitment. Worst part: high employee turnover rates lead to an increase in the number of dissatisfied employees and remember that disgruntled employees can throw your business off the track completely.

Reasons which cause ET and Ways to Reduce it

Many organizations have discovered that Employee Turnover is reduced significantly when issues affecting employees are addressed immediately and professionally. Companies try to reduce Employee Turnover rates by offering benefits such as paid sick days, paid holidays and flexible schedules.

Here are some of the common reasons that contribute to Employee Turnover and some ways in which they can be tackled-

Time to pay heed

Studies continuously have shown that a staggering number of IT organizations are failing to make efforts when it comes to defining expected job timings, bettering infrastructure, etc. Employee retention in the volatile IT talent market is very challenging these days.

Whilst some organizations do have programs and policies in place to curb attrition rates, most of the efforts turn out to be uninspiring and dull. So it’s time to pay heed and learn from the mistakes of yesteryear. This is the reason employee retention is more important than ever for HR in 2021.

The ‘X’ factor

Whilst a majority of business managers and HR leaders cited compensation as the key driver for attrition, there are various other aspects to make an employee stay or quit.

For instance, employees expect a perfect work-life balance, vacation time, benefits, perks, culture, career development/growth, etc. Unfortunately, there are several loopholes when it comes to IT professionals’ awareness towards the benefits packages and programs which if bridged can improve retention rates significantly.

Though programs and packages may be in place for addressing the attrition problems, these are not properly communicated to the employees. Communication is a severe problem with most of the IT organizations.

HR managers and business leaders may believe that they are putting in all they can to retain the best talents, but unfortunately, all these efforts might not actually be reaching the target employees. Thus, communication is one of the must-have HR management skills in 2021 to mitigate turnover problems.

Remunerate competitively

Remuneration is imperative and businesses ought to ensure that they pay their employees competitively that is in line with the industry and market considering cost of living and to curb job-hopping. A competitive salary is a must and IT hiring professionals must have a thorough understanding of the tech market’s demand and supply for IT skill sets to reduce the employee turnover rate.

Remember that you are not only competing with other IT organizations for talents, but you are also competing with all those organizations that are recruiting for IT skills. Thus, compensation ought to be competitive besides growth opportunities and career development.

Conclusion 

IT organizations ought to accept the fact that attrition is real and work accordingly to implement robust programs and policies in place that go beyond compensation. Failing to understand this grim reality may trigger the need to reboot your entire workforce planning strategy.

Therefore investing time, money and efforts in catering to the needs and comfort of employees must be on the priority list of managing a company.