Employee Turnover: Why It’s Important to Understand
Posted by Michael D. Haberman
“Employee turnover” may sound like a simple term, but when asked, most HR people cannot explain the concept concisely. Often, this question prompts another in response: “what turnover rate are you talking about?”
Multiple types of turnover
Turnover is not a single figure. It can be determined on multiple levels and for different reasons. What are some of these areas?
Often, overall turnover is too simplistic of a number because it doesn’t tell you anything about your organization. Turnover, according to Jac Fitz-Enz, is made up of two parts: accessions and separations. Accessions are your new hires, while separations are those people that leave your employment for a variety of reasons. This is generally what people first think of when they say “turnover.” Your accession rate is Total Hires / Average Headcount. Your separation rate is Total Terminations / Average Headcount.
Separation rate, the rate at which people leave the organization, is also not a standalone metric. Yes, you need to know it, and if the CEO ever asks, it should roll off your tongue without hesitation. However, there are multiple ways to look at separation. This value involves two major methods: voluntary separation and involuntary separation. Even these subcategories can be looked at more closely to give a more refined picture of your organization.
Voluntary separations include personnel who, of their own volition, leave your employment to seek other opportunities or to retire. There are several ways of looking at voluntary separations. These include:
- Equal employment-opportunity Are you losing more women or minorities?
- Length of service. Are you losing people earlier in their tenure with the company or later?
- Age group, salary level, performance level, job classification, reason for leaving. All of these variables provide a different data set that allows you to make more informed management decisions.
Involuntary separations must also be considered. In this regard, involuntary means involuntary on behalf of the employee. These include lay-offs, firing for performance, firing for rule violations, seasonal business variation, retirements (if forced), or death. These can also be looked at using the categories listed above. With involuntary separations, it is especially important to pay close attention to your EEO categories.
How to calculate separations
One of the key numbers necessary to calculate any turnover is the average headcount. To obtain this value, add the monthly employment for the prior 12 months and divide by 12 to calculate the average monthly employment or headcount. The monthly employment could be simply the average number of payroll deposits per month. If you pay your employees twice a month, add the number of deposits for each payroll and divide by two to get the average employment for a particular month.
Then, take the specific separation number for the year that you have and divide it by the average headcount. The resulting percentage is your turnover.
Retention vs. turnover
Another important metric to look at is retention. You want to determine how well you are keeping vital people. Turnover, regardless of the kind, is expensive. The costs associated with turnover include termination costs, replacement costs (which can include onboarding and training), vacancy costs; and opportunity/productivity costs.
To avoid these costs, implement strategies to improve your hiring practices. Refining your screening tools will really help streamline your organization’s workflow. Using assessments to match candidates with the skills and cultural aspects of a job can further reduce negative turnover.
Understanding your separation and turnover rates can help you identify why people may leave or be dismissed from your organization. This small effort could improve hiring operations in your organization considerably.
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Michael D. Haberman is Vice-President and co-founder of Omega HR Solutions, Inc., a consulting and services company offering complete Human Resources solutions. As the former founder and President of MDH Consulting, a Human Resources consulting firm, Mike has more than 35 years of experience in Human Resources, and he uses his broad-based background to help companies solve employee problems and deal with governmental compliance.