In our recent DSP staffing crisis survey, 70% of providers said that employee turnover has gotten worse since the start of the pandemic. However, a significant number of people also responded that they didn’t know their turnover rate or how to calculate it.
That’s totally understandable: Calculating turnover is less straightforward than you might think, and most of us have never been properly trained to do it.
However, that doesn’t make it any less important. Knowing your turnover rate and being able to track it over time is an incredibly important way to keep a finger on the pulse of your organization’s overall health.
With that in mind, we asked an HR expert why you should be tracking your turnover rate and how to do it. Here’s what we learned:
Turnover is defined as the number of employees who leave your company during a specified time period. This includes employees who leave voluntarily, such as those that quit, resign, and retire. It also includes those who leave involuntarily, such as those that are permanently laid off or terminated. Turnover doesn’t include anyone who is temporarily laid off or on a leave of absence, or employees who are not on your payroll (such as independent contractors or temp workers who are paid by another agency).
As the saying goes, you can’t manage what you can’t measure. If you don’t know your turnover rate, then you have no way of knowing whether turnover is getting better or worse over time. This is crucial to inform your organization’s employee retention strategy.
Once you know your turnover rate, you’ll be able track it over time and see if it’s improving. You then can measure the impact of different retention efforts, such as wage increases and bonuses, to find out what’s working. By calculating your turnover rate, you’ll have actual data to base these decisions on, rather than guesswork and gut feeling.
Knowing your turnover rate also enables you to benchmark your performance. Benchmarking allows you to compare your turnover rate against others in your industry to find out if you’re doing better or worse than average. You may discover that even though it feels like you have horrible turnover, you’re actually losing fewer employees than other providers in your state. You could also find that you’re losing more employees than average, in which case you now have a realistic number to aim for and can measure whether you’re getting closer to the target.
Now that you know why you should be tracking turnover, let’s look at how to calculate your turnover rate.
Turnover rate is the number of separations during a given period divided by the number of employees at the start of that period. Most people calculate turnover on a monthly or annual basis, although you might want to calculate turnover for your fiscal year as well.
Annual turnover rate = (Separations during the year ÷ Total # of employees at the start of the year) x 100
Monthly turnover rate = (Separations during the month ÷ Total # of employees at the start of the month) x 100
Here’s how to calculate it for yourself.
In order to calculate your turnover rate, you first need to know how many employees you had at the start of the period. This can get a little tricky if you have a lot of part-time employees, so it’s best to look at your total headcount rather than full-time equivalent (FTEs). Be sure to include temporary workers who are on your payroll, as well as any employees on a leave of absence.
Next, you’ll need to figure out how many employees left your company during the specified time period. Be sure to include voluntary and involuntary terminations, such as quits, resignations, retirements, and permanent layoffs. Don’t count anyone who is temporarily laid off or on a leave of absence.
Now, all that’s left to do is divide the number of separations by the total number of employees and multiply by 100 to find your turnover rate. Remember:
Turnover rate = (Separations ÷ Total # of employees) x 100
So, if you have 450 employees at the start of January and 45 people left by the end of December, your annual turnover rate is (45 ÷ 450) x 100 = 10% turnover rate.
That’s a pretty healthy turnover rate by most people’s standards, so let’s look at a more realistic example. Say you’re a small agency that has 125 employees at the start of the year, and 52 people left throughout the year. (52 ÷ 125) x 100 = 41.6% annual turnover rate, which is more in line with the disability service industry average unfortunately.
Of course, if you’re losing over 40% of your employees each year — and many providers are — you’re going to have to do a lot of hiring just to keep your doors open. For the purposes of calculating your annual turnover rate, though, we’re not going to include any employees who were hired during the year. Including new hires in your total headcount can skew your numbers.
If, for example, you lost 10 employees during the year but hired 20 new ones, this would make your turnover rate look artificially low. Instead, we’ll just look at the number of employees you had at the start of the year. (If you want a deeper dive into why we recommend this method, you can check out this detailed explanation from AIHR.)
We’ve given you a lot to chew on, so we’ll stop there for today. In our next article, we’ll look at some other ways to evaluate turnover as well as how to use this information. We’ll also look at what to do about new hires in your turnover calculations. In the meantime, download our free ebook, “5 Ways to Become a Data-Driven Organization” where you’ll learn how to track data in all aspects of your organization.
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