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I became theoretically familiar with employee turnover during my studies at the economics faculty. I encounter it in my work in the HR department of a manufacturing company when processing and interpreting reports.
Definition of employee turnover
The word turnover comes from the Latin word fluctuare, which expresses swaying on waves or movement back and forth. Therefore, I like the definition from Michael Armstrong’s book Human Resource Management the most of all available definitions. Turnover includes arrivals and departures of employees in an organisation.
Calculation of employee turnover
The most well-known formula can be found in the aforementioned book by Michael Armstrong. The calculation is simple.
Departure rate = (number of employees who left during a certain period / average number of employees in the same period) x 100 [%]
I will model the example calculation to result in a turnover rate of 14%. This is the number of workers, expressed as a percentage, who changed jobs in the Czech Republic between September 2021 and September 2022. You can find this data in the presentation Data Breakfast Q4, 2022 – Developments in the Labour Market, which is freely available on the pages of the LMC magazine. Incidentally, this is a great source of data on the Czech labour market. The authors publish Data Breakfast every quarter.
For simplicity, imagine a company with 100 employees. On average, 14 people leave such a company each year. Does that seem like a lot? It does to me.
14% = (14/100) x 100
A high turnover rate can be crippling for a small company. Therefore, I asked myself: How many employees leave a small company of 5 people when the turnover rate is 14%? The team loses 0.7 people per year. This means you can expect the entire person to leave in 1 year and 5 months. Factor that in. Address substitutability. Prepare to look for a new colleague and train them.
14% = (0.7/5) x 100
How do you calculate the average number of employees in a period? It depends on the methodology you choose. I recommend stating the methodology when presenting the results. When calculating monthly turnover, I think the best way is to add the number of employees at the beginning of the month, the number of employees at the end of the month, and divide the result by 2. It is often common to use the “simple” number of employees at the beginning or end of the monitored month for the calculation. For calculating quarterly or, for example, annual turnover, add the number of employees at the end of each month and divide the sum by the number of months.
Types of employee turnover
Turnover is divided, for example, into monthly, quarterly and annual. Further divisions relate to measuring turnover in certain groups of employees. Turnover in individual departments, according to generational or gender distribution, etc. You will find turnover voluntary, involuntary, positive and negative in the literature.
Voluntary turnover
Employees voluntarily leave the company. This is an undesirable situation that is associated with high costs. There are countless reasons for a change. Many surveys name the most common ones. Insufficient financial reward is at the forefront. For your information, take a look at the best-paid jobs. It is good to catch the moment when an employee is just thinking about a change before they start actively looking for a job. A capable employee will find a job very quickly.
Voluntary turnover is a common phenomenon. People no longer want to work for the same company their whole lives. They want to try out more employers and even more professions.
Involuntary turnover
Employees leave involuntarily. There are many reasons. Resignation, relocation (not for work), maternity leave, retirement… Involuntary staff turnover is a common occurrence. Fortunately, companies can prepare for it, for example, by ensuring generational renewal.
I found further divisions on Wikipedia. Divisions according to Zdeněk Dytrt, which builds on Armstrong’s definition. Positive fluctuation in the form of a new, capable team member joining. Negative fluctuation relates to a colleague leaving and a loss of their knowledge and experience.
The significance of employee turnover
The poetic comparison of turnover to riding waves is quite apt. Waves signify action, oxygen and life. You will soon become bored on still water. A company with too low turnover can become rigid. The same goes for employees. At worst, they are just waiting. And for anything.
I agree with the opinion that the optimal turnover rate is 5% to 7%. I found this figure on the information-packed website of Petr Kmošek. The pages now require a paid subscription, which is why I am not linking to a specific article. This is a rate that seems right to me, also with regard to my own HR practice.
Výhody fluktuace:
- motivates companies to function better and be more flexible,
- ensures good conditions for employees,
- enables internal career growth,
- sets up diverse teams,
- a flow of know-how.
Workplace diversity means that an organisation employs a diverse team of people. Diversity goes hand in hand with inclusion. Inclusion is the creation of a fair culture in which people are valued and respected. I borrowed these definitions from the consulting firm BE-ID human, which helps companies set up their approach to diversity and inclusion. Thanks to this, companies are more innovative, and a better employee and customer experience, higher profits and growth are ensured.
When recruitment goes well, new employees bring new experience, knowledge, energy and perspective to the company.
How to reduce employee turnover?
If employees voluntarily leave their jobs, they are dissatisfied at work. Ask for the reasons behind talent departures. Only then can you prevent them in the future.
Are you prepared for turnover? Ask yourself the following questions:
- Do you measure turnover and estimate its trend?
- Do you know the turnover rate that threatens to prevent the achievement of company goals?
- Do you know how long it will take to fill key positions?
Staff turnover reflects employee engagement. You can reduce staff turnover by increasing employee engagement. How can you do this?
I found the answer on a webinar by Petra Hovorka from the advisory team Brand Bakers. Higher employee engagement is ensured by meaningful work and a supportive environment.
It’s that simple. 🙂
