An Introduction of Employee Turnover
Employee turnover is defined by Cambridge Dictionary as the rate at which employees leave the company and are replaced by new ones. Employee turnover rate is calculated by taking the number of separations during a month divided by the average number of employees, multiplied by 100. All employees should be counted in determing the average number of employees, including temporary employees and those on furlough, but not independent contractors. For example, if four employees have left the company in one month and the total average number of employees in the company is 50, the employee turnover calculation is 4/50 =0.08 X 100 or 8%.
In contrast , the employee retention rate is the percentage of employees who remained on staff from the beginning to the end of a time period. It is calculated similarly to the turnover rate, by taking the number of employees who stayed for the whole time period, dividing it by the number of employees you had at the start of the time period, and multiplying by 100. For example, here is how to calculate employee retention rate for a company in which four out of 80 employees left the company and 76 remained: 76/80 = .95 x 100 or 95%. The average turnover rate is between 15.1% and 19%, but depends upon industry. A good overall turnover rate is 10% according to DailyPay. To determine what is a good employee turnover rate for your industry, consult 2018 turnover statistics by industry.
Types of Employee Turnover
Voluntary Turnover vs. Involuntary Turnover
Voluntary turnover occurs when an employee decides to leave the company; involuntary when the employee does not make the choice. An employee choosing to retire or to find a new job that provides more suitable pay, working conditions or duties are two voluntary turnover examples. While involuntary turnover typically results from the company’s dissatisfaction with the worker, voluntary turnover means that the company has lost an employee it wished to keep. For this reason, voluntary turnover is often costs a business in lost productivity and recruiting and hiring costs.
Employee Turnover vs. Attrition
The employee turnover rate definition includes both involuntary and voluntary departures. Attrition, however, involves natural voluntary departures, such as retirement or resignation. Human resource departments are tasked with filling positions where turnover has taken place, but a company may choose not to replace those who leave by attrition. In fact, attrition sometimes is used as a way to reduce staffing levels gradually over time. In these cases, attrition is less costly than turnover, according to DailyPay.
Functional Turnover vs. Dysfunctional Turnover
Just as attrition sometimes benefits a company, functional turnover does so as well. Functional turnover occurs when underperforming employees leave the company, according to BizFluent. This often occurs in firms that have “up or out” policies such as law firms, consulting firms, or accounting firms. In these firms, employees who fail to progress are released and the best employees remain. Dysfunctional turnover, however, is the opposite and is costly to the company. Dysfunctional turnover occurs when good employees leave.