What is Best Practice in Employee Turnover Rates?

Many companies have concerns about the availability of skilled labour to meet their projected demands. While hiring new and qualified employees is critical to meeting future demands, retaining existing employees and their skills is equally critical.

One way to track how effective a company is at retaining current employees is to look at its employee turnover ratio and compare individual performances to industry benchmarks.

Employee turnover is generally calculated as the number of employees who were terminated, quit or retired during a given period (typically quarterly or annually) divided by the average number of employees, multiplied by 100. Such calculations generally exclude probationary, part-time and temporary workers.

Rate of employee turnover can be influenced by a number of factors:-

• Type of Industry – What are considered normal turnover varies between industries

• State of the Economy – employees will be less inclined to voluntarily change employment under difficult economic conditions.

• Company Factors – size of company, level of engagement with employees, strategic factors.

Reported employee turnover rates most commonly range anywhere from 2% to 30% per annum. It is not surprising that most benchmarking reports suggests that having a lower-than-average employee turnover ratio is better than having a higher-than-average ratio.

From a profitability standpoint, research suggests that it’s important to be better than average in turnover ratio but it is also worth stressing that achieving best-in-class performance should not be a company’s sole objective. Other important strategic initiatives in a company can have a positive or a negative impact on turnover ratio. The real message is that balance is extremely important. You want to retain your key people and strong performers but you also want to have new people entering the organisation who can bring new skills, provide a fresh perspective and ideas for improvement.

One of the major concerns associated with having a higher than average staff turnover rate is the cost to the organisation in two areas:-

• The high direct cost of hiring new talent. This can be exacerbated by the shortage of skilled personnel which is currently common in many industry sectAgPeople rs.

• The loss in organisational efficiency associated with the constant loss of skilled and experienced people.

It is generally accepted that staff turnover is an important KPI to be measured and benchmarked in and between companies. Six percent turnover is often cited as a healthy balance between retention of existing skills. Concern may be warranted if turnover is found to be 15% or higher. Under such circumstances analysis of quality of leadership and employee satisfaction and engagement may well be justified to determine the root cause and to enable the development of tactics to reduce it to a level in line with existing company strategy.