Further Analyzing the Cost of Employee Turnover Rates

Beyond just looking at your overall employee turnover rate, taking the time to look closely at certain segments of your organization will provide you even more insights into your organization’s health.

For example, you could focus on employees who leave in the first-year of employment. From hiring to firing to replacement, losing employees in the first year can be costly.

Some employee replacement costs include:

• sourcing (how you find applicants and how they find you)
• interviewing
• hiring expenses

On-boarding costs include:

• training the new employee
• acculturation of the employee to the organization’s culture and expectations

Employee separation costs include:

• unemployment compensation
• COBRA benefit continuation costs
• conducting exit interviews

As a side note, effective orientation programs in the first several months after a hire have been proven to have a direct, positive impact on the employee’s choice to stay with the organization.

How to Calculate Employee Turnover by Month

Let’s revisit an employee turnover calculation I explained in my previous blog: monthly turnover. This turnover calculation can be used to learn more when employees leave in their first year.

To calculate monthly employee turnover rates, divide the number of employee separations in one month by the average number of active employees at the worksite during the same period. We’ll say we have one site of operations.

For example, let’s say we lose four employees out of 200. 
   
 
That gives us an employee turnover rate of two percent. What if we repeated this employee turnover calculation to highlight the turnover rate just in the new hires, not in the whole company, over the course of a year?

How to Calculate Employee Turnover Rates within the First Year

Have you wondered if employees leaving in less than 12 months have a bearing on your business? What about on your business practices? You can learn both by learning about first year employee turnover.

To compute this, divide the total number of employees who leave in less than one year by the total number of employees who leave in the same period.

Here’s what the formula looks like:

 
Now to pull numbers into our formula for first year employee turnover:

What Can Employee Turnover Calculations Tell You About Your Organization?

How do 26.7 percent first-year employee turnover rates compare to the industry standard, or to your local area? If it is consistent with those measures, your organization may be fine.

The following questions and answers will be important to note and act on, regardless if 26.7 percent is a good number or a bad one.

• If 26.7 percent is higher than your overall employee turnover rate, the industry standard, or the standard turnover in the area, you might want to review your selection or on-boarding process.

For instance, what questions were asked when the employee was hired? Did the questions relate to the job? If not, they may have set up the application for the job to be quite different than the job really is. If so, why was that done?

• Did those who sorted applicants by their responses understand what skills the job required? Did they end up looking for or finding the wrong things?

• Did the employee get an orientation? Was the employee made to feel comfortable in the organization after the orientation? Why or why not?

• How did the employee’s supervisor interact with the employee?

• How did the existing workforce interact with the new employee? With acceptance and assistance, or with a cold shoulder? How did the supervisor react to that? Did the supervisor take any steps in response to the workforce interaction with the new employee?

How might the supervisor’s training have contributed to this percentage?

Regards,

Joe Gross
HR & Policy Solutions, PLLC

Note: Even though I have worked with employment laws for over 20 years, I am not a lawyer. Nothing in this blog should be taken as legal advice or interpretation of laws.

Sources:

1. “How do we calculate turnover costs?” March 2004; Society for Human Resources Management
2. “Turnover Rate- SHRM Human Capital Measure of the Month”, November 2005; Society for Human Resources Management
3. Ibid.
4. “First Year Turnover Rate- SHRM Metric of the Month”, October 2006; Society for Human Resource Management

Related Articles:

• The Costs of Employee Turnover
• How to Explain Employees’ Total Compensation
• Innovative Salary Programs
• Employee Retention Tips for Managers  
• Cost-Effective Employee Training Methods

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