Most people think they understand turnover. It is a simple and useful concept when it comes to understanding the flow of people through your organization. It is an important marker for determining overall organizational health and likely productivity impacts. If turnover is too high, your business can stall due to constant retraining; if turnover is too low, your business can stagnate, leading to mediocre performance.
How do you measure turnover? There is definite value in measuring and monitoring this number. However, turnover encapsulates so many of the challenges that human resources has to deal with when it comes to measuring consistently and accurately.
For those unfamiliar with turnover as an equation, here is a simplified version.
Turnover = Employee exits / employee headcount
This is where the fun begins. We have to decide what counts as an employee exit. There are three main types:
- Resignation = an employee who chooses to leave
- Retirement = an employee who chooses to leave and starts collecting a pension
- Involuntary termination = an employee who is asked to leave
We then have to determine some of the complexities of employee movement, such as short-term disability leave, maternity leave and long-term disability leave. Short-term disability and maternity do not count as employee exits. In both of these situations, the employee is deemed to be inactive rather than as terminating their employment. Technically, people on long-term disability have had their employment stopped. Hence people in this situation count as an involuntary termination.
The next conundrum is what counts as employee headcount. Most organizations will have a range of different types of employee, including full time, contract, part time, casual and seasonal. This can cause your numbers to vary widely, or mask problem situations if you have large numbers of casual or seasonal staff. For example, during your seasonal peak when you are employing 500 extra staff, you may have lost 10 of your 100 person core staff group. On this basis your turnover stat would be 10/600 (100 full time + 500 seasonal) or 1.6 percent. This number does not ring alarm bells. However, if you only count your full-time staff as headcount, the turnover is 10/100 = 10 percent. Given the nature of the staff you are losing, that is a number worth investigating.
One clean way to deal with headcount is to separate permanent and non-permanent employees. Permanent employees have a contract with no end date. Permanent employees are entitled to severance if their employment is terminated. Non-permanent employees have a contract with an end date or an employment agreement that means they can be terminated without notice or on the contract end date without any entitlement to severance.
Now you are properly armed with the information you need to calculate turnover. You need to look at employee exits by permanent employees and divide this by your permanent employee headcount over a given time period. I advocate for a spot headcount on a specific day; for example, the end of the month or the end of the quarter. It is simple to do and, though slightly less accurate, it does not impact on your trending information, which is what you should base decisions on. Next you can repeat the same process for your non-permanent staff and either combine the two measures or look at them separately.
If turnover or other HR measurement is of interest to you, then check out the measurement standards and glossary available here. It takes a lot of the guess work out of the process and ensures you are following a widely recognized common standard.