Why You Should Pay Attention to Your Turnover Rate

Do you know your turnover rate? How does it compare with other companies in your field? How much is it costing you each year? If you’re having trouble answering these questions, this overview of the topic can help. We asked St-Amour’s Olivier Parent, CRHA, Division Director, Construction and Engineering, Industrial, Manufacturing, to break it down for us through four key questions. 

1.    How is the turnover rate calculated? 

“Turnover rate refers to the rate at which personnel change”. “Big companies place a lot of importance on it, especially in the retail sector. Store directors, for instance, are evaluated based on the turnover rate in their area.” 

The turnover rate is relatively easy to calculate: take the number of employees who departed during a given period and divide it by the total number of employees during that period, then multiply the result by 100.

When calculating the number of departures, you should exclude employees who retired or took maternity leave. Any new hires made during the period in question should be included in the total number of employees. Typically, the reference period is one year.

For example, if your company employed 300 people on January 1, 2018, and there were 18 departures and 7 new hires during the year (through December 31, 2018), then your turnover rate is as follows:

18/(300+7) x 100 = 5.86%

2.    What is the ideal rate? 

According to Quebec’s Ministry of Economy and Innovation, an acceptable rate would be 4% to 5% (i.e., four or five departures per 100 employees each year). It’s important, however, to interpret the data with care: if you have a lot of departures but also make a lot of new hires, your rate will be fairly low even though you actually have significant turnover.
What really matters, according to Olivier, is the “voluntary” turnover rate—which means calculating the number of employees who choose to leave. Here are three points to consider if your rate seems excessively high:

• Were the departures voluntary or involuntary? 

In 2016, Quebec’s Ordre des conseillers en ressources humaines agréés (Order of Certified Human Resources Counsellors) indicated that less than 50% of companies calculate their voluntary turnover rate and document the reasons for these departures. According to a 2016 report published by the Order, “Among those who do measure it, the average [turnover] rate is 15.27% which means these organizations may see almost half of their employees move on within three years.”

If you’ve suffered commercial losses in recent times and had to reduce your workforce as a result, then the reasons for your high turnover rate will of course be very different from a company where many employees have left by choice. These departures may be a sign of dissatisfaction among your workers.  

• Were the departing employees top performers? 

If the staff you’re losing also happen to be your best people, urgent action is needed.  

• Is your rate comparable to other companies in the same field? 

The turnover rate may vary considerably depending on the company and sector.

“In some sectors, it’s normal for the turnover rate to be high,” notes Olivier. “This is true for seasonal industries like tourism and agriculture and also, to a lesser extent, for the retail industry.”

3.    What is the cost of high turnover? 

“The Ministry of Economy and Innovation has estimated the cost of a voluntary departure by job type”. “It’s between 40% to 70% of the employee’s salary for an unskilled worker, 100% to 150% of the salary for a sales manager and 300% of the salary for an engineer or CEO.”  

The cost therefore varies based on the type of job and the individual’s base salary. It includes both visible costs (hiring the services of a recruitment agency, training a replacement, etc.) and costs that are harder to quantify, such as the time spent supporting the new hire or loss of productivity during the period between the previous employee departing and the new employee taking over the role. There are also indirect costs such as losing the outgoing person’s expertise. Or a sales territory could be neglected and taken over by the competition due to a representative leaving... 

Over and above the costs it entails, high turnover may also be an indicator of how healthy your company is. That’s why it’s very important to pay close attention to your rate and understand what it implies. There are measures you can take to address voluntary departures.  

4.    What can you do to address voluntary departures? 

According to Olivier, there are a number of ways to limit voluntary departures. Here are a few:

• Conduct exit interviews

Employees are more inclined to talk about their dissatisfaction when they’re leaving than during an annual review. This will provide you with valuable information about issues such as problems with leadership, recognition, salary or advancement.  

• Structure your recruitment process 

Recruitment and retention go hand in hand. You need to plan and carry out hiring activities with care. By selecting people whose qualifications and personalities make them a perfect fit for your corporate culture, you’ll increase your chances of retaining them over the long term.  

• Provide tangible recognition 

Many options are available today to provide concrete recognition of your employees’ efforts. One of Olivier’s clients, for example, set up a room where staff can play music; another offers coupons providing a 50% discount on meals ordered from a caterer; a third makes a fitness trainer available to employees three times a week. There’s no shortage of original solutions out there.  

• Encourage training 

This will have a two-fold benefit. It will enable employees to broaden their skills and the company to keep up with the latest market trends.

• Communicate with employees, solicit their ideas and highlight their efforts

The younger generation wants to be heard and recognized for its contributions. Keep your lines of communication as open as possible while providing guidance and support for employees’ efforts. 

More than just a simple number, the turnover rate often tells a story about what’s happening at your company. To become an employer of choice, listen to what it has to say.