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How Your Employee Turnover Rate Affects Costs and Morale


Ben Goldstein


Determining your company’s employee turnover rate is easy: Add up the number of employees terminated (voluntarily and involuntarily) in a given period and divide by the total number of employees for that same period. Multiply that number by 100 and you have your turnover rate.

For example, let’s say you have two employee terminations this month, and a total of 20 employees.  2/20 x 100 = 10. Your monthly turnover rate is 10%. Experts say a “healthy” turnover rate is 10%.  The Society for Human Resources Management breaks it down in more detail here.  

Calculating Turnover Costs

Calculating the cost to the company for each turnover can be difficult. These include the obvious hiring-related costs such as job postings, fees paid to recruiting agencies, training costs, administrative costs for on-boarding/off-boarding, etc. Interview staff directly involved in these roles to determine how many hours were spent on each task, and multiply by that person’s hourly rate. Add the fees paid to external vendors such as training providers, job-posting sites like Monster, your recruiting firm, and you’ll have a good idea of the monetary cost of each turnover. Experts estimate that the cost per hire is typically 150% of the lost employee’s annual salary. Whoa.

Calculating Turnover Morale

Now here’s the really hard part. (Don’t worry, you won’t be needing your calculator.) Next time you fire an unsuccessful account manager, register the effect it has on the morale of the remaining salespeople. In the accounting department, when your Accounts Receivable clerk leaves for a position that allows her to work from home, is the Accounts Payable person PO’d that he has to pick up the slack? Take a look around your IT Department; is it a revolving door? The competition for talent in this area is fierce, and chances are your best people are being contacted weekly by recruiters.  

The Good Part of Turnover

Let’s not forget the good employee turnover: The underperforming or troublesome employees that HR loves to see leave on their own, saving us from a painful termination. And of course, there comes a time when we  just have to let the real duds go. This kind of turnover can be very good for your organization’s environment by keeping morale up and setting an expectation for productivity.

If your turnover rate is very low year after year, it could mean that paychecks are too high for cushy jobs, and people are a little too comfortable. Performance feedback can be helpful for these types of employees — knowing they’re six months from the unemployment line is sometimes just what the doctor ordered. Whether they start looking for a new position, or kick their efforts into high gear, the problem to your organization is on its way to being solved.   

At the same time, there are many low-cost things you can do to keep employees happy. “Stay Interviews” are gaining in popularity. Check in with your top performers to praise their success and find out what they need in order to stay successful and, more importantly, to keep them at your company. Just by letting them know you’re pleased with their work and want to keep them around as long as possible will bring great satisfaction. Use the 3 A’s — they’re all free!

Acknowledge High Performers

There is nothing that builds me up more than being publicly acknowledged in front of my peers for doing good work on a difficult project. Of course money helps, but to be praised by my boss in front of my co-workers is priceless.  

Appreciate a Job Well Done

When the CEO thanks me for putting in extra hours on an important project, let’s be honest — that’s just me doing my job, which I am well paid for. However, his voicing that appreciation and acknowledging the ways in which I went above and beyond for the company connects us personally, by making me feel that he recognizes my individual efforts and sacrifices. This is important to instilling the sense of loyalty that is key to retaining long-term employees.  

Accommodate for Flextime

We all have personal situations that make work-life balance difficult sometimes. Perhaps a small child needs picking up at 4 p.m, an elderly parent needs a ride to medical appointments, or you have a post-grad prerequisite that’s only offered at 11 a.m. on Tuesdays. Allowing flextime will help these employees, and can benefit the company by fostering a more round-the-clock (and happy!) workforce. You employees won’t soon forget it.

Employee Assistance Programs, although really a large employer institution, have the right idea. Their goal is to help employees through challenging times with support services such as childcare and medical and legal advice.  

It’s a small world! Word spreads quickly, and with sites like Glassdoor and TrustPilot, it’s vitally important that your company keep its reputation as one that values its employees. Make sure that when an employee leaves the company, voluntarily or involuntarily, he or she is treated with dignity and respect. All publicity is not good publicity — just ask Amazon.