In these turbulent times following the Great Resignation, spurred by the Covid-19 pandemic, dissatisfaction with the labor market, and economic instability, the rate of employees leaving their jobs is the highest in years. It is a highly undesirable situation as employee turnover costs can be a tremendous blow to a company and its stability. How is employee turnover calculated? What are those costs? What resources do you need to find and hire new IT specialists? Moreover, what can you do to prevent employee turnover?
What is the employee turnover rate?
Employee turnover is the number of employees leaving a company in a specific period of time, e.g., during one month or one year. It can apply to the whole organization or to individual departments, and it can happen voluntarily (by the employee’s decision) or involuntarily (through the company’s decision).
Voluntary turnover is a term for the situation when your employees are actively leaving the company due to:
- Better opportunities and natural career progression (around 87% of all workers are open to new job proposals),
- internal transfer,
- conflicts,
- burnout,
- poor working conditions and management behavior,
- family and private matters,
- relocation,
- retirement.
Involuntary turnover is the decision of an employer to fire a worker, and it happens due to the following:
- Poor performance,
- creating conflict in the team,
- toxic behavior of an employee,
- violating company guidelines.
Some types of turnover are desirable, and parting with an employee once in a while is a natural phenomenon. The trouble begins when employees leave your company en masse because of a better offer from a competitor or burnout. That generates enormous costs and problems with filling vacancies. Tracking and maintaining a healthy employee turnover can alert the company about its level reaching problematic values.
How to calculate the employee turnover rate?
To calculate the turnover rate, you have to divide the total number of employees that left within the chosen period of time by the average total number of employees that work in this timeframe. Then, multiply the result by 100.
To calculate the average number of employees, add the number of employees at the beginning of the time period (e.g., at the beginning of the month) to the number of employees at the end of this period. Then, divide the result by two. You can exclude temporary hires or employees on temporary leave.
Example:
- You started 2022 with 100 people and finished it with 200 employees. Your average number of employees during this period is (100+200)/2 = 150.
- Thirty employees left in this period.
- Your turnover rate equals (30/150)*100 = 20.
This formula also applies when you want to calculate different dimensions of turnover. For example, suppose you want to calculate involuntary or voluntary turnover. In that case, you consider only the specific type of turnover and divide it by the average total number of employees.
The real cost of turnover
Employee turnover can generate astronomical costs for your company. Those are significant drivers in business strategies to reduce voluntary and involuntary turnover. What factors are included in the cost of hiring a new employee?
Hiring new employees includes:
- Advertising job position,
- conducting recruitment, onboarding, and further training process,
- background checks, tests, and screenings,
- integrating newcomers with existing teams and projects.
Not only does it cost a fortune to find new staff, but it also incurs non-obvious costs. Those are related to the decrease in productivity and morale of teams that have lost proven, onboarded employees. Furthermore, it can also harm customer service and product quality, which damages your company’s reputation in the eyes of top talents and business partners.
What are the estimated costs of replacing an employee? According to the leading HR media platform, Employee Benefit News, the cost of replacing a worker reaches about 30% of an employee’s annual salary. It will cost around $45 000 to replace IT specialists who earns about $150 000. Other sources estimate that this amount can be even higher, reaching two times a worker’s annual salary.
Employee turnover in the IT industry
The tech industry is a leader in shaping modern, hybrid, employee-friendly workplaces. There is a good reason for that – the average turnover rate within the software sector oscillates around 13%. And no business is immune, no matter how big or how respectable:
- Uber employees stay with the company for 1.8 years on average,
- Facebook retains employees for 2.5 years on average,
- the average for Airbnb is 2.6 years.
What influences these results?
Factors of high turnover in the IT Industry
For specialists from the tech industry, the most important reasons to leave a job are, according to industry reports:
- Job opportunities with higher compensation (71%)
- Seeking better working conditions (47%)
- Opportunity for a position with more responsibility (32%)
- Opportunity for a more creative position (26%)
- Shorter commute (19%)
- Relocation (13%)
As we can notice, those reasons can be assigned to one of three groups:
- Having the right skill set to perform satisfying, developing work,
- having the right culture fit and values,
- living conditions.
Although meeting employees’ private and family requirements is not always possible, the most important conditions should offer a competitive salary, a great work environment, culture, and development possibilities. How to do this specifically?
How to reduce turnover?
It is one of the most important HR actions to actively prevent employees from leaving their jobs. Employees expect their employers to meet the basic standards of a particular industry. And exceeding them can strengthen loyalty and retain your talents.
What can you do to decrease employee turnover?
- Keep up with market trends and offer competitive pay and benefits. (According to Fortune and LinkedIn, around 30% of leaving employees point pay as a turnover reason. 44% say that benefits are one of the decisive factors),
- Listen to your employees – keep track of your team’s loyalty and satisfaction through simple tools, like surveys and Employee Net Promoter Score,
- Answer your team’s needs by offering remote work or flexible work schedules. (According to Owl Labs research, such benefits contribute to 25% of lower retention and result in shortening the process of hiring new employees by 33%),
- Improve the working environment and company culture. (Half of the specialists values employers for promoting work-life balance, having a welcoming culture, and supporting employees in making a positive impact on society),
- Invest in training and development. Employees who feel not appreciated enough or have no chance to develop are ten times more likely to change a job,
- Take care of your employer branding. Positioning your company as the employer of choice will get you a positive image in the minds of your current and potential employees. When attracting newcomers, a strong employer brand is twice as likely to attract candidates compared to a strong company brand,
- Clarify and codify requirements for leaders and managers. Individual front-line supervisors’ decisions and what they discuss with their teams can have a significant impact on people’s desire to leave, especially factors like compensation or career path,
- Track and analyze. Keeping track of turnover and analyzing why one department is losing more people than others, delving into reasons why and active prevention should be an integral part of the HR strategy.
Conclusion
As you can see, there are many possibilities to lower the employee turnover in your company. The key is to properly weave them into your strategy and current HR processes.
Our article on the Great Resignation – opportunities and risks for tech companies might get you interested as well. Check it out!
If you’re currently looking for a reliable partner who will support you in your search for top-class software engineers – feel free to contact us. At inhire, we will provide you with the best candidates from European locations ready to get involved in your process. 
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