Year-To-Date (YTD) and Payslips: Payroll Guide
2nd May '23
If your labour turnover rate is high, it’s a red flag that can indicate an unhappy workforce.
This means tracking your labour turnover rate can be essential to your business’ wellbeing.
But it doesn’t stop there. You need to understand the why behind your labour turnover rate; you must get effective feedback as well as make accurate calculations.
Consider this article a fast-track guide to collecting both.
First, what is the labour turnover rate?
The labour turnover rate is a percentage figure. It shows the frequency at which people have exited your business over a period. Like all types of turnover, it’s a bird’s eye view of what’s happening.
Forbes describes it as an indicator of work culture, hiring policies and management.
Its calculation can include both voluntary turnover and involuntary turnover, such as:
- Resignations
- Retirement
- Redundancy
- Dismissals
Indeed also says you might or might not want to include internal movements in a business. The reason is that your business isn’t necessarily losing anyone but might be creating a vacancy.
According to the CIPD, you can make your company turnover rate more focused. How? By concentrating on a specific reason why employees have left. So, for instance, you can calculate the staff turnover rate just for people who have resigned.
What labour turnover is not
The labour turnover rate is a metric. In itself, it is only a summary. Just like any kind of calculated turnover, it’s not the full story behind the numbers.
This is one of those situations where you should only sound a klaxon if the number is higher than your industry’s average – or perhaps changes significantly when compared with previous years.
Why calculating labour turnover is important
There are serious consequences if you have a high staff turnover. Some of this is easy to work out on paper – there’s a financial burden that comes with it, as well as a loss in productivity. But there are things that are harder to quantify on a spreadsheet but which reverberate throughout a business nonetheless.
Consequences of not calculating labour turnover
If you don’t keep an eye on your staff turnover, you might find your business will start to struggle.
The expense of labour turnover can be massive. According to Yahoo Finance, replacing someone costs anywhere from 33% to 200% of a vacancy salary.
Resignations also slow productivity. Even when you find a replacement, it takes time to get them up to the same speed as their predecessors.
Cultural impacts of labour turnover
The impact of high labour turnover is not only financial. It can damage morale. It can result in high complaints about a business’ culture, mission and values. This might result in a vicious cycle, where staff do not want to stay because of the pain felt in the wake of people leaving.
How do you calculate labour turnover?
There are two main labour turnover rates. The first is the monthly turnover rate, and the second is the annual turnover rate. The most popular is the annual turnover rate, as monthly may only deal with a small number of figures.
For either, you will need to work out the average number of employees for that time period.
This is fairly simple. You take the number of employees at the start of the period and the number of employees at the end. You add those together and then divide this by two. The result is your average number of employees.
So, to get your annual turnover rate calculation, you would then do the following:
Annual labour turnover rate = (Employees who left that year/Average number of employees that year) x 100
A working example of calculating annual turnover rate
Let’s explore how you would calculate the annual labour turnover rate in a scenario:
An IT business has 50 employees at the beginning of the year and 39 at the end.
To calculate the turnover rate for the business, they first have to get the average number of employees. They find that by adding 50 to 39 and then dividing by two. So the average number of employees is 44.5.
To get the employee turnover rate, they divide the number of employees who left by the average number of employees. They then multiply the result by 100.
So, using the turnover rate formula, this is how the calculation looks:
Annual IT firm labour turnover rate = (15/44.5)x100
The calculated labour turnover rate = 33.71
What industries typically have a high turnover?
To see where your business fits, there are some average industry figures which can help you.
For example, the CIPD has produced a list of industry averages. Of these, ‘accommodation and food services’ ranked the highest for labour turnover. However, it’s worth bearing in mind the figures are for 2020-2021. You may want some more recent numbers.
What can you do after you calculate labour turnover?
There are two big questions you need to ask when dealing with labour turnover. The first is who is going (as in what roles do they generally have), and the second question is why are they leaving.
If you have a good staff management HR system, you should be able to easily capture who has left. Keeping track of that in one easy place is the key. This is especially important if your business has reorganised or changed up its job titles.
Exit interviews – an essential companion to calculating employee turnover
A good exit interview is, in many ways, a fact-finding mission. It’s not about making people feel uncomfortable or getting them to justify why they are leaving. Your focus is employee retention.
During the interview, ask clear and impartial questions about the person’s decision to leave. Think about push factors (e.g. did they struggle with work/life balance?) and pull factors (e.g. are there perks in their next job?).
The list goes on, but think about identifying weaknesses in your business and potential strengths in other businesses.
Some popular ways businesses retain staff
The exit interview will give you some very specific ideas of how you can improve employee retention.
However, there are some tried and tested approaches businesses take to keep staff around longer. We have an in-depth post on staff retention here, but below is a quick overview of some areas you may want to look at:
- Find ways to improve staff recognition, such as awards and company-wide email shout-outs.
- Provide people management training for leaders whose departments are getting a lot of “churn”.
- Invest in training and look at ways you can develop people’s careers in your business.
- Ensure the employee benefits you offer are up to scratch.
- Check your recruiting processes are spotting and hiring the right candidates.
An easier way to look after staff
Staffology HR By IRIS is cloud-powered software designed to bring a smile to your staff. Its functions cover everything from recruitment to timesheets.
It’s all about making your life easier and bringing data together — including from your payroll software or services.
Staffology also plays a key role in your intelligence-gathering processes, building important stages like exit interviews into your business’ workflow.
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