Any business spends significant resources interviewing, hiring and training new employees. Minimizing staff turnover is one way to avoid having these expenses detrimentally affect your business.
A certain amount of turnover is considered normal; this varies by industry. For example, restaurants experience significantly more turnover than law offices. Turnover is defined as the number of employees that leave your employment within a 12 month period. Voluntary turnover refers to those who quit; involuntary turnover refers to people who are fired or laid off. It's important to distinguish between these numbers.
Your human resource turnover ratio can help you determine whether your management, selection and training of employees are working well. A ratio higher than the norm for your industry can easily indicate a management problem of some kind. If you have a very small staff, ratios can be skewed by minor changes. Here are some examples of calculating turnover ratios:
You employ 10 people. Your bookkeeper retires this year, and you have no other staffing changes. This would give you a 10% turnover ratio (1 person divided by 10 total staff), and would be considered normal in most businesses.
However: what if you hire a replacement for the retiree and the replacement doesn't work out, and is terminated within three months? Now you have two people leaving within a 12 month period, giving you a ratio of 20%.
20% is considered a relatively high ratio, but in this case it shouldn't cause too much concern, depending on what you're using your evaluations for. If you're looking at staffing stability, you only have one slight bobble. The retiree doesn't really count. If you're looking at selection and training effectiveness, you have 100% turnover in that position (one person hired, one person leaving in the same 12 month period), and that does indicate that a mistake was made. If such a mistake became a chronic occurrence, you would want to seek assistance.
Here's another example:
You employ 20 people. Two people are fired from one department, and three more quit. One other person working in a different department quits during the year. You have a 30% turnover ratio (6 divided by 20), which is never good, and most of it is coming from one manager's staff. At some point, you will need to address the issue of this manager's employee selection, training or retention.
Knowing how to calculate your human resource turnover ratio helps you maximize the use of your most valuable asset -- your employees. You can pick up additional skills and learn how to keep your employees happy and productive through online human resources coursework.