In recent years, the Great Resignation has taken hold of many industries. McKinsey states that 40% of workers are planning to quit their jobs — this number hasn’t changed since 2021. One of the reasons for this is that most companies are still using only “traditional” perks like competitive salary, job titles of questionable value, and career growth opportunities to attract and retain employees. However, a recent report by LinkedIn confirms that now employees rather prioritize consistent pay raises, flexibility and well-being as part of the workplace culture.
The tech sphere is experiencing one of the highest levels of staff turnover annually, so IT companies should acquire the skill of analyzing the rate at which employees resign (and keep it at an appropriate level for their business). In this article, I will share information about calculating and interpreting your employee turnover, as well as the reasons and solutions for high turnover rates.
Meaning of Staff Turnover
Staff turnover indicates the level of employee movement in a company, i.e. the number of people that left and need to be replaced.
Staff turnover is further divided into voluntary and involuntary. The reasons for voluntary turnover include career or educational opportunities, resignations, retirement, and other personal reasons, such as launching one’s own business. As for involuntary turnover, it happens due to poor performance, misconduct or layoffs.
Employee Turnover Rate: What Does It Mean for Your Business?
The turnover of staff is unavoidable to some extent. According to statistics by SHRM, most businesses should expect at least 6% of involuntary and 13% of voluntary turnover every year. However, it’s essential to understand what the rate of staff turnover means for your particular company.
The average overall annual staffing turnover rate is 18%; however, companies should strive for no more than 10%, according to SHRM. And these numbers will vary depending on the country and industry.
A company has a high turnover rate if over a third of its new hires quit during the first 3 months. If new employees are quitting too soon, then you should suspect insufficient onboarding and a toxic working environment. If senior-level employees and managers are leaving on a regular basis, it means that you should think about increasing their compensation package or investigate the problem further. As for low turnover rates, they are common among high performers and amount to just 3% because such people are mostly satisfied with their tasks, results, benefits and corporate culture.
Calculating Staff Turnover: Templates & Explanations
For a staff turnover calculation, you will need to do the following:
- Choose a period of calculation. You can measure your employee turnover annually, quarterly, or monthly. Generally, companies define the rate of team turnover once a year, but if you want to do a thorough analysis, it’s advisable to check it once a month.
- Find the average number of employees by adding the number of workers at the beginning and at the end of the period, then dividing it by 2. For example, there were 50 team members at the beginning of the month and 46 at the end of the month; then the average number will equal (50 + 46) ÷ 2 = 48.
- Identify the number of employees that left during the chosen period. To follow our previous example, 50 – 46 = 4 employees that left.
The next step is to apply a staff turnover formula. The two most common ones are the BDA and Schlüter formulas. The values in them slightly differ and so will the results. So, if you plan to keep calculating staff turnover, always use the same formula.
The BDA formula uses all the values we’ve gathered before:
Turnover Rate = Employees that left ÷ Average number of employees x 100
Our Turnover Rate = 4 ÷ 48 x 100 = 8%
The Schlüter formula doesn’t require the average number of employees, but the number of employees at the beginning of the month and new hires. Let’s say, the company had 2 new hires during the month. Then the result will look like this:
Turnover Rate = Employees that left ÷ (Number of employees at the beginning of the month + New hires) x 100
Our Turnover Rate = 4 ÷ (50+2) x100 = 7.6%.
To interpret the results, remember to compare the turnover rate in different periods. Additionally, it’s helpful to calculate it in all departments, as a high turnover rate may indicate issues in a single department, whereas high personnel turnover on the whole points out more problems within the company.
Features of Team Turnover in IT Companies
The IT industry is defined as a sphere with above-average team attrition rates by LinkedIn. Between 2021 and 2022, the turnover rate for tech and media reached 12.9%. In the US, this number can soar up to 20-25%.
Another challenging aspect is the gap between supply and demand. Statista reports that 70% of companies experience tech talent shortages and this number isn’t projected to decrease any time soon. So, not only may IT businesses end up in the red due to high staff turnover, but they should also be concerned about replacing their employees as soon as possible.
In conclusion, 10-20% of workers’ turnover for IT companies is acceptable, but you should aim for 10-12% at most. You can obtain even better criteria to measure how well you retain employees by benchmarking your rate against similar businesses. Last but not least, think about developing strategies on how to find developers fast. This will be your lifeboat in case turnover rates rise across the industry.
Cost of Turnover
Still, the most dangerous downside to employees leaving tech companies is the cost of such a loss. It is estimated that hiring a new IT specialist will cost about one third (33%) of their annual salary. This percent covers the cost of hiring and training a new specialist, severance or bonus packages, and the cost of not closing the position. In the picture below, I calculated the cost of replacing middle software developers in the US as of 2022.
|Position||Average Annual Salary||Cost of Replacement|
|Middle Node.js Developer||$70,000||$23,100|
|Middle Cobol Software Developer||$78,000||$25,740|
|Middle ASP.NET Developer||$106,000||$34,980|
|Middle Django Developer||$88,000||$29,040|
|Middle Full-Stack React.js Developer||$115,000||$37,950|
|Middle QA Software Tester||$79,750||$26,317|
|Middle iOS/Swift Developer||$120,000||$39,600|
|Middle Indie Game Developer||$86,000||$28,380|
|Middle Angular Software Developer||$117,000||$36,610|
|Middle UX Designer||$100,500||$33,165|
Apart from being ready for the costs, you should also keep in mind that it might take a long time to hire Node.js developers, React Native programmers, or other coders. Given the fact that salary raises amounted to 5.61% in 2022 and are projected to reach 8% in 2023, it is cheaper to keep your employee than find a replacement in the times of talent crisis.
Top Reasons and Solutions for High Employee Turnover
The reasons for staff turnover vary, so I chose the most pertinent issues that lead to a high staff turnover rate and shared the solutions below.
Employees can feel discouraged if there’s a discrepancy between stated work requirements and actual responsibilities. For instance, an employer might assign additional work to a software engineer or ask them to perform tasks that do not correspond to their expertise. And vice versa, if a coder turns out to be under- or over-qualified for the job due to an unprofessional recruitment process, they are unlikely to completely meet the employer’s expectations.
Solution: Ensure your recruitment process is impeccable
From job description to interview stages, your recruitment should match the real state of events in your company. It ensures highly qualified hires and decreases the odds of expectation gaps. It’s even more vital if you decide to hire offshore developers, which is the reason Tonic Health, a US medical patient data collection platform, turned to Alcor. The company set out to hire IT experts, but encountered frequent job rejections. Thanks to our extensive expertise in Eastern Europe, we successfully advertised the client as a reliable employer and managed the whole recruitment process. Our cooperation resulted in 15 new hires with no rejections. All in all, well thought-out recruitment steps help meet candidates’ expectations and ensure higher talent retention.
A poor onboarding experience results in lower engagement levels and creates a mismatch between the individual and company culture, thus potentially leading to resignations. Thus, the number of employees leaving in the first 45 days is the highest.
Solution: Keep up with the best onboarding practices
Regularly review your onboarding approach and update it according to the latest developments in the industry. For instance, Forbes advises welcome packages to preboard newcomers, plus assign a mentor and practice job shadowing to show how their colleagues perform certain tasks. Moreover, you should introduce tasks gradually, and have regular 1:1 meetings. With a detailed onboarding strategy, 69% of employees are satisfied with the onboarding process and stay in the same company for more than 3 years on average.
No Room for Growth
Professional development is one of the top motivations for career change. If a high-performing employee sees no opportunity to hone their skills and move up the career ladder, they will leave your company sooner than later. This reason holds particularly true for software developers who have a vast range of opportunities to apply their skills.
Solution: Show your employees that you care about their career growth
Illustrating career paths for your team is a must for successful turnover management. Take the time to hold regular one-to-one meetings with your workers to discuss their current performance and opportunities for further development. This tip is especially valid for senior-level employees and managers, because providing them with everything they need for professional growth excludes the need to look for that elsewhere. In addition, make sure you recognize your employees’ achievements: according to the 2022 Global Culture Study, this increases the odds of high performance by 25 times.
Lastly, if all the financial, professional and onboarding needs are met, but employees are still leaving at unprecedented rates, it may be connected with team morale and engagement. In other words, workers might feel disconnected from the company and their colleagues, so don’t see any personal benefits regarding your business.
Solution: Add more perks and team-building activities
Due to the influence of remote work, team-building is said to have decreased by almost 17%. Still, company meetings and common activities foster the ties that keep your team members connected to each other, so I definitely recommend scheduling them. Blending in some additional bonuses for each employee personally can also produce a great effect. For example, stock options are a tangible benefit for the team at Sift, our client and a leading IT product company in the US. With the help of Alcor’s experienced recruiters, they introduced this perk for candidates in Eastern Europe and attracted 20 talented developers. Finally, remember to conduct exit interviews when your workers quit to improve the working life for the rest of the team.
To conclude, treat your turnover rate as an indicator of how satisfying the work in your company actually is. Use similar businesses as your benchmarks and try to find out the meaning of staff turnover by trial and error, while keeping in mind that compensation, growth, and work environment are vital for retaining talent.
We at Alcor are experts in IT recruitment in Poland, Romania and other countries of Eastern Europe. Our core specialty is hiring Senior/Lead software engineers with rare tech stacks. 98% of our candidates pass the probation period and stay in the companies of our clients due to efficient recruitment strategies. If you want to outsource tech recruiting, we’re there for you!