GlossaryHR

The Essential List of Human Resource Definitions You Need to Know

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Churn Rate

What is churn rate?

A company’s churn rate, or employee churn rate, refers to both the attrition rate and the turnover rate. All of these terms refer to the number of employees who leave the organization during a specified period of time, generally a year. (Note that the term ‘churn’ used generically can also apply to customers.)

Churn, attrition and turnover: what’s the difference?

Attrition, as applied to an organization’s workforce, is a measurement of the reduction of staff during a set period of time. Most companies measure it annually. It encompasses all reasons for separation including resignation, termination or retirement. If an employee is replaced, the separation is not included in the rate of attrition.

Employee turnover is a measurement of the reduction in the workforce when the separated employee is replaced by a new hire.

Why is the employee churn rate important for businesses?

Employers need to monitor the employee churn rate because it impacts productivity, business performance and growth.

How does a high churn rate affect an organization?

A high churn rate impacts an organization in several ways. First, it can cripple a company financially because costs for recruiting, hiring, and training are significant. The Society for Human Resource Management (SHRM) places the cost to replace a worker at six to nine months of the annual salary for the position. At that rate, it could cost from $17,500 to $26,250 to replace an employee earning a $35,000 yearly salary. Employers who reduce their churn rate can save money on hiring and related costs which can, in turn, increase their profit margin.

Secondly, a high churn rate limits a company because it results in a staff that is perennially composed of less-experienced employees. This puts a burden on the employees with more skills and experience. They may grow to resent shouldering the bulk of the workload. If it leads to experienced employees quitting, it can trigger a downward spiral that is hard to reverse.

Thirdly, a high churn rate damages the company’s reputation which, in turn, can dissuade customers, investors and make it harder to attract new employees.

Keep in mind, however, that in some scenarios, companies can use attrition to their advantage. If an organization wants to lower costs, they can postpone filling open positions. When an employee quits, retires, or is terminated, the employer can leave the position unfilled until business picks up again. This is sometimes called a ‘hiring freeze’ and is common during widespread economic crises or industry-specific downturns.

How can employers lower their churn rate?

It’s critical for employers to compare their churn rate to other employers in their industry and employment market. Employers who identify an increase in their churn rate can take measures to address it. These include using a structured onboarding process, making sure the company’s benefits package is competitive, improving management practices, providing flexible schedules and supporting employee work/life balance in other ways, conducting exit interviews to determine why employees are quitting, and providing professional development programs so employees can progress along a career path in the organization.

Managing for employee retention involves strategic actions to keep employees motivated and focused so they elect to remain employed and fully productive for the benefit of the organization. A comprehensive employee retention program can play a vital role in both attracting and retaining key employees, as well as in reducing turnover and its related costs. All of these contribute to an organization’s productivity and overall business performance. The Society of Human Resource Management

HRMS software can help employers and HR teams track employee churn as well as the effectiveness of programs designed to improve employee retention.

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