How to Calculate and Reduce New Hire Turnover at Your Company
Hiring a new employee demands a significant investment of resources, including time and money. When you invest in this, the last thing you want is a new employee to quit after a few weeks or months and have to begin the hiring process all over again. So, how can you reduce new hire turnover in your business today?
What is new hire turnover?
New hire turnover is an important HR and recruiting metric that calculates the number of employees who leave a job within their first year or another period defined by the organization. New hire turnover can be voluntary—an employee decides to leave—or involuntary—an employee is asked to leave.
The purpose of tracking new hire turnover is to determine how effective your hiring and onboarding processes are. It is very expensive to hire a candidate who doesn’t work out – either because the organization or the individual concluded it wasn’t a good fit. What’s more, a high new turnover rate can harm your employer brand, your recruitment budget, and team morale, which is why you must monitor it closely.
Reducing new hire turnover, therefore, helps you optimize costs and improve your talent acquisition and onboarding.
Different organizations have a different benchmark for what counts as new hire turnover. Typically, this period is a year. Then, new hire turnover is also referred to as first-year turnover.
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You may choose to shorten this depending on your industry. For example, certain sectors such as hospitality have a notoriously high turnover rate, so a shorter period may be more suitable. Similarly, if your organization offers fixed-term contracts, you may need to reduce the period when new hires leave to 180 days, 90 days, 60 days, or even 30 days.
Why do new hires leave an organization?
What does a high new hire turnover metric indicate? There are several common reasons why new hires leave:
The job isn’t what they thought it would be
One of the most common reasons a new hire will leave an organization is if your recruitment and onboarding process doesn’t give them an accurate idea of what the job will be like, or misleads them somehow. For example, an inaccurate job posting, misaligned expectations or skills, and discrepancies in working hours, wages, and responsibilities can all lead to an increase in new hire turnover.
Poor onboarding and new employee training
Regardless of how skilled or experienced your new hires are, if your employee onboarding process doesn’t give them what they need to succeed in their job, they are likely to struggle to perform and meet expectations. This leads to underperforming employees, which can result in termination.
There’s a saying that goes, “people don’t quit jobs; they quit managers.” If managers don’t know how to properly onboard new hires and integrate them into the team, it can quickly lead to employees feeling mistreated and isolated. Too many managers have an unprofessional approach, which negatively impacts productivity and morale across the business.
How do you calculate new hire turnover?
When it comes to calculating new hire turnover, there are two common ways to calculate it. We will explain each route and specify the relevant formula.
- New hire turnover as a percentage of total employee turnover
- New hire turnover as a percentage of all new hires
Although the second formula is more common, both are useful ways to measure new hire turnover – as long as it is clear how the metric is defined.
1. New hire turnover as a percentage of total turnover
The first way to look at new hire turnover is to specify what percentage of total turnover it constitutes. In other words, new hire turnover is just seen as a subset of the total turnover. While this is a less common way of calculating new hire turnover, it could be an interesting metric for organizations experiencing a very high number of new hires leaving.
The formula to calculate this is as follows:
Annual new hire turnover would be calculated similarly:
In this formula, ‘terminated’ means that the employee or new hire quit the organization, either voluntarily or involuntarily. Within your Human Resources Information System, or HRIS, this means that their employment status switched from ‘active’ to ‘inactive’, or that there is an active termination date in the system.
Let’s say that 10 people left your organization last year. Out of those, two were considered new hires. This is what your calculation would look like:
(2 / 10) x 100 = Your new hire turnover is 20%
Out of the two formulas mentioned, this one is the least common version. However, for some organizations with very high new hire turnover, it could be an interesting metric. For this metric, new hire turnover is just seen as a subset of the total turnover. This means that you try to specify what percentage of total turnover constituted new hire turnover.
For example, if of the 10 people who left last year, 2 were considered new hires, new hire turnover would be 20%. This is calculated by dividing the number of new hires who leave your organization by the total number of employees who left.
2. New hire turnover as a percentage of all new hires
The second (and most common) approach to calculating new hire turnover, is to take it as a percentage of all new hires.
The formula to calculate this is as follows:
Annual new hire turnover would be calculated as follows:
This means that if one person out of the 10 people you hired quits, new hire turnover would be 10% (as 10% of your new hires have quit within a certain time period).
(1 / 10) x 100 = 10%
Identical to the previous formula, ‘terminated’ means that the employee or new hire quit the organization, either voluntary or involuntary. This employee’s employment status switches from ‘active’ to ‘inactive’ within your HRIS, or there is an active termination date in the system that falls within the selected date range.
New hires are people who joined the organization less than a certain time after being hired (a year, 90 days, etc.). Depending on the business context and the time it takes to effectively onboard employees, a different time range can be chosen. High-turnover organizations may use a 30, 90, or 180-day range instead.
Whatever time period you choose, be consistent in how you do your calculations in order to be able to compare different time periods.
Let’s say you decide to stick with one year as the duration you’re measuring. In the past year, five employees have left your company after less than a year of employment. The total number of people who you hired within the given period is 20. The calculation would be:
New hire turnover = # of new hires who have left the organization during period / # new hires from that same time period x 100% = 5 / 20 x 100% = 25%
You have a 25% new hire turnover rate.
That means that one-fourth of your new employees have left within the first year of employment.
Note: Fast-growing companies will have an artificially inflated denominator (they have significantly more new hires compared to last year). As a result, the new hire turnover rate may be incorrectly deflated. This could be solved by taking the number of people who qualify as ‘new hire’ per month, and averaging those numbers over the full year in the denominator instead.
Tracking new hire turnover the way that is the most relevant for your organization will help you make data-driven decisions. Earning a certificate in HR Metrics & Dashboarding will help you define and implement HR metrics that align with your organization’s strategy.
How to reduce new hire turnover
1. Improve your job postings
One of the top reasons new hires leave an organization early is a mismatch between the original job posting and the skills needed and the tasks they end up being responsible for.
To combat this, ensure your job postings are accurate and transparent. Failure to do this can lead to unqualified or overqualified candidates applying for the role and a drop in morale when they start the new position, and it doesn’t meet their expectations. Hiring managers and HR professionals should join forces to write a clear list of key responsibilities and daily tasks, qualification requirements, and information on the company culture. You might also consider creating a “day in the life of” video for your roles, where candidates can better understand what a typical day will look like on the job.
To avoid misleading candidates, those conducting interviews must also be honest about the role, working hours and workload, and salary and benefits.
2. Manage expectations right from the start
Find ways to communicate the positive and negative aspects of the role throughout the recruitment process (in your job posting and during interviews). A great way to do this is by interviewing your current employees who are already working in the same position and encouraging them to be honest about both the highs and lows. You may also consider filming the critical tasks an employee carries out over a week or month. Then, compile these into a short video to offer candidates a realistic job preview.
3. Assess relevant skills and competencies
How can you ensure you take on new hires who have the relevant skills and competencies to perform in their jobs?
Resumes can give you a good foundation, but relying on these alone is insufficient. To make sure candidates are a good fit, lean on a mix of assessments, assignments, and personality questionnaires. In other words, being thorough in your selection process gives you more information on who they are and if they’ll be a good fit for the role. For example, if you’re in the retail industry and hiring a sales assistant, customer service would be one of the core competencies. You might use a customer service simulation assessment to evaluate candidates’ customer service skills.
Finally, include background and reference checks and incorporate these into your hiring decision.
4. Look for cultural fit
To assess candidates for cultural fit, it’s essential that you already have a clear understanding of your organizational culture and the kind of employees you want to attract. Company culture affects how well a new hire will settle into their new work environment and gel with their team.
Cultural fit doesn’t mean you’re looking for a person “who you’d like to have a beer with”. Rather, you’re looking for people who resonate with your company values and culture in terms of preferred behaviors, ways of working, and more.
In practice, that means that during the recruitment process, you need to evaluate behaviors and values that match those of your existing team or the new culture you’re trying to create.
One way to do this is to incentivize employee referrals. For example, you can offer employees bonuses or benefits for each referral who is successfully hired. Asking questions related to behavior and teamwork during the interview process is also an excellent way to gain insight into a candidate’s personality.
5. Be transparent about career opportunities
Another top reason for a high new hire turnover rate is a lack of career progression. Suppose the company doesn’t support an employee’s personal and professional career goals and offers no path to promotion. In that case, it’s only a matter of time before they move to a company that does.
Therefore, it’s important to be upfront about career growth during the hiring process. If this is an isolated role with little room to progress up the career ladder, be clear about this. Similarly, if career progression is possible within your organization, managers must be helping employees understand how they’re performing and where to improve for career advancement. They should communicate any opportunities for internal mobility and career development, consistently nurture employees, and support their growth.
6. Pre-board your new employees
An engaging and innovative pre-boarding phase will get your new hires excited about their new role before their first day at work. That’s exactly what you want. Most organizations will hand out a mundane employee handbook or required uniform and leave it there.
But there’s so much more you can do to differentiate your organization from your competitors and create a great impression with new hires. Think about sending a welcome video, some company swag, or even a personalized message from their new manager. That way, you’re building a memorable employee experience from the very start.
7. Build an effective onboarding process
Help new hires settle into their new role and integrate into the company by designing a multifaceted onboarding process. Here are a few tips for enhancing your new hires’ onboarding experience:
- Offer them a warm welcome
- Get their desk ready before they arrive
- Ensure they have the equipment they need
- Automate HR processes
- Schedule team-building activities
- Pair them with a buddy to help them learn the ropes for the first few weeks or months.
An organized onboarding program will ensure they can maximize their time on learning their new role and bonding with their team. This has a positive impact on your organization’s new hire retention rate.
8. Provide continuous support
New hire support should not stop after your onboarding process. HR teams should continue to check in with new hires at regular intervals to ensure they have what they need to succeed in their roles and are settling in well.
Make sure managers give new hires meaningful tasks and challenge them with engaging projects. They should proactively offer guidance as and when needed, give constructive feedback and praise to boost their confidence, discuss career paths, and schedule regular catch-ups.
9. Build a healthy workplace
An inclusive and diverse culture is important to ensure new hires feel comfortable and welcome and want to stay. Eradicate any favoritism or bullying if this currently goes on in your organization. Small things like rude managers who don’t say please and thank you and office cliques and politics can negatively impact your workplace.
In addition, offer enticing benefits and rewards to your workforce. Perks like flexible working hours, health insurance, company discounts, or a gift or day off on their birthday are all popular and can make your employees more productive, happy, and engaged at work.
10. Ask new hires for feedback
Don’t forget to ask new hires for feedback—this includes those who are leaving your organization and those who are staying. A short survey or meeting where employees are encouraged to be open and honest can help you better understand what’s working and what’s not so you can make improvements and adjustments accordingly.
Over to you
New hire turnover is a key Human Resources metric to keep track of at your organization. Understanding it can help you improve your hiring and onboarding process, which will save you time and money and ultimately lead to happier employees who want to remain with your organization.
We would like to thank Lyndon Sundmark for his valuable input on calculating new hire turnover.