New Hire Turnover Rate: How To Calculate And Reduce It
Organizational culture, poor job fit, compensation and benefits, lack of career growth, or new challenges are reasons existing employees may leave their jobs.
For the most part, resignations should be an expected but manageable event. But when new hires leave at an unusually high rate, that's a cause for concern. A high new hire turnover rate signals that your company may have a problem with its recruitment and onboarding process.
It's no secret that the hiring process can be long and difficult. But once you've found the perfect new hire, you don't want them to leave as quickly as they came. That's a lot of time and money invested in training someone to leave shortly afterward.
So what can you do to keep new hires around longer?
📉 What is the new hire turnover rate?
Calculating your new hire turnover rate is key to understanding the effectiveness of your onboarding and recruitment process to improve retention and decrease turnover.
Based on this metric, track the number of new hires who leave your company within a certain period depending on the length of your onboarding process.
There are two ways to look at your new hire turnover rate.
- First, see what percentage of new hires compared to all the employees leave.
- The second is how many new hires leave from all the new hires within a given period.
➗ How to calculate your new hire turnover rate
New hire turnover rate: company-wide
(number of new hires who left within a year / total number of employees who left) * 100
For example: If within any given period, 15 employees leave and 3 of those were new hires:
3/15*100 = 20% new hire turnover rate
New hire turnover rate: new-hire analysis
Divide (number of employees who left within a year / total number of newly hired employees) * 100
For example: If you hire 20 new starters and 3 of them leave
3/20*100= 15% new employee turnover rate
The company-wide turnover rate and new hire turnover rates give you a different perspective on how healthy your business is and helps you understand the success of recruitment processes.
❗️ The consequences of a high new hire turnover rate
Whenever new employees leave after being hired, that causes problems. A replacement employee requires extra time and resources for recruitment and training, costing 6 to 9 months' salary.
If an employee is paid $50,000 per year, it will cost the company $25,000-$37,500 to replace them.
New hire turnover disrupts the workflow and lowers morale amongst the staff, on top of the financial costs.
Those who spent time training and orienting the new hire may feel frustrated and resentful after being hired. Morale may be affected among remaining employees, who may perceive their workload increasing due to the constant need to train new hires.
This leads to a negative feedback loop in which employees leave because they're unhappy with the turnover rate, leading to even more turnover amongst existing hires.
Third, high new hire turnover rates can damage the company's reputation and make it more challenging to attract top talent. If prospective job seekers see a company with a high turnover rate, they may be less likely to apply.
Tip: Consider sending out an employee onboarding survey to identify and fix any potential looming issues before it's too late.
⏰ How to identify when a new hire turnover rate becomes problematic
Armed with your turnover rate, it may be challenging to ascertain whether or not it's problematic. After all, each company is different, and what may be considered a high rate for one may not be so for another.
The easiest way to assess is to look at your costs. Consider how much it costs to recruit, hire, and train a new employee.
For example, if it costs $5,000 to hire and train a new employee and your turnover rate is 10%, you're spending $500 for each person. However, reducing your turnover rate by 2.5% will save $12,500 per 100 employees ($500 x 25 employees).
Another way to look at it is to calculate your company's "cost of turnover." This considers the direct costs of recruiting and training and the indirect costs associated with decreased productivity and morale.
👋 Why do new hires leave?
Every company wants to avoid employee turnover, but it's difficult to pinpoint why new hires leave. Sometimes, they were a poor cultural fit or had unrealistic expectations. And sometimes, the onboarding process was mishandled.
Of course, there are many other reasons why new hires might leave, but these are three of the most common.
Reason #1 for new hire turnover: Misaligned cultural fit
Talent acquisition specialists spend a great deal of time finding the right candidates for each position. But even if a candidate seems like the perfect fit on paper, there's always the chance they won't be a suitable cultural fit.
Culture is a set of values, beliefs, and behaviors in any organization that define how things get done. When a new hire joins a company, it needs to learn and adapt to its culture. Unfortunately, sometimes a new hire doesn't fit in with the organization's culture. This leads to frustration, poor performance, and, eventually, a mutual decision to end the contract.
Too many companies spend much time analyzing the skills and expertise needed for a role but comparatively less time considering applicants' personality and cultural fit.
- An independent worker might find it difficult to adjust to a company that values regular updates and check-ins from employees.
- Or an extroverted person might have a hard time working in a company where most communication occurs via email.
Cultural fit is as significant as skills and experience for job performance.
Research has shown that cultural fit is one of the strongest predictors of job satisfaction
Although an exciting offer and competitive compensation can be tempting, new hires shouldn't overlook the opportunity to understand what it's like to work at a particular company.
Gusto's values effectively highlight whether or not someone may be a good fit due to their specificity.
For example: "Debate then commit. Share openly, question respectfully, and once a decision is made, commit fully."
Rather than vague ideals, they show how the specific value manifests within a work environment.
This allows potential new hires to better understand if they would enjoy the company and builds trust with customers who can see that the company is upfront about what they believe in.
How to help potential new hires assess their cultural fit:
- Include details about company culture within the job posting
- Include questions about cultural fit in the interview process
- Encourage current employees to be open and honest about what it's like to work at the company
- Make sure the onboarding process is designed to help new hires understand and adopt the company culture
- Ask candidates about their previous experiences with company culture to learn what culture or environment they thrive in or struggle in
Workplaces that adopt values and beliefs that promote learning are more likely to retain employees and have less turnover. For example, by developing a learning culture, employers signal to employees that their company is committed to their development and growth.
This highlights the company's investment in its workforce now and in the future. By cultivating a learning culture, employers can gain a competitive advantage in the race for top talent.
Furthermore, by orienting new hires to the company's culture and values, companies ensure everyone is on the same page. By taking these steps, companies reduce the likelihood of turnover due to misaligned cultural fit.
Reason #2 for new hire turnover: Misunderstood responsibilities and expectations
When hiring for a position, promoting the role and setting realistic expectations is essential. The easiest way to do this is to have clearly defined roles.
The job specification should be an accurate portrait of the role. In addition, the interview process should give candidates a realistic sense of what it would be like to work in the company. If either is off-kilter, and an employee understands their role and expectations are misaligned, there's a high risk of turnover.
A job description should be realistic and describe what kind of person would be a good fit. The interview process should allow candidates to ask questions and get a realistic sense of the job. By being upfront and honest about the job from the start, you'll be more likely to attract quality candidates who are a good fit for the role.
Reason #3 for new hire turnover: Mishandling of the onboarding process
One of the most critical and often overlooked aspects of employee retention is preboarding and onboarding.
Preboarding is the orientation before an employee's first day and is getting new employees excited about their imminent start date and what to expect on the first day. It's often overlooked to make a positive first impression and set new hires up for success.
Preboarding programs should focus on
- building relationships,
- clarifying the job and company culture,
- and ensuring a smooth transition into the workplace.
This can be done through a simple welcome email from their manager or an organizational-wide preboarding program that includes information about the company culture and values.
On the other hand, onboarding is orienting and acclimating new employees to their roles and responsibilities within the company. Effective onboarding programs should provide new employees with a clear understanding of their roles and responsibilities and how their skills fit into their larger goals.
Onboarding should allow new hires to meet their colleagues and learn about company culture, including formal and informal activities, such as company overviews, departmental meetings, and social events.
Unfortunately, many companies don't emphasize preboarding or onboarding. As a result, new employees often feel lost and disconnected during their first year, leading to high turnover rates and decreased productivity.
By investing in preboarding and onboarding programs, companies can help new employees hit the ground running and feel valued as team members.
🏢 Case Study: Naked Wine's commitment to hiring well
Prevention is always better than cure for business issues, such as high turnover among new hires.
By eliminating the issue at its core, you can avoid time-consuming repairs after the problem has already occurred.
The wine subscription service Naked Wines has a structured recruiting and onboarding process that helps them hire the right talent.
After your probation period, they give you three months' salary if you leave.
New hires are given a bucket list of tasks to accomplish in their first month that helps them understand both their new role and the company's culture.
It might seem odd that a company would pay its employees to leave. In reality, this policy is a clever way to reduce the long-term costs of turnover.
In this way, they avoid the costs of training and onboarding new employees and lose productivity due to unsuitable jobs. This policy saves the company money and ensures it has a high-quality workforce.
✅ Reducing new hire attrition: checklist
Problem: Company-wide high new employee turnover
Solution: Consider reviewing the entire interview and hiring process to see where the miscommunication about what it's like to work at the company may be coming from.
- Check how you're recruiting - are you clear about what the job entails?
- Review your interview process - are you asking the right questions to gauge fit?
- Onboard new hires effectively - are you setting them up for success from their first day?
Problem: Higher new employee turnover within one department
Solution: Talk to the department manager to see if any specific issues are causing new hires to leave. Review the reasons why people are going. Are they a poor cultural fit? Or is the role not what they expected?
- If you already have a retention strategy, double-check it's still effective. Did you get feedback from employees?
- Are role expectations communicated?
- Is the salary for the position too low relative to the expectations of the role?
Problem: New hires leave within the first three months
Solution: Are you onboarding new hires effectively?
- Are you setting up new hires for success?
- Are you assessing their needs, and are you meeting them?
- Reflect on whether the new hire was the right fit for the role from the beginning
Problem: New hires tend to leave after three months but before 12 months
Solution: Often, when new hires leave before their first year, it's a sign there was either a misalignment in expectations or a lack of support from their team/management.
- Are you providing enough opportunities for employees to grow within the company?
- Are you investing in employee development?
- Are you spending the time to get to know the employees, and are you addressing their needs?
🚀 Get new hires onboard: wrapping it up
When an unusually large number of new hires leave a company within their first few months, it's often a sign that something is wrong with the recruitment and hiring process.
To reduce turnover, businesses need to identify the problems in their hiring process and take steps to fix them.
While short-term indicators of success, such as whether the candidate has the right skills or qualifications, are important, they don't necessarily predict whether the candidate will be a good long-term fit for the company.
To help reduce turnover, businesses should provide new employees with more support during their first few months, such as regular check-ins from their manager and access to mentorship programs.
By taking steps to address these problems, businesses can reduce the number of employees who leave prematurely.
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