Calculating Temporary Staffing Turnover Rates – It’s Complicated

 

Staffing companies like Barton Staffing Solutions are regularly asked: “What is your annual turnover rate?” Calculating temporary staffing turnover – it’s complicated is a great way to think of it. The fact is that numbers temporary staffing agencies provide may not have any meaning.

Remember, by definition, temporary employees turnover – they are temporary. Sure, some companies use temporary staffing as a semi-permanent workforce and turnover is close to full-time turnover in terms of an annual rate. But many, if not most assignments are not of this longer assignment duration. We know this because the American Staffing Association (ASA) provides metrics for average tenure for temporary employees. For 2012, that tenure was about 15 weeks.

The ASA and others generally calculate temporary staff turnover by the following formula based on annual numbers:

(Total Number of W-2s Issued) / (Average Daily Number of Temp Employees) * 100 = Turnover %

The trend over time can be found in the ASA Fact Sheet: Staffing Employee Turnover and Tenure in 2012. From an industry perspective, this may provide some meaningful metrics. However, some clients seek a number that has relative meaning to permanent or full-time employee turnover rates. Wikipedia has the formula for calculating full-time employee turnover:

((Total Employees Separated) / (((Total Employees at Year Start) + (Total at Year End)) / 2)) * 100 = Turnover %

Why Calculate Turnover?

Turnover in general is important to assess as it is a metric of operational costs in terms of human resources and overall enterprise requirements planning (ERP). In addition to the obvious business costs to productivity and quality, the common organizational development costs include: separation costs, hiring costs, rehiring costs, training costs, and retraining costs.  Obviously, in roles where these costs are high, retention is critical, and many companies put permanent employees in these roles.

These costs also apply to temporary staffing. But in the case of temporary staffing, the costs are relative to the duration of the temporary employment assignment.  Recall the ASA tenure for temporary employees is 15 weeks for 2012!

Imagine how skewed a temporary staffing firm’s turnover rate will be if they have many employees in assignments that last only a few weeks, or less, over the course of the year. Some call these seasonal factors; while it is really just the nature of temporary jobs. Fundamentally, temporary assignments are not permanent, and don’t lend themselves to a meaningful annual-based calculation metric that will help a company manage and continually improve its operations.

A Better Indicator for Temporary Staffing Turnover

Barton Staffing Solutions clients are learning that a better indicator of turnover for temporary staffing firms is the specific number of employees that leave or are separated before their temporary assignment is over. This is a better turnover metric because this is what incurs the costs noted above in terms of separation, rehiring and retraining costs. In the end, that is the cost that firms hiring temporary workforces need to minimize as they use temporary employees for tuning their firm’s operational efficiency.

The new metric to ask your temporary staffing firm to share with you is: “The average number of employees that leave an assignment before the assignment is over.” Every temporary assignment has a duration. If it is extended, it’s a new assignment. This number should have more parity with overall full-time turnover and has more meaning to finance and operations in running a business.

The new formula is a little more tricky to calculate, but with modern front and back office software, any temporary staffing firm should be able to calculate this.  The formula:

(Total Annual Assignments Vacated Before End) / (Total Annual of Job Assignments) * 100 = Turnover

For each of these, both the client and the temporary staffing agency incur costs to replace the employee. That is the fundamental cost connection to a firm’s finance and operations objectives in parity with full time turnover costs.

Example

Consider this example where a temporary staffing agency had employees in various temporary assignments ranging from 1 week to 3 months to 1 year in duration. The firm calculated their turnover rate based on the following numbers.

  • 1000 W-2s issued at end of year.
  • 250 average daily employees in assignments.
  • 250 employees performed well, started and completed their assignments.
  • 750 employee assignments resulted in separations from assignments prematurely.

Assignment duration for the purposes of comparison calculation using the Barton Staffing Solutions Formula.

  • Continue to expand on the example of 1000 W-2’s and 250 average daily employees in assignments.
  • Consider 50 assignments for each of the following durations.
  • Temporary associates finish one assignment and immediately go onto another assignment.
  • New associates added to the total W-2 count of 1000 would only be introduced when true turnover occurred because an associate did not complete the assignment.
  • The total number assignments for the year would calculate based on the following for this example.
    • 50 assignments with duration of 1 week, resulted in 2600 1 week long assignments for this agency.
      (2600 = 50 assignments * 52 weeks in a year)
    • 50 assignments with duration of 1 month, resulted in 600 1 month long assignments for this agency.
      (600 = 50 assignments * 12 months in a year)
    • 50 assignments with duration of 1 quarter, resulted in 200 1 quarter (3 month) long assignments for this agency.
      (200 = 50 assignments * 4quarters in a year)
    • 50 assignments with duration of 1 half year, resulted in 100 1/2 year (6 month) long assignments for this agency.
      (100 = 50 assignments * 2 halves of a year)
    • 50 assignments with duration of 1 year. resulted in 50 full year long assignments for this agency.
      (50 = 50 assignments * 1 full year).
  • 3550 total job assignments for this company:
    • ((50 * 52wks) + (50 * 12mos) + (50 * 4qtrs) + (50 * 2) + (50 * 1)) = 3550
    • Or, from the assignment duration above: (2600 + 600 + 200 + 100 + 50) = 3550

Using the generalized ASA calculation, the turnover rate is:

(1000 total number of W-2s issued) / (250 average number of employees) * 100 = 400% Turnover

It does not matter in the ASA calculation whether a temporary employee leaves an assignment because he was terminated for poor performance, or because the employee found a better job for more pay.  These two causes are very different, but both result in the same operational and production cost to the firm and the temporary staffing agency to replace the employee in order to complete the assignment.  Assignment duration and successful completion is not considered in this method.

Using Wikipedia’s formula, the turnover rate is:

((750 employees separated prematurely) / ((250 employees at year start + 250 at year end) / 2)) * 100 = 300% Turnover

Like the ASA method, the Wikipedia method only works for full-time employees in an organization and make the assumption that all jobs have duration of an entire year, and longer. Assignment duration and successful completion is not considered in this method.

Using the Barton Staffing Better Indicator turnover calculation realistically quantifies per-employee operational cost as a result of turnover:

(750 employees separated pre-assignment end) / (3550 total job assignments) * 100 = 21% Turnover

This new calculation makes the most sense as it shows that of the total 3550 temporary assignments, only 21% incurred the replacement costs – or the negative aspect of turnover that companies want to avoid.  This is much more realistic for the aggregate industry average for turnover calculated for all industries.  This method considers assignment duration, and the successful completion of that assignment.

The Society for Human Resource Management (SHRM) reported that the average turnover rate for all industries is 15% with specific industry turnover ranging on the low side of 8% to the high side of 35%. Our new method is a more meaningful indicator of incurred operational costs than 400%, in the ASA calculation or 300% in the Wikipedia formula.

Barton Staffing Solutions can help you make sense of the hype some agencies attach to these numbers. We are happy to sit down and discuss with your VP of Human Resources, CFO and COO how these numbers relate to full-time turnover rates in terms of operational cost. Give us a call now.

As you look closer into the numbers your temporary agencies give you for turnover, dig deeper and really understand how these numbers will affect your operational costs and the bottom line. Generally, look for temporary employees that will finish the assignment they started based on the time required and the parameters you have in your human resources competency model.

Our next blog will be on factors that affect turnover.

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