How to calculate employee turnover rate (2024)

People usually include voluntary resignations, dismissals, non certifications and retirements in their turnover calculations. They normally don’t include internal movements like promotions or transfers. The employee turnover rate is a metric of the effectiveness of the human resources management system and the overall management of an organization.

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How do you calculate turnover rate?

To calculate the monthly employee turnover rate, all you need is three numbers: the numbers of active employees at the beginning (B) and end of the month (E) and the number of employees who left (L) during that month. You can get your average number of employees (Avg) by adding your beginning and ending workforce and dividing by two (Avg = [B+E]/2).

Now, you should divide the number of employees who left by your average number of employees. Multiply by 100 to getyour final turnover percentage ([L/Avg] x 100).

However, most companies find quarterly or annual turnover rate calculations more useful, because it usually takes longer for their numbers to get large enough to show meaningful patterns.

Here’sthe formula for annual turnover rate:

So, if you have 45 employees at the start of the year and 55 at the end and 5 employees left during that year, your annual turnover rate would be:

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What’s the best turnover rate formula?

Depending on what you want to measure, you can use different numbers to calculate your employee turnover rate.

For example, if you want to illustrate competitive retention you would normally define separation as voluntary resignations since non-voluntary separations and retirements don’t necessarily mean that you’re losing employees to other employers.

However, if you simply want to illustrate overall turnover, you may want to include all separations. If you do include retirements in your turnover calculation, you should make this clear, so people understand what you’re including in your measurements.

One interesting and useful way to measure turnover is to see whether your new hire turnover rate is higher or lower than your overall turnover rate.

In this example, we define new hire turnover rate as the number of new employees who leave within a year.

Your new hire turnover formula would look like this:

A healthy turnover rate

Now that knowhow to calculate employee turnover rate using a basic formula, you can calculate your company’s turnover and come up with a number. But what does your number actually mean? How do you know if your turnover rate is high or low?

One wayis to compare your company’s turnover rate with the average rate within your industry. Turnover rates can vary widely across industries. Usually, hospitality and healthcare have the highestturnover rates. In 2015, the US hospitality industry had a voluntary turnover rate of 17.8% and the US healthcare industry,14.2%. Rates were a lot lower in other industries, like insurance (8.8%) and utilities(6.1%).

Nobscot offers an application that gives you instant access to current US turnover rates based on industry and location. Likewise, the Bureau of Labor Statistics and the European Union’s database can provide interesting statistics. Sites like comdatasurveys.com and xperthr.co.uk also release relevant surveys.

Analyze your turnover rate

To better understand your employee turnover, all you have to do is answer three questions:

“Who are the employees who leave?”
“When do they leave?”
“Why they are leaving?”

Who

Even if your turnover rate is lower than your industry’s average, there’s no reason to celebrate unless you can identify who leaves you. If your top performers are leaving, then you should take immediate action, otherwise your company’s performance will flag. On the other hand, if your low performers are leaving, you could stand to gain by enjoying better employee engagement, productivity and profits.

When

Keeping track of when people leave can be very useful. For example, your new hire turnover rate can offer a lot of insight. First, it can tell you whether your recruitment methods are working. If a significant number of your new employees leave because they found their job duties different to, or more complicated than, what they were expecting, perhaps you should consider reviewing your job descriptions. Investing more time and money developing your orientation process could help too, if employees leave because of cultural mismatches. You could also consider offering other employee engagement programs like parental leave or flexible working hours, if your employees struggle with work-life balance.

Why

When you know why your employees leave, you can change your company’s management style or policies in response. Exit interviews are a useful way to see whether people give similar reasons for leaving, or whether they offer useful suggestions for how you can improve.For example, employees often say they decided to resign because their input and effort were not appreciated. If you hear these kinds of comments in your exit interviews or in performance reviews, HR should work with managers to consider changing performance appraisal processes.

Employee turnover rates can uncover hidden problems within organizations. A high turnover rate is a warning sign you shouldn’t ignore. Review your recruitment processes, change your compensation and benefits plan or incorporate a succession planning policy. Ultimately, if you respond to turnover issues proactively, you will improve your company and retain great employees.

Frequently asked questions

What is a good rate of employee turnover?: As a general rule, employee retention rates of 90 percent or higher are considered good, and a company should aim for a turnover rate of 10% or less to keep the company’s labor force stable.

Is high turnover a red flag?: High turnover for a role is a major red flag, suggesting the company has a toxic culture or — more specifically — the position's manager is very difficult to work with.

Why is it important to measure employee turnover?: Staff turnover is an important way to measure both the effectiveness of the human resources management system and the overall management of an organization or program. It provides a complementary measure to the previous indicator on key positions filled.

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Analyze this

As an HR analytics expert with a proven track record in workforce management, I understand the critical importance of accurately measuring and analyzing employee turnover. My expertise is grounded in years of hands-on experience, implementing effective strategies to optimize human resources management systems. Now, let's delve into the concepts presented in the article.

Employee Turnover and Its Calculation:

1. Employee Turnover Definition:

Employee turnover encompasses voluntary resignations, dismissals, non-certifications, and retirements. It's a comprehensive metric reflecting the dynamics of the workforce.

2. Turnover Rate Calculation:

The article emphasizes the inclusion of voluntary resignations, dismissals, non-certifications, and retirements in turnover calculations. Internal movements like promotions or transfers are typically excluded.
The turnover rate formula involves three key numbers: the number of active employees at the beginning and end of the period and the number of employees who left during that period.
Monthly turnover rate formula: [\text{Turnover Rate} = \left(\frac{\text{Number of Employees Left}}{\text{Average Number of Employees}}\right) \times 100]
Quarterly or annual turnover rate calculations are often preferred by companies.

3. Employee Retention Rate:

Employee retention rate is complementary to turnover. It can be calculated by subtracting the turnover rate from 100.

4. New Hire Turnover Rate:

The article introduces the concept of new hire turnover rate, focusing on employees leaving within a year. The formula is provided to measure this specific aspect of turnover.

Interpreting Turnover Rates:

1. Benchmarking:

To understand the significance of your turnover rate, it's crucial to compare it with industry or location averages. Different industries exhibit varying turnover rates.

2. Healthy Turnover Rate:

Acknowledges that a turnover rate of zero is unrealistic and that a 'healthy' turnover rate exists. Monitoring turnover rates within industry and location ranges is essential.

3. Internal Turnover Rate Research:

Companies are advised to conduct internal turnover rate research, analyzing trends over different periods, departments, and managerial levels.

Analyzing Turnover:

1. Key Questions for Analysis:

Three key questions are proposed to better understand turnover: "Who are the employees who leave?", "When do they leave?", and "Why are they leaving?"
Identifying high performers versus low performers leaving is highlighted as crucial for strategic action.

2. When Analysis:

Tracking when people leave, especially in the context of new hires, provides valuable insights into the effectiveness of recruitment methods and onboarding processes.

3. Why Analysis:

Understanding the reasons behind employee departures enables companies to adapt management styles or policies accordingly. Exit interviews are suggested as a useful tool for gathering this information.

Frequently Asked Questions:

1. Good Rate of Employee Turnover:

A retention rate of 90% or higher is considered good, with a turnover rate of 10% or less recommended for a stable workforce.

2. High Turnover as a Red Flag:

High turnover, especially for a specific role, can indicate a toxic culture or challenges with the position's management.

3. Importance of Measuring Employee Turnover:

Employee turnover is a critical measure of both the effectiveness of HR management systems and the overall organizational management.

In conclusion, employee turnover analysis is a multifaceted process that involves accurate calculations, benchmarking, and a deep understanding of internal dynamics. A proactive approach to addressing turnover issues is crucial for organizational improvement and employee retention.