How to Calculate Employee Turnover Rate in 5 Steps

Understanding and calculating employee turnover rates is imperative for the health of your business. It's a key metric that acts as an early warning system. Calculating turnover will help you identify potential problems before they escalate and significantly impact your company.

What Is Employee Turnover Rate?

Employee turnover rate is a metric that measures the percentage of employees who leave your organization within a specific period, typically a year. It's a quick way to assess the health of your workforce and the effectiveness of your HR practices.

A high employee turnover rate reads like a simple figure, but it can be a symptom of complex issues within your organization. Employees who are dissatisfied with compensation and benefits, lack growth opportunities, struggle with work-life balance, or experience ineffective leadership are more likely to leave seeking a new job. Analyzing the turnover rate helps you pinpoint these areas requiring improvement and allows you to take proactive steps to address them before they lead to an abrupt departure of talent.

Is Turnover Rate the Same as Attrition Rate?

Employee attrition is slightly different from employee turnover rate. While employee turnover includes all departures and the follow-up refilling of positions, employee attrition specifically refers to the departure of employees whose positions are not refilled.

What is Retention & Why is it so Important for Businesses? →

Why Calculating Employee Turnover is so Important

Unlike previous generations, loyalty to a company and job stability are not priorities for the young adults who make up today's primary workforce—Millennials and Generation Z. This cultural shift, alongside other economic circumstances, have doubled employee turnover rates in the US in only ten years. The number of quitters has increased from around 25 million in 2011 to almost 50 million in 2021, leading to the term Great Resignation or Great Reshuffle.

This isn't good news for businesses. It's a good thing to have an active talent pool to draw candidates from, but companies with stable and engaged workforces still enjoy a significant edge. Experienced employees contribute institutional knowledge and established workflows. On the contrary, when employees are constantly leaving, valuable know-how walks right out the door. For this reason, retaining top talent is no longer a luxury—it's a survival strategy.

Moreover, the cost of replacing employees is another serious concern. Studies show it can cost a company one-half to two times an employee's annual salary to find and train a replacement.

Companies that want to do damage control against these developments should always keep track of their turnover rate.

5 Steps To Calculate Employee Turnover Rate

But how to calculate employee turnover rate? Which is the employee turnover rate formula? In this section, we’ll provide a step-by-step guide so you can effectively calculate your company’s turnover rate and start taking action to retain your people as soon as possible.

Step 1: Define the Time Period

The timeframe you choose for calculating employee turnover rates depends on the level of detail you are looking for and the industry you are involved in. Here's a breakdown of the most common options:

• Annual employee turnover rate: This is the most common and widely used approach. It provides a full picture of employee retention over a year and allows for easy comparison with industry benchmarks. However, it might mask seasonal fluctuations or trends happening within a year.
• Quarterly employee turnover rate: This timeframe offers a more granular view compared to annual data. It can be helpful for identifying seasonal trends or pinpointing issues that might arise at specific points in the year (e.g., high turnover right after performance reviews). However, quarterly data might not be statistically significant for smaller companies.
• Monthly employee turnover rate: This offers the most detailed picture of employee movement but requires a larger workforce size to provide statistically significant data. Monthly data can be useful for highly dynamic industries or for closely monitoring the impact of new HR initiatives.

Step 2: Determine the Total Number of Employees at the Beginning of the Time Period

Identify the total number of employees your organization had at the beginning of the chosen time period. This is a key step as it sets the baseline for your employee rate formula. If you are calculating the annual turnover rate, you’ll obviously use the number of employees at the start of the year, for instance.

Step 3: Calculate the Total Number of Employees Who Left During the Time Period

Next, you need to find out how many employees left the organization during the defined time period. This includes both voluntary resignations and involuntary separations—like layoffs or dismissals. Make sure you keep a detailed record of these separations, as it will help you come up with more accurate results.

Step 4: Calculate the Average Number of Employees During the Time Period

To get the average number of employees during the time period, add the number of employees at the beginning and at the end of the period, then divide by two. This average gives a more stable basis for calculating the turnover rate, taking into account fluctuations in the size of the workforce.

This is the formula you should use to carry out this particular step:

Average Number of Employees = (Number of Employees at Beginning + Number of Employees at End) ÷ 2

For example, if your organization had 42 employees at the beginning of the year and 62 at the end of the year, the calculation would be:

Average Number of Employees = (42+62) ÷ 2 =52

Step 5: Calculate the Employee Turnover Rate Using the Formula

Finally, you can calculate the employee turnover rate. Use the following employee turnover rate formula:

Employee Turnover Rate = (Number of Employees Who Left ÷ Average Number of Employees) × 100

Continuing with an example, if 13 employees left during the year, the turnover rate calculation would be:

Employee Turnover Rate = (13 ÷ 52) × 100 = 25%

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Factors to Consider When Analyzing Employee Turnover Rate

When analyzing employee turnover rate, it's very important to consider several contextual aspects that can significantly influence the interpretation of your data. Here are key factors to take into account:

Industry Benchmarks

Different industries have different standards and expectations for employee turnover. For example, high-turnover industries like retail and hospitality may expect and even plan for higher turnover rates compared to sectors like education or healthcare, where stability and long-term employment are more common. Comparing your turnover rate to industry benchmarks helps you figure out if your rate is typical, high, or low for your sector.

Company Size

The size of your organization can also impact turnover rates. Smaller companies may experience higher turnover rates due to limited career growth opportunities. In contrast, larger companies might have more resources to invest in employee retention programs and offer diverse career paths, potentially reducing turnover.

Employee Demographics

Additionally, factors such as age, gender, tenure, and job role can highly influence why employees leave. For instance, younger employees or those in entry-level positions may have higher turnover rates due to career progression or educational pursuits. In turn, more tenured employees may leave for reasons such as retirement or dissatisfaction with organizational changes. By analyzing demographic data, you can identify specific groups that may require customized retention strategies.

Why it's Good to Divide the Turnover Rate Between Teams

If you have a tool that helps you understand your workers by their age or job, you should try to get plenty of turnover rates, not just one per company. If you get averages for each unit, you’ll understand how a certain team is feeling. So a turnover rate for a certain department or a certain demographic is always a good idea. You'll need a tool that breaks down your workforce by these criteria.

The Ideal Turnover Rate

What a “good” rate is changes from sector to sector. But since we said that already, a regularly cited figure that does well for large businesses is an annual turnover rate that's just below 10%. It matches the widespread figure claiming that employee retention should be 90% or above.

Interpreting Employee Turnover Rate

Understanding the reasons behind employees leave is crucial for then developing truly effective retention strategies. Here are key questions to consider:

• Who's leaving? Are they new hires leaving shortly after joining (indicating a disconnect between job expectations and reality), or senior employees seeking new challenges (highlighting a need for career development opportunities)?
• Why are they leaving? Conduct exit interviews to uncover reasons for departure. Are they related to compensation, work-life balance, training opportunities, lack of recognition, or company culture?
• Is there a pattern? Is there a spike in departures before or after performance reviews? This could indicate dissatisfaction with the process or rewards.

Additional Considerations

• Voluntary vs. Involuntary turnover: Ideally, you have more voluntary turnover (employees leaving by choice) than involuntary (terminations). This suggests employees are generally content with their role and the company.
• Strategic turnover: In some cases, turnover can be strategic. For example, a company might encourage turnover to bring in fresh perspectives or adapt to changing business needs. Here, a “good” rate would ensure a healthy influx of new talent, while minimizing disruption to ongoing projects.

What Is a Good Employee Turnover Rate?

As we’ve anticipated, there's no magic “good” employee turnover rate that applies universally. It depends on several factors we've already discussed, including industry benchmarks, company size, and employee demographics.

However, here’s a breakdown on how to analyze some of those factors when taking them into account in order to know a little more about your particular employee turnover rate:

• Aim for the average employee turnover rate. A good starting point is to aim for a turnover rate close to your industry average. Resources like SHRM provide industry-specific benchmarks.
• Consider your what is a high rate for your industry. Some industries naturally experience higher turnover. For example, a retail store with a 40% turnover rate might be performing well if the industry average is around 60%. However, a finance company with a 40% turnover rate would likely be facing significant retention challenges if the industry average is around 15%.
• Pay attention to company size. Expect a higher turnover rate in small to medium-sized companies (12%) due to factors like rapid growth, limited resources for retention programs, or a less established culture. Larger companies may have a lower turnover rate (around 10%) due to more resources to invest in employee engagement and development programs.

How to Use Employee Turnover Rate to Improve Your Business

Understanding and effectively taking advantage of your employee turnover rate is a valuable tool for building a resilient workforce. By fixing the reasons why employees leave early, you can create a good work environment that encourages loyalty and saves money on replacing good workers.

But which is the most efficient way to do so? Implementing an HR software solution can be a significantly smart move. TalentHR, for instance, is a comprehensive all-in-one platform that automates HR tasks from onboarding to employee performance evaluation. You can track employee departures and other pertinent information with the people analytics tool on the platform, making it easier to calculate turnover and design better data-driven strategies.

Recap of the Importance of Calculating Employee Turnover Rate

• Early warning system: It acts as a gauge for employee satisfaction and potential problems within your organization. High turnover can signal issues like low employee morale, inadequate compensation, or lack of growth opportunities.
• Benchmarking: Comparing your rate to industry standards helps assess your company's performance in retaining talent.
• Strategic decision-making: Data from turnover calculations can inform strategic decisions regarding talent acquisition, retention programs, and resource allocation.

Key Takeaways

• There's no one-size-fits-all “good” turnover rate. It depends on industry, company size, and employee demographics. The 10% figure is widespread but is not a magic ratio.
• Analyze the reasons behind employee departures to develop targeted retention strategies.
• Aim for a turnover rate close to your industry average while considering factors like company size and growth stage.
• A high turnover rate in certain demographics (e.g., new hires) might indicate a need for improved onboarding or clearer job expectations.