Employee turnover is a valuable data point for companies, particularly those who are aiming to enhance employee satisfaction or reduce training costs. After all, losing an employee means recruiting applicants, spending time to conduct interviews, and make investments in onboarding (orientation and training). Add to this the cost of possible overtime in the interim while other employees are tasked with picking up the slack, and losing employees can be an expensive proposition. That’s why most companies strive for a low turnover rate.
Calculating employee turnover can be valuable in uncovering hidden issues that may be hindering employee satisfaction, so comparing rates across different groups, to industry benchmarks, and for other employee segments such as new employees compared to long-term employees can provide useful insights to help improve your company’s processes. There’s a simple step-by-step process that makes it easy to calculate turnover rate:
- Calculate the average number of employees for the time interval.
- Divide the number of separated employees by the average number of employees for the time interval.
- Multiply by 100 to calculate the turnover rate as a percentage.
Read on to learn more about how to calculate employee turnover and how to put these figures to use to improve your results.
Employee Turnover Parameters
In order to track employee turnover, though, you need a clear and efficient way to calculate it. Fortunately, the process is fairly straightforward. To calculate employee turnover, you first need to determine some basic parameters:
- Time interval – The standard time interval that you’ll use to calculate turnover. The most common is a month, although some companies also calculate turnover on a quarterly or annual basis.
- Goal turnover rate – If you already have an established baseline and are trying to reduce turnover, you’ll use this base turnover rate to measure progress. If you’re calculating turnover for the first time, however, you might want to use industry average figures for comparison, as the typical turnover rate varies by industry. For example, turnover rates in the retail industry are generally a few points higher compared to turnover in the education field.
- Average number of employees – Before calculating turnover, you should first determine the average number of employees in the measurement interval you’re using (month, quarter, or year). To calculate the average, add the total number of employees at the beginning of the period to the total number of employees at the end of the period, and simply divide by two.
- Subgroups to measure – In some cases, you’ll want to go deeper into the available data to not only calculate overall turnover, but turnover rates for specific subgroups – such as new employees, whether you choose to define a “new” employee as someone who has been with your company for six months, a full year, or another time interval. You may also want to determine if turnover is higher in specific departments or roles, as well.
Calculating Employee Turnover
Once you’ve established your parameters, you’re ready to run some calculations. The formula is actually quite simple: Divide the number of separated employees by the average number of employees for the period. This will leave you with a decimal, which when multiplied by 100 can be expressed as a percentage.
Let’s look at an example to see how the calculation works in action.
- A company is calculating quarterly turnover and had 65 employees at the beginning of the quarter, and 73 employees at the end of the quarter.
- Eight employees separated from the company during the quarter (for any purpose – termination, voluntary separation, etc.).
- Using these figures, the average number of employees for the quarter is calculated as (65 + 73)/2 = 138/2 = 69.
- Turnover rate is calculated as 8/69 = 0.116, or 11.6%.
Keep in mind that the above steps represent the turnover rate for all separation reasons and across the entire company. The same company could calculate turnover in a number of different ways:
- For different time intervals, such as month-to-month turnover or year-over-year turnover.
- For specific departments, such as shipping and receiving, picking and stocking, management and administration, or any number of specific roles.
- For specified separation reasons. For instance, a company might be interested only in the turnover rate for employees who voluntarily separate from the company, excluding those that were terminated or laid off by the company.
Why Your Employee Turnover Rate Matters
Running these various calculations and comparing turnover rates across departments can be helpful to pinpoint management or administrative issues that could be hindering employee satisfaction and resulting in higher turnover. Comparing the turnover rate among new employees to those who have been with the company for several years can reveal shortcomings in the onboarding process that leaves staff feeling unsupported, or perhaps uncover pay, benefits, or other issues that can tempt employees to seek better offers elsewhere.
Another issue that may be revealed, particularly if turnover is higher among new employees, is how well your existing team accepts and supports newcomers. New employees who don’t feel welcomed can feel like outcasts, and this impact is enhanced if supervisors aren’t responding to and addressing these issues promptly.
Of course, the employee turnover rate itself won’t reveal the specific issues that may be lurking beneath the surface – that will require some additional legwork and investigation. However, realizing that an underlying issue might be contributing to higher turnover rates is the catalyst that often leads management to dig deeper to discover the root of these issues and take action to implement positive change.