A Guide On How To Calculate The Employee Turnover Rate

Continued focus on (employee) turnover is of critical importance, because of the direct relation of turnover to improvements in labor costs and guest satisfaction.
~ Finley Peter Dunne

"Employee turnover" is a word that makes HR practitioners' hearts skip a beat. But no matter how disappointed an HR gets after hearing the word, it is a natural, inevitable phenomenon that occurs in every organization.

In fact, according to a study conducted by Oracle Netsuite,

On average, every year, an organization experiences 18% turnover in its workforce.

Employee turnover is arguably one of the most important concepts in the corporate. So, knowing how to calculate the employee turnover rate becomes all the more significant.

But before figuring out the ways to calculate the turnover rate, let’s first revisit the meaning of employee turnover.

What is Employee Turnover?

Employee turnover is the term used to describe when employees leave the organization or business they are employed with. Precisely, "turnover rate" describes the overall number of employees quitting within a specific time frame.

The phenomenon of employee turnover in an organization could occur due to several reasons. This includes resignations, layoffs, retirement, termination, transfers, or deaths. Basically, it includes any reason of exit other than natural causes such as retirement

Since employee turnover remains a natural outcome of running a business, it would be wise for every employer and HR professional to know how to calculate the employee turnover rate.

Knowing how to calculate your company's employee turnover will help you gauge and discern if there is anything concerning. It will also provide a clear picture of how well your employee retention strategies work.

So without further ado, let's know how to calculate the employee turnover rate.

How to Calculate Employee Turnover Rate?

Calculating employee turnover rate is no rocket science. It's easier than it seems. Here is the formula for the Yearly Employee Turnover Rate.

You'll need three variables. Let's consider

X= Total number of employees who left the organization in the given year
Y= Employees at the beginning of the year
Z= Employees at the end of the year

Now, to calculate the average number of employees in the given year, all you've to do is:

Turnover Rate= X/ (Y+Z)/ 2*100

So, basically the formula divides the number of employees who left the company by the average number of employees over a specific time period. In order to obtain the percentage, the formula then multiplies the number by 100.

For Example

Suppose, on 1st April 2022, your organization had 60 employees. By 31st March 2023, the number of employees in your organization has grown to 90.

But over the course of the year, 10 employees left the company, then the employee turnover rate currently stands at

Employee Turnover Rate = 10 / (60+90)/2 * 100
= 13.33%

This implies that for the year 2022-23, the employee turnover rate is 13.33%

The above formula is the one that is widely used to calculate the turnover rate yearly.

But, if you want to research patterns during the year, like spikes during significant quarters or changes after implementing new policies, then calculating the turnover rate frequently helps.

The monthly calculation of the employee turnover rate helps to analyze and study the patterns that any new organizational change has brought about.

So, here is the formula to calculate the monthly employee turnover rate.

Monthly Employee Turnover Rate

For Example

Suppose, in the month of December 2022, your organization has an average of 120 employees. But, in the same month, 8 employees decide to leave. The turnover rate in your organization for the month of December 2022 will be

Employee Turnover Rate for December = 8/120*100
= 6.67%

This implies that your employee turnover rate for the month of December is 6.67%

Although the monthly employee turnover rate helps to analyze certain short-term changes, organizations usually prefer calculating the turnover rate annually. Since the yearly turnover rate provides a figure obtained over a longer period, and hence, reflects a significant pattern or data.

You must have observed the methods to calculate the employee turnover rate well by now. But after obtaining the percentage of the employee turnover rate in your organization, the next crucial step is to analyze whether the turnover rate is healthy or not.

What is an Ideal Employee Turnover Rate?

If you’re wondering what an ideal turnover rate is, then you’ll be surprised to know that there is no such magic number.

Yes, you’ve read it right!

There is no specific good or bad turnover rate. After all, the employee turnover rate is a sum total of a lot of different factors. Although, according to Gallup,

10% turnover is healthy, but every industry and every organization is different.

In order to ascertain a healthy turnover rate for your organization, comparing your company's staff turnover rate to that of your industry will yield better results. Moreso, each industry is unique in its staffing needs, hiring strategies, work culture, and other equally crucial factors. So, researching average employee turnover rates in your industry through credible sources will greatly help you discover a healthy staff turnover rate.

In fact, annual staff turnover rate data across various industries and regions is available on the US Bureau of Labor Statistics.

According to BLS data on yearly separations, the turnover rates in the retail and hospitality industries are consistently higher than the national average.

If you were to compare these employee turnover rates to those of educational services, which have averaged around 32% over the past five years, they would appear to be astronomical rather than being in line with industry averages and hence a healthy turnover rate.

It is important to note that no matter how hard you try, some turnover rate is inevitable. According to SHMR, the average company has a turnover rate closer to 20%. Although the turnover rate target depends on several factors, striving for a percentage not beyond 10% is always a safe bet.

Why to Calculate Employee Turnover Rate at All?

Did you know employee turnover rate is more than a significant and widely used HR metric? It is also a tool that can reveal organizational weaknesses that are not always obvious.

A company's work culture, the success of its hiring practices, and overall personnel management can all be determined by looking at its employee turnover rate. A proper understanding of this concept can help businesses implement effective employee retention strategies and foster employee engagement.

Moreover, a high turnover rate in an organization can be detected while calculating the turnover percentage. A high employee turnover is an expensive problem and may cost businesses dearly. In fact, even minimal turnover rates cost an organization a lot of money.

Turnover and replacement expenses at a 100-person company, with an average compensation of $50,000, might reach $2.6 million annually.

Besides being expensive, high turnover rates also indicate low employee satisfaction and poor employee experience.
Consequently, it impacts overall productivity in an organization.

So, knowing the rising turnover rate trends, you can better prepare your organization for the upcoming or incurring losses. You can bring positive change to the existing work culture, review your recruitment process, and change your compensation and benefits structure, to name a few.

The plus points of calculating the employee turnover rate don't end here. Employee turnover rate assists businesses in evaluating the risks of an employee leaving. In addition, it can be beneficial in recognizing the opportunities for retention when new employees are hired.

Final Thought

Knowing how to calculate the employee turnover rate is crucial for every organization irrespective of its size. After all, it is a key technique to assess the efficiency of an organization's overall management and its human resources management system. Also, the turnover rate is a great indicator of what is well or wrong with your organization's human resources policy in general.

All you’ve to do is evaluate the figures and find hidden indicators to build on what is working and improve what is not.

FAQs

1. How to minimize expenses associated with turnover?

Ans: Regardless of the business you're in, a strong retention plan will help you keep talent and cut expenses associated with turnover, even though the average employee turnover rate varies by sector.

2. What is a healthy employee turnover rate?

Ans: Although, most organization fall into the range of 12% to 20%, but a percentage not beyond 10% is both ideal and healthy.

3. Is staff turnover in an organization that bad?

Ans: Employee turnover in an organization isn’t necessarily a bad thing. While a strong staff retention rate is frequently a top aim, an unusually low turnover rate is a solid indication that your firm may need to address some underlying issues. Low turnover may harm the trajectory of and frustrate top performers, in addition to the apparent risk that you may be harboring underperformers.

This article is written by Sanjeevani Saikia who is a part of the marketing team at Vantage Circle. Sanjeevani loves to split her leisure time between reading and watching TedX. Her curiosity is easily piqued by the most recent developments in Human Resource Management and Organizational Psychology. For any related queries, contact editor@vantagecircle.com.