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.
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 get your 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’s the 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:
You can also calculate your employee retention rate by taking your turnover rate and subtracting it from 100 to get the result.
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 know how 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 way is 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 highest turnover 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.
Once you compare your rate with your industry or location average, you can reach some conclusions. If, for example, your turnover rate is higher than your industry average, it probably means your management is not as effective as it could be. So, you’ll probably want to identify and address some internal issues.
Besides external benchmarking, you can conduct your own internal turnover rate research. To get a better sense of your turnover trends, collect data from different periods of time, from different departments and from all managerial levels.
Although managers and employers dread turnover, a turnover rate of zero is unrealistic. People will inevitably leave at some point, to retire, relocate or because of changing circumstances in their lives. As strange as it may sound, you can have a ‘healthy’ turnover rate. Keep an eye on your rates, ensuring they stay within healthy industry and location ranges.
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?”
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.
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.
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.