How to Calculate Employee Turnover Rate in 3 Steps
Do you need to learn how to calculate employee turnover rate? This post will show you how.
Every human resources department must calculate the employee turnover rate. By determining the percentage of workers who departed from your company, you can make calculations regarding hiring costs, employee replacement rates, and overall finances.
In this post, I’ll show you how to calculate the employee turnover rate in 3 simple steps. I’ll also explain the correct way to interpret the result and provide some statistics that will give you a broader picture of its implications.
If you’re interested in learning via video, watch below. Otherwise, skip ahead.
Step-by-Step Procedure for Employee Turnover Rate Calculation in 2024
Calculating your employee turnover rates can seem daunting. However, if you follow these steps individually, you won’t have any difficulties calculating it. You need some data and a calculator, and that’s it.
Here’s a step-by-step process for calculating the monthly turnover rate. You can also do the same practices to calculate turnover rate per year:
Step 1: Select the Numbers to Analyze
The first step in calculating your employee turnover rate is to select the numbers that will be included. Every company has different criteria regarding the type of employee departure it will consider to get an accurate result.
Some of the employee departure types you can take into consideration are:
- Layoffs
- Resignation
- Firing
- Retirement
- Job elimination
All of the previous terms refer to an employee’s departure from a company. However, most HR departments won’t consider all of them when calculating turnover rates. To that end, most companies will consider resignation and firing.
Once you have decided what types of departures you will include in your turnover rate calculation, you need to determine the average number of employees during the specific time period you want to analyze.
Step 2: Calculate the Average Number of Employees
It is important to calculate the employee turnover rate accurately. You need to determine the average number of employees over a specific period of time. Most companies calculate this rate monthly, quarterly, and yearly.
Formula:
Add up the total number of employees at the beginning of the month and the end of the same month. Then, divide the result by two.
Example:
January 1st: 60 employees
January 31st: 50 employees
Average= 60+50=110/2= 55
The average number of employees in January in this example is 55.
If you want to get the average number of employees in a year, you have to do the equation with the number of employees at the beginning and end of the year.
Step 3: Calculate the Employee Turnover Rate in One Year
It is possible to calculate the employee turnover rate monthly and quarterly. However, most human resources managers choose the yearly calculation, as it shows changes more clearly.
To calculate a company’s turnover rate, you will need the average number of employees in a year and the number of workers who left the company in the same year.
Formula:
The number of left workers divided by the average number of employees times 100. The result is the turnover rate expressed as a percentage. Let’s take a look at the following example.
Example:
26 Employees quit their jobs in 2016. Also, the average number of employees in the company was 130 in the same year. So, what was the turnover rate in 2016?
26/130=0.2 then 0.2 x 100= 20%
In this case, the final turnover percentage for this company in 2016 was 20%. A turnover rate of 20% annually is high for an average company. Later in this article, you will find a healthy turnover rate for your company.
Moreover, you can calculate the monthly and quarterly turnover rates using the respective formulas.
How to Prevent Employee Turnover?
Preventing employee turnover is a high-priority task for HR managers. Therefore, they are seeking the best ways to do so.
There are many options for lowering turnover rates. However, among the most effective ones are offering employees attractive benefits and employee incentive programs. These benefits range from good salaries to gym memberships, insurance policies, and more.
One of employers’ most attractive benefits is helping employees pay their student debt.
According to the Chamber of Commerce, student debt in the US has reached 1.3 trillion dollars, and most of this debt is federal.
How is this debt distributed? Let’s take a look at the following chart published by Finder.
The statistics are staggering. However, there is a solution you can offer your employees.
Offer Your Employees a Competitive Salary
This is one of the oldest strategies in the book, but it is still influential today. According to a study published by SHRM, 44% of employees quit their jobs to look for better salaries. This means that you are falling behind if you are not offering competitive wages.
To that end, you need to research and determine the average salaries in your industry. This way, you can offer competitive wages and ensure the satisfaction of your employees.
If possible, offer a higher salary than the competition. This will ensure your employees don’t feel like trying their luck with another company. Remember, almost 50% of employees quit to get better salaries.
Therefore, by offering the best salary in the industry, you are already retaining an essential percentage of employees who otherwise would knock on another door as soon as they can.
If you’re interested in other ways to reduce employee turnover, check out our HR Certification Courses.
What are Employee Turnover Costs?
Every human resources department must measure the turnover rate in their company. But why is it so important to measure it, and what are the consequences of not reducing employee turnover rates?
First, replacing an employee within the first year is expensive. According to TinyPulse, replacing an employee in the first year can cost up to 33% of the person’s salary. This is expensive in terms of numbers and finances.
Other studies, such as the one published by American progress, are more specific about it:
The average replacement cost for an employee earning under $30.000 a year is 16% of their annual salary. Moreover, for mid-range positions between $30.000 and $50.000, the number is 20%.
In addition, executives and educated staff members earning an average of $100.000 a year can increase their salaries by 213%.
As you can see, replacing employees within the first year of employment is expensive. Therefore, keeping constant and high turnover rates can negatively impact a company’s resources.
Here, you can fill the boxes with numbers such as employee salary, supervisor salary, and an HR person’s salary. Then, you will get the exact number representing the cost of losing that specific employee.
How to Interpret Employee Turnover Rates?
Measuring employee turnover rates in your company is essential. However, it is just one part of the equation. Not only can you calculate the percentage of how many employees leave, but by measuring turnover rates, you can take a deeper look at your company’s overall health.
What can you do with the calculation results?
1. Compare Your Turnover Rates With Healthy Rates in the Same Market
Having turnover rates in your company is inevitable. People quit their jobs for thousands of reasons. Nevertheless, having a high turnover rate is not normal and indicates that something is not working as it should.
To determine if your turnover rate is too high, compare your results with average or healthy turnover rates in the same industry. Later in this article, I will show you healthy numbers for different sectors.
2. Determine Who Leaves and Who Stays
After comparing your turnover rates with healthy rates across the industry, you need to know who leaves the company and who stays. Even a lower turnover rate than usual will have a negative impact, depending on the people who leave.
Losing your best talents, executives, and important positions in your company will negatively affect your company’s performance and resources.
3. Interview People Who Leave
Finding out why some people leave is an essential step to reducing employee turnover rates in your company. By learning the specific reasons, you can work on any aspect of your company that increases retention rates.
What is a Healthy Employee Turnover Rate?
Determining a healthy employee turnover rate is not confined to a standard number. Depending on the industry, some turnover rates are higher or lower.
According to Resources Workable, the industries with the highest turnover rates were hospitality and healthcare, with 17.8% and 14.2%, respectively.
Other industries maintained lower turnover rates, such as insurance with 8.8% and utilities with 6.1%. Here, you can see the most common industries and their turnover rates.
After comparing your turnover rates with similar industries, you can now tell if your rates are high or low.
Employee Turnover Statistics
It is no secret that employee turnover hurts a company’s resources. However, how negative can it be? Let’s take a look at the following statistics:
- Employee turnover can cost significant amounts of money. Losing an employee can cost from 16% to 213% of the employee’s salary, according to the Center for American Progress. Senior executives, CEOs, and educated people are the most expensive to replace.
- According to Gallup, 29% of millennials are engaged professionally. This isn’t good news since the majority of American workers will become Millenials in 5 to 10 years.
- According to Kronos, 87% of employers agree that improving retention is a priority.
- Companies lose 25% of new employees within the first year. This devastates a company since losing employees within the first year is more expensive.
- OWLlab found that employers who offer remote work opportunities have 25% lower turnover rates. Many employers are using this strategy to reduce employee turnover rates nowadays.
Conclusion
Remember that calculating the rate in your company is necessary. Calculate the employee turnover rate and then follow the formula. This will allow you to plan ahead.
FAQs
Here are the most frequently asked questions about the employee turnover rate:
What is the annual turnover rate, and why is it important?
The annual turnover rate is a critical metric that measures the percentage of employees who leave an organization over a year, either voluntarily or involuntarily. Understanding this rate helps businesses identify retention issues, assess workforce stability, and benchmark against industry standards. By analyzing the annual turnover rate, companies can implement targeted strategies to improve employee satisfaction and engagement, ultimately enhancing overall productivity.
How do voluntary turnover and involuntary turnover differ?
Voluntary turnover refers to employees who leave an organization, often for reasons such as career advancement, job satisfaction, or personal circumstances. In contrast, involuntary turnover occurs when employees are let go due to layoffs, performance issues, or other organizational changes. Understanding the distinction between these types of turnover is essential for businesses aiming to improve their average turnover rate and develop effective retention strategies tailored to specific causes of employee departure.
What is the average turnover rate in different industries?
The average turnover rate can vary significantly by industry, with some sectors experiencing higher rates than others. For example, retail and hospitality often see elevated turnover due to seasonal work and entry-level positions. In contrast, industries like education and healthcare may have lower turnover rates due to established career paths and benefits. Knowing your industry’s average turnover rate can provide valuable insights into your organization’s performance and help guide employee turnover calculations to identify areas for improvement.
How do I calculate my company’s turnover rate using the turnover rate formula?
To calculate your company’s turnover rate, you can use the turnover rate formula: (Number of separations during a period / Average number of employees during the same period) x 100. This formula provides a precise percentage that reflects employee departures relative to your workforce size. Regularly performing this employee turnover calculation can help organizations monitor trends over time, assess the effectiveness of retention strategies, and make informed decisions to enhance employee engagement and reduce turnover.
If you are new to Human Resources and are looking to break into a HR role, we recommend taking our HR Certification Courses, where you will learn how to build your skillset in human resources, build your human resources network, craft a great HR resume, and create a successful job search strategy.
