How to Calculate Employee Turnover Rate in 3 Steps
Do you need to calculate the employee turnover rate? In this post, I’ll show you exactly how to do that.
Calculating the employee turnover rate is a process every human resources department has to measure. By figuring out 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. In addition, the correct way to interpret the result and some statistics that will give you a broader picture of the implications it has. If you're interested in learning via video then watch below. Otherwise, skip ahead.
Employee Turnover Rate Calculation
Calculating your employee turnover rates can seem daunting. However, if you follow these steps one by one, you won't have any difficulties when calculating it. You just need some data, a calculator and that's it.
Step 1: Select the Numbers to Analyze
The first step to calculating your employee turnover rate correctly is to select the numbers that will be part of your calculation. Every company has different criteria regarding the type of employee departure they will take into consideration to get an accurate result.
Some of the employee departure types you can take into consideration are:
- Job elimination
All of the previous terms refer to the departure of an employee from a company. However, most HR departments won’t take all of them into consideration when calculating the turnover rates. To that end, most companies will take them into consideration resignation and firing.
Once you have decided what types of departures you are going to include in your turnover rate calculation, you need to determine the average number of employees in the specific period of time you want to analyze.
Step 2: Calculate the Average Number of Employees
Getting an accurate employee turnover rate calculation is important. You need to determine the average number of employees in a specific period of time. Most companies will calculate this monthly, quarterly, and yearly.
Add up the total number of employees at the beginning of the month and at the end of the same month. Then, divide the result by two.
January 1st: 60 employees
January 31st: 50 employees
Average= 60+50=110/2= 55
The average number of employees in the month of January in this example is 55.
If you want to get the average number of employees in a year, you just 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
Calculating the employee turnover rate monthly and quarterly is possible. However, most human resources managers will choose the yearly calculation. The reason is that it shows changes more clearly.
In order to calculate the 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.
The number of workers who left divided by the average number of employees times 100. The result will be the turnover rate expressed as a percentage. Let’s take a look at the following 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 turnover rate for this company in 2016 was 20%. A turnover rate of 20% in a year is a high number for a normal company. Later in this article, you will find healthy turnover rates for your company.
Moreover, you can calculate the monthly and quarterly turnover rates by using the following formulas:
How to Prevent Employee Turnover?
Preventing employee turnover is a high-priority task for HR managers. Therefore, they are constantly seeking the best ways to do so.
There are many options when it comes to 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 benefits such as gym memberships, insurance policies, and more.
One of the most attractive benefits employers are offering these days is helping employees pay their student debt.
According to the Chamber of Commerce, student debt in The US rises to 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. However, it continues to be effective these days. According to a study published by SHRM, 44% of employees quit their jobs to look for better salaries. This means that if you are not offering competitive salaries, you are falling behind.
To that end, you need to do some research and find out what the average salaries in your industry are. This way, you can offer competitive salaries so your employees are satisfied.
If possible, offer a higher salary than the competition. This with the purpose of making sure your employees don't feel like trying luck with another company. Remember, almost 50% of employees who quit to get better salaries.
Therefore, by offering the best salary in the industry, you are already retaining an important percentage of employees who otherwise would go knock on another door as soon as they get the chance.
If you're interested in other ways to reduce employee turnover, then check out our HR Certification Courses.
Employee Turnover Costs
Measuring the turnover rate in your company is a necessary process every human resources department has to go through. But why? Why is it so important to measure it and what are the consequences of not reducing employee turnover rates?
In the first place, 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, in terms of numbers and finances, is expensive.
Other studies, such as the one published by AmericanProgress, 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-ranged positions making between $30.000 and $50.000, the number is 20%.
In addition, for executives and highly educated staff members earning an average of $100.000 a year the number can rise up to 213%.
As you can see, replacing employees within the first year of employment is expensive. Therefore, keeping constant and high turnover rates can have a negative impact on a company’s resources.
Here, you can fill in the boxes with numbers such as employee salary, supervisor salary, and an HR person’s salary. Then, you will get the exact number that represents the cost of losing that specific employee.
Interpreting Employee Turnover Rates
Measuring employee turnover rates in your company is important. However, it is just one part of the equation. Not only will you be able to calculate the percentage of workers who leave, but by measuring turnover rates, you can take a deeper look at your company’s overall health.
What can you do with the results of the calculation?
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 something is not working correctly.
In order to determine if your turnover rate is too high, you need to compare your results with normal or healthy turnover rates in the same industry. Later in this article, I will show you healthy numbers for different industries.
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 having a lower turnover rate than the usual will have a negative impact depending on the people who leave.
Losing your best talents, executives, and important positions in your company will have a negative effect on your company’s performance and resources.
3. Interview People Who Leave
An important step to reducing employee turnover rates in your company is finding out why some people leave. By getting to know the specific reasons, you can work on any aspect in 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 ResourcesWorkable, the industries that showed the highest turnover rates were hospitality and healthcare, with 17.8% and 14.2% respectively.
Other industries kept lower turnover rates, such as insurance with 8.8% and utilities with 6.1% Here, you can take a look at 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. In addition to that, you can examine and tell what areas in your company are working well. Also, what other areas have room for improvement.
Employee Turnover statistics
It is no secret that employee turnover has a negative impact on a company’s resources. However, how negative can it be? Let’s take a look at the following statistics:
- Employee turnover can cost important amounts of money. Losing an employee can cost from 16% to 213% of the employee’s salary. - Center For American Progress. Usually, senior executives, CEOs, and Highly educated people are the most expensive ones to replace.
- According to Gallup, only 29% of Millenials are engaged professionally. This isn't good news since the majority of American workers will be Millenials in 5 to 10 years time.
- 87% of employers agree that improving retention is a priority, according to Kronos.
- Companies lose 25% of new employees within the first year. This is especially devastating to 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. This is a strategy that many employers are using nowadays in order to reduce employee turnover rates.
Remember that calculating the turnover rate in your company is necessary. Just calculate the average number of employees and then follow the formula. By doing this you will have the chance to plan ahead.
Best of luck!
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.
Josh Fechter is the founder of HR.University. He’s a certified HR professional and has managed global teams across 5 different continents including their benefits and payroll. You can connect with him on LinkedIn here.