HR Guide : Calculating Employee Turnover Rate

If you are looking to improve your employee retention rate, you can start by figuring out the number of employees who are leaving and the reasons for it.

Once you figure out the percentage of people who leave your organisation over a given period, you can compare it from year to year. This comparison will help you to improve your recruiting and retention strategies. You will also understand the changes you need to make in management or personnel changes so you can prevent expensive employee turnover.

How to calculate employee turnover

There is a simple formula you can use to calculate your organisation's employee turnover rate. This formula is flexible, so you can adjust it to calculate monthly, quarterly, or annual turnover rate. 

Three numbers are essential in calculating the monthly turnover rate:

1. The number of active employees you had at the start of the month (A)
2. The number of employees you had at the end of the month (B)
3. The number of employees that left the company during the month (C)

You can calculate the average number of employees (D) by adding A + B  and dividing by two. 

(A+B)/2 = average number of employees (D)​

After that, you can divide the number of employees who left the company (C) by your average number of employees (D), and multiply by 100% to get the final turnover percentage for the month:

[C/D] x 100 = final turnover percentage

* To calculate turnover by quarterly or annual, just use the number of employees you had to begin the quarter or year (as A) and the number of employees you ended the quarter or year with (as B) 

What period should one use to calculate employee turnover?

Large companies usually calculate employee turnover every month because it helps them to spot patterns within the organisation and take action to increase retention sooner rather than later. 

SMEs usually do quarterly or annual turnover calculations as it will take some time to see patterns. 

Should HR calculate new employee turnover and overall turnover?

If you want to make sure you are keeping up with your industry's standards of new employee retention, then you should calculate new employee turnover. If the turnover is high, you should rethink your onboarding or orientation methods and find out other reasons new employees are leaving. 

To calculate new employee turnover, add the number of new employees who left within a given period (month/quarter/year). Then, divide that number by the total number of employees who left the company within that same period to get the new employee turnover percentage.

Should HR include terminations or layoffs in the calculation?

If you wish to get an overall percentage of the amount of turnover ou had, you will need to include both voluntary and involuntary turnover. 

Involuntary turnover (desirable turnover): When a company replaces underperforming employees with high-performing employees.

Voluntary turnover (undesirable turnover): When high-performing employees leave the company, which causes expensive, time-consuming recruitment and training to replace them 

Retiring employees belong to the voluntary turnover category since they were not terminated.

To calculate the voluntary and involuntary employee turnover rate, just replace the total number of employees who left the company (C) with the number of employees who left voluntarily and then the number employees who left involuntarily.

For example, a company had 100 employees at the start of the year and 92 employees at the end of the year. In that year, seven employees quit and 12 were fired. This is the calculation:

(100+92)/2 = 96 the average number of employees

(7/96) x 100 = 7.3% voluntary employee turnover

(12/96) x 100 = 12.5% involuntary employee turnover

[(7+12)/96] x 100 = 19.8% total employee turnover

Should HR include temporary workers when calculating employee turnover?

Turnover refers to the number of employees who held a position within a given time frame, counting in employees who left voluntarily or involuntarily. 

Temporary workers who are hired to fulfil one position and then are not replaced once their contract is over, should not count within the overall employee turnover calculation. Why? This is because the turnover rate for this one position would be zero.

But, direct-to-hire temporary workers should be counted since your goal is to hire these employees full-time once their contract period is over.

Be careful in your calculations.

What is a 'good' employee turnover rate?

The best way to find out what a reasonable turnover rate is for your organisation is to find out what the average employee turnover is at other companies in your industry. 

The best way to find out how you are doing as an organisation is to compare your employee turnover rate year over year. If your company is new, you can look at monthly or quarterly turnover rates to see if there are patterns or trends. 

If you wish to better understand the management or personnel changes that need to be made to prevent a costly turnover, you should compare your employee turnover year to year. You can then improve your recruiting and retention strategies.

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Source: TinyPulse

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