How to calculate employee turnover rate
Organizations in the US have had a problem with high turnover rates ever since 2018, when they hit an all-time high. Turnover rates have continued to increase ever since, especially during The Great Resignation — where more than 47 million Americans voluntarily quit their jobs. While these numbers are concerning, turnover isn’t always a bad thing, as employees leave organizations for a variety of reasons, some of which organizations can’t control.
Does your company’s turnover rate need work?
To find out, you’ll need to learn how to calculate your employee turnover rate, which is a necessary skill for any HR department. There are more than a few turnover rate formulas, such as calculating your monthly, quarterly, or annual turnover rates. You can also separate your voluntary turnover (employees choosing to quit or retire) from your involuntary turnover (terminating employees due to poor performance) in your turnover calculation.
It all depends on what you want to measure, such as your overall turnover, the effectiveness of your recruiting strategies, or how many employees you lost strictly to competitors. Once you complete your calculation, you’ll be able to determine if you have a healthy employee retention rate. If not, learning that you have a problem with staff turnover is the first step toward fixing it.
Stick around to learn how to calculate your employee turnover rate, as well as tips for retaining your top talent.
Understanding employee turnover
Your turnover rate is a percentage that represents the number of employees that have left your organization during a set time period, either voluntarily or involuntarily. Calculating your employee turnover rate is how you assess the effectiveness and health of your HR department, company culture, onboarding process, and employee engagement levels.
Learning how to calculate employee turnover rate is so essential because of how damaging high turnover can be to your organization. According to a poll by Gallup, it costs 2x an employee’s annual salary to replace them instead of retaining them.
Besides the financial cost, high employee turnover rates can also cause the following:
Lower morale for the employees that stay.
Elevated stress levels due to short staffing and excessive workloads.
Decreased levels of employee engagement.
It becomes tougher to retain your top performers.
When turnover gets out of control, it also becomes more difficult to attract qualified new hires. For instance, if voluntary turnover is high due to a toxic company culture, former employees will likely mention their negative experience on business review sites and to their friends and family. That can hurt an organization’s reputation, which is why understanding your turnover rate is so crucial.
Voluntary turnover: Push and pull
When it comes to why employees leave an organization, there are voluntary and involuntary reasons. Voluntary turnover refers to all the instances when employees choose to leave your company, either by quitting or retiring. There are two categories of voluntary turnover, push reasons and pull reasons.
Push reasons are factors within your company’s control, such as a toxic work environment, poor management, inadequate pay, or a lack of opportunity for advancement. These are the reasons that require your direct action to remedy, and they will hurt your organization’s reputation if they go unchecked. The good news is that if you’re able to fix the underlying issues causing the voluntary push, your turnover rate will recover, and you’ll be able to retain more employees than you lose.
Pull reasons are a tad different, as they refer to all the reasons employees leave that are outside of your control.
Common pull reasons include:
Returning to school.
Taking care of sick family members and loved ones.
Moving away to a new state or country.
There’s nothing you can do to prevent this type of voluntary turnover, so employees leaving due to pull reasons shouldn’t be viewed in a negative light. Life happens, and it’s rare for an employee to stay at the same company for their entire career.
In fact, according to the Bureau of Labor Statistics, the average employee spends about four years at a company — which has been the norm since 2018.
Involuntary turnover: Terminations and layoffs
An employee leaving your company is considered involuntary whenever you decide to end the working relationship instead of the other way around. Hence the name involuntary turnover, since the employee didn’t want to or plan on leaving but was let go due to a lack of resources or performance issues.
For example, if you have to lay off some employees to save money, that counts as involuntary turnover. The same is true if you choose to terminate an employee due to a variety of reasons. That includes instances where employees are caught stealing, violating company policies, engaging in toxic or inappropriate behavior, or failing to meet performance benchmarks.
How can you reduce involuntary turnover?
While layoffs are often out of your control, improving your recruitment and onboarding process can help reduce involuntary terminations. That’s because the more you can improve your hiring process, the fewer employees you’ll have to terminate due to performance issues. A solid onboarding process will also help set the appropriate expectations for new hires, as well as familiarize them with your most important company policies.
How do you calculate your employee turnover rate?
Now that you know more about what employee turnover is and why it’s so important, it’s time to learn how to calculate it for yourself.
To do so, you’ll need three components:
A time period. You need to decide whether you want to measure your monthly, quarterly, or annual turnover.
Your starting number of employees. This number refers to how many employees you had before the time period you’re measuring.
Your remaining employees. This number represents the total number of employees you have left after your measured time period.
To calculate your average number of employees, add your beginning and ending workforce together and then divide them by two. So if you started with 10,000 employees and you wound up with 8,000 employees after a month, your average number of employees would be:
10,000 + 8,000/2 = 9,000
Next, you need to divide the number of employees that left (2,000) by your average number (9,000) — and then multiply by 100 to get the final turnover percentage. Here’s what that looks like:
2,000/9,000 x 100 = 22.2%
In this example, the organization’s monthly turnover rate is 22.2%.
Yet, most organizations don’t calculate monthly employee turnover rates, as it’s not a long enough period for enough significant numbers to accumulate. For this reason, they prefer to use quarterly or annual turnover calculations.
The good news is that the formula stays the same regardless of the time period you’re measuring.
So if you wanted to calculate annual turnover, you would need your total employee numbers at the beginning and end of the year. Let’s say you had 5,000 at the start of the year, 6,000 at the end, and 800 people left the company.
The formula would look like this:
5,000 + 6,000/2 = 5,500 (avg. number of employees) 800/5,500 x 100 = 14.5%
That’s an extremely low turnover rate, as average voluntary turnover is set to hit 35% this year, but it works as an example. Turnover rates also vary heavily depending on the industry, with hospitality organizations leading the fray with a whopping 85% average.
Different turnover rate formulas: separations
So far, we’ve only discussed how to calculate your overall turnover rate. However, most of the time, you’ll have a specific goal in mind for calculating your turnover, such as finding out how many employees quit voluntarily. That’s where separations enter the mix.
As stated previously, employees leave organizations for a variety of different reasons. Accordingly, calculating your overall turnover will include both voluntary and involuntary turnover, which you don’t always want to include.
Here’s a brief example of what I mean. Let’s say that during one-quarter of operation, your organization saw the following employees leave:
Two workers left on FMLA leave for medical reasons.
An employee retired after a long career.
Two employees quit due to stress.
Placed one employee on unpaid furlough.
Let go of five temporary workers.
You terminated one employee for cause.
As you can see, these are all wildly different reasons for employees leaving your organization. Your goal is to only count instances where team members chose to leave for push reasons — so how many employees should you include in your calculation?
If you guessed two, then you’re correct.
You shouldn’t count the employee that retired, as that qualifies as a pull reason, which is outside of your control.
Temporary workers don’t count, as they’re not on your payroll — nor do the employees on furlough or FMLA.
Also, the one employee you terminated for cause counts as involuntary turnover, so we don’t need to include it, either.
So out of 12 employees that left the company, we’re only going to include 2 in our calculation.
Over the course of a month, you started with 50 employees and wound up with 38 at the end. That means your average number of employees would be:
50 + 38/2 = 44
Now we divide the number of separations (2 out of 12 employees that left) by the average number of employees:
2/44 = 0.045
Lastly, we need to multiply this number by 100 to get the turnover rate percentage.
0.045 x 100 = 4.5%
That means the voluntary turnover due to push reasons is 4.5%.
Other uses for separations
You can use separations to measure extremely specific aspects of your turnover rate, including the effectiveness of your human resource management, the number of employees lost to competitors, and the number of new employees that chose to leave before onboarding was complete.
As long as you clearly define your separations and then plug them into the formula (separations/average number of employees x 100), you’ll be able to gain all sorts of valuable insights and metrics related to your turnover rates.
Tips for reducing employee turnover
Now that you know more about how to calculate employee turnover rate, what should you do if you discover your turnover rate is high? First, you’ll need to know what a healthy turnover rate looks like — which depends heavily on your industry, the needs of your workers, and a whole host of other factors. On average, though, organizations should fall into the range of 12 – 20%, which qualifies as a healthy turnover rate for most industries (barring hospitality and construction).
So if you’re well above that, you could stand to make some improvements to your organization to retain more of your workers.
However, first, you should use separations to ensure that your voluntary turnover due to push reasons is higher than usual. If you find out that your turnover rate is high due to involuntary reasons or voluntary reasons that fall under the pull category – there won’t be much that you can do.
Here are some effective tips for reducing voluntary turnover due to push reasons.
Conduct exit interviews
Is your turnover rate not where you want it to be? If so, then conducting exit interviews will help you pinpoint why employees are choosing to leave, which is a huge help. Even if the employee had a good experience, they could still provide valuable insights into your organization, such as the quality of your company culture and management.
Provide a healthy work-life balance
One of the best ways to attract and retain top talent is to provide a healthy work-life balance for your employees. 72% of workers consider work-life balance a top priority when looking for a new job, so you’ll benefit from including things like hybrid work schedules, PTO, and 4-day workweeks.
Improve your recruiting process
Is your involuntary turnover what’s really causing you trouble?
Then that’s a sign you need to work on your hiring process. After all, if you hire trustworthy, high-performing employees — it’ll greatly reduce the likelihood that you’ll have to terminate them due to a lacking performance or inappropriate behavior.
Tips for improving your recruiting process include:
Employing an employee referral program with incentives (monetary rewards for finding quality recruits).
Perfecting your job descriptions (write concise descriptions that focus on benefits for top performers).
Use skill assessments to find the most talented employees.
Finishing thoughts: How to calculate employee turnover rate
Knowing how to calculate your employee turnover rate is crucial for improving your retention rates — as you won’t be able to fix the problem if you can’t diagnose it properly. As long as you use the formula found in this article (along with any necessary separations), you’ll be able to quickly and easily calculate your turnover rates to see if there are any areas for improvement.