In any organization, hiring and firing are common. So is quitting. But at what point is it too much?
The voluntary turnover rate has doubled between 2011 and 2021. Is this the case in your organization too? Are more employees leaving than normal?
While a healthy amount of employee turnover is fine, too much of it may make it difficult to reach business goals.
In this article, we’ll tell you why the employee turnover rate is crucial and 5 easy steps to calculate this important metric today.
What is Turnover Rate?
Employee turnover is essentially a calculation of the number of employees leaving your organization, regardless of the reason. It usually does not apply to transfers or promotions, but it does take into account voluntary resignations, and involuntary turnover like terminations, and retirements. We talk all about it in our latest blog post, A Comprehensive Guide to Reducing Employee Turnover in 2024.
Turnover rate is a metric that assesses the rate at which this turnover is happening, i.e., the rate at which employees are leaving your organization.
How to Calculate Employee Turnover Rate Easily
Calculating your employee turnover rate is a relatively straightforward process that can be broken down into five easy steps:
Step 1: Define Your Timeframe
As with most data analysis, the first step towards determining an accurate employee turnover rate is deciding the period you want to measure and how often you want to measure it. The three most common choices are monthly, quarterly, and annually.
With monthly turnover rate calculations, what you get is immediate insights. If you notice a sudden spike in turnover, you can quickly jump in and investigate, instead of discovering the problem several months later.
Quarterly turnover rates offer a valuable mid-range perspective. They capture trends that might be missed by just looking at monthly data, but aren’t as broad as annual figures. This can help smooth out seasonal fluctuations, like temporary employees or interns leaving at the end of a quarter.
Your annual turnover rate can help you pinpoint the main tendencies and patterns that can be lost if we rely on only a month-to-month basis. For example, only tracking monthly employee turnover rate may alarm you unnecessarily, while annual data will show you hiring and leaving patterns. Say, you see that an unusually high number of employees have left in April.
If you add 12 more month’s worth of data, you’ll see this is an annual turnover trend and has nothing to do with job satisfaction or management. The people leaving were temporarily employed, or interns who had to go back to college.
The other huge advantage is being able to compare your organization’s annual data with industry benchmarks to see how you’re really doing.
Step 2: Gather the Data
In the next step, you’re going to need a total of three different figures to calculate your turnover rate. Fortunately, all of them should be easy to find, as they’re all related to basic operational figures:
- The number of employees that you started the period with.
- The number of employees who left during that period, including but not limited to termination, retirement, or resignation.
- The total number of current employees by the end of the period.
This should be available in your company’s HR system or personnel records.
Step 3: Calculate the Average Number of Employees
Depending on the method selected for calculating your turnover rate, you may also have to determine the average number of employees during the period.
There are two common ways to do this:
Simple Average: (Employees at the start of the year + Employees at the end of the year)/2
You can also use the weighted average method. This is slightly more extensive but more accurate, gives you a more detailed picture, and is the one we’d suggest you go for if you have multiple data points at the given time period you’re calculating.
To calculate using the weighted average:
Simply divide the number of days in a month by the number of days in the total period. If you’re calculating for January, for a quarterly period, then you’ll divide 31 days/ 90 total days.
Let’s look at an example.
First, let’s calculate the weights for each month:
- January: 31 days / 90 total days = 0.3444
- February: 28 days / 90 total days = 0.3111
- March: 31 days / 90 total days = 0.3444
Next, let’s multiply each headcount by its weight:
- January: 100 employees * 0.3444 = 34.44
- February: 110 employees * 0.3111 = 34.22
- March: 120 employees * 0.3444 = 41.33
Now, let’s add up those weighted headcounts: 34.44 + 34.22 + 41.33 = 109.99
Finally, let’s divide by the sum of the weights (which should always be 1): 109.99 / 1 = 109.99
So, your weighted average number of employees for the first quarter is about 110.
Tip: Use the weighted average method for a deeper look at the number of employees you have, instead of just measuring the employees you start and end the year with.
Step 4: Choose Your Employee Turnover Rate Formula
There are two common methods for estimating the employee turnover rate properly:
Separation Rate
This is when you divide the number of employees who left their jobs during the given period by the total number of employees at the beginning of the same period.
The result should be multiplied by 100.
We recommend using this method to get a simple and clear representation of departures in the context of the initial employee headcount.
Turnover Rate
Divide the number of employees leaving their jobs by the average number of employees and multiply the result by 100.
We suggest using this method to get a comprehensive view of the turnover rate by comparing the number of people who left to the average periodic number of staff.
Both methods have their advantages and disadvantages. The separation rate is easier to calculate but does not cover significant changes in the employee headcount within the period.
The turnover rate method provides more accurate results but is more difficult to calculate.
Step 5: Interpret Your Results
Now that you have your numbers, it’s time to find out what they mean. Do you have a healthy turnover rate?
The U.S. Bureau of Labor Statistics says a turnover rate of 47.2% is healthy.
A healthy rate may vary from one industry to another. The only way to find out is to look at the documentation for your organization’s industry benchmarks and compare them to your numbers.
If you see a high turnover rate for normal industry standards, then you need to investigate why and consider new retention strategies. We’ll go deeper into that in the next section.
Why Should You Calculate Employee Turnover Rate?
High employee turnover is a cause for concern, and it’s important to understand why. The consequences are far-reaching and affect several parties in your organization.
Cost: If the number of employee separations in your organization is high, or even if a handful of skilled, experienced employees leave — the natural response is to rush to fill these roles. This means paying external recruiting agencies huge fees to find the right candidates for you.
If you’re very rushed with your timeline, you may end up hiring the wrong employees. Eventually, these employees would either be unhappy working for you (due to not being a good fit for the culture or the job role itself) or you’d have to fire them for not delivering on the job. This just restarts the whole process again, incurring more hiring costs.
Regardless of whether you find the right employees, you have to onboard and train every new hire, with some roles requiring more training and resources than others.
Think about it this way, losing employees on the engineering team will inadvertently cause project hiccups and launch delays. The team would lose precious time during deployment if they lost a fully functional team member, and had to train someone new simultaneously. There’d be more errors, time lost, and less ROI on salaries paid if this kind of turnover became commonplace in your company.
Productivity: New employees will take time to get acclimated to your company, while your existing employees will take time to get acclimated to their communication styles and general work ethic.
This costs both parties a good amount of productivity — and it isn’t feasible for the new employee to just know how things work from the first day.
Your own work will also be seriously affected if you spend all your time on recruiting efforts and attending to the needs of the new employees instead of overseeing day-to-day processes.
Morale: If your employees leave often, the above cycle of lowered productivity and constant readjustment continues indefinitely.
Existing employees experience a dip in morale, because not only do they have to keep retraining people and getting used to new faces, but they’re now worried about losing their jobs, or wondering what could be missing from the workplace that caused the others to leave.
Newer employees may walk into a tired environment, and not get a warm welcome because their teams are exhausted from greeting new hires just to watch them leave. To the new hires, this may be a red flag.
High turnover leads to unhappy, unproductive employees — and this low morale keeps spreading by affecting the company’s bottom line and causing stakeholders and management to get worried too. On the contrary, The London School of Economics found that lower turnover leads to higher profitability and better productivity.
Talent: If your employees were top performers, your organization will take a hit in many ways once they leave. At the very least, even the average employee will take hard-earned skills and institutional knowledge with them with their exit. Employees are relatively easy to find, talent is not.
Customer Satisfaction: When employee turnover is high, there’ll be many fresh recruits joining your company, with little or no experience or knowledge about the business.
Customer service quality takes a hit because new hires would not be able to deliver the personalized skills it takes to resolve issues effectively. This is especially true for higher-ticket clients, as they bring in more revenue to your company. They expect the best, which your new hire may not be able to immediately deliver. With so many competitors in the market, these clients may simply take their business elsewhere, causing a steep drop in your organization’s income.
Culture: Great corporate culture helps you grow as a business but is not easy to foster and retain. Google, Zoom, and Netflix are good examples of companies that do successfully execute corporate culture well.
Creating a great company culture (or even maintaining the existing culture) is impossible when people are perpetually leaving.
A constantly revolving door of employees will mean your team will not have a chance to meaningfully bond or share values either, resulting in a very disjointed workforce.
Planning: Offering competitive pay and benefits, creating a positive work culture, and providing opportunities for growth and development are all good ideas, but high turnover will make it difficult for these employee retention strategies to stick. You ultimately waste resources used to implement these strategies on employees who leave.
As for succession planning, you need to identify and develop future leaders within your company, so you have a pipeline of talent ready to step into these key roles whenever they become available.
However, if these leaders are constantly getting better offers and leaving, you have to start the process again, look for another replacement, and train them for the job. A constant repeat of this is annoying, time-consuming, and a waste of your efforts.
How to Decrease Employee Turnover
If the churn rate of your workers is higher than you would like, here’s what you can do:
Enhance the Onboarding Experience
Start by offering comprehensive training to new hires with all the necessary skills and knowledge to do their jobs effectively to kickstart their employee experience on the right note. Explain the company’s history, mission, values, and culture, to help them feel included and up-to-date with your organization’s culture.
Give them clear tasks and goals to work towards during their first couple of weeks.
For example, send a welcome letter to new employees with instructions on who to contact for questions, where to go on their first day, and sign-ins for any software they for work. Appoint a mentor who will reach out to onboard them and answer all their questions.
Pay Competitively
Compare your compensation plans against industry norms — that will show you whether your employees are being paid fairly. Carry out labor market surveys to scope the annual salary and benefits packages offered in your field.
Tip: Think about offering other benefits such as flexible working hours, health insurance, or retirement schemes. Anything that will reward the employee for sticking around in the long run.
Offer Learning Opportunities
Develop training programs that are customized to each employee’s career aspirations along with mandatory courses that they need to stay competent in their job roles. Encourage mentoring or coaching activities to promote knowledge-sharing.
For example, you could invest in a Learning Management System (LMS) to publish courses and resources for staff so they can access it systemically whenever they want to dedicate time to career development.
Tip: Urge managers to send you individual plans for each employee’s development.
Promote a Positive Work Culture
Create a mutually respectful environment so employees can collaborate freely. Encourage staff to voice their ideas, opinions, and worries by conducting surveys, focus groups, or face-to-face meetings.
You could also conduct team-building activities or social events to deepen relationships or start programs recognizing individual milestones to encourage employees.
Provide Flexible Working Arrangements
Understand what work-life balance means to different types of employees. It might be working from home for someone, working irregular hours for someone else, or working on alternate days off for another employee. Trust staff members to manage their own time and workload to rank higher in job satisfaction.
This is not as simple as allowing employees to work from home for one or two days a week. You also have to ensure that they have the necessary tools and technology to get their work done remotely.
Feedback and Recognition
Create a culture that attaches great value to feedback and publicizes excellent performance on a regular basis.
Introduce regular performance reviews and 1:1 catchups. Tell managers to give teammates as much ongoing constructive criticism as they require. Reward staff who go above and beyond.
For example, you could start a recognition program among staff members where employees may nominate their colleagues for prizes or bonuses. Bring up successes in the company’s internal communication system to boost employee morale.
Invest in Well-being
Invest in your employees’ physical, mental, and emotional well-being. This may mean offering gym memberships, healthy snacks in the office, or access to Employee Assistance Programs (EAPs) that provide counselling and support services. Find out if lower employee satisfaction or an increased rate of employee departure is because of poor management.
You could connect with fitness centers or studios locally to provide employees with discounts on memberships or classes on-site. You may also host seminars related to topics like stress management, mindfulness, and nutrition.
Use Peoplebox to Get Deeper People Insights
Now that you’re equipped to calculate your employee turnover rate, you can use it to gain valuable insights into your workforce health. But what if you want to go deeper?
Peoplebox offers a comprehensive people ops and people analytics platform that goes beyond just turnover rates. With Peoplebox, you can:
Gain insights into performance management through features like goal setting, performance reviews, and 360-degree feedback.
Leverage people analytics to identify trends, patterns, and potential problems in your workforce before they become critical issues.
Make data-driven decisions to improve employee engagement, retention rate, and overall business performance.
Peoplebox can help you create a thriving workplace culture and build a high-performing team. Sign up for a free trial today and see how Peoplebox can transform your HR practices!
