How To Calculate Employee Turnover Rate in 4 Easy Steps
Among all the other important metrics you’re using to help you optimize your business, employee turnover rate is a valuable piece of data to consider. Employee turnover rate can provide a trigger to look for insights into leadership and management, job satisfaction, and the company’s quality of benefits.
This guide covers how to calculate your employee turnover and how to interpret it.
What is the employee turnover rate?
Employee turnover rate is a metric that measures how many of your workers leave your organization within a specified duration—typically annually. While some employee departures relate to business or economic downturn, a high turnover rate can also reflect lapses in management effectiveness, company culture, and employee experience.
Insights from research conducted by Gallup and Brandon Hall Group show that recognizing and engaging employees can significantly reduce turnover. You can pinpoint specific departments, offices, or positions experiencing the highest turnover and question why workers leave so you can take action to address root causes.
Different types of employee turnover
Employees leave their jobs for numerous reasons and circumstances. Typically, each case falls under one of these types of employee turnover:
- Involuntary turnover. Involuntary turnover typically refers to the termination of a worker’s employment by the employer, often due to poor performance, misconduct, or downsizing of the company or a department. While this turnover can be costly in the short term—particularly in terms of recruitment and training costs—it can be beneficial in the long term if it helps the organization build a more effective and motivated workforce.
- Voluntary turnover. Otherwise called employee separation, voluntary turnover occurs when employees quit their jobs, often to pursue other opportunities or due to dissatisfaction with their current position. Job satisfaction, pay and benefits, opportunities for advancement, and work-life balance can influence voluntary turnover.
- Functional turnover. Functional turnover occurs when employees who can no longer contribute to the organization’s goals leave the company. Functional turnover can cause positive attrition, allowing new ideas and perspectives to be brought into the workplace and keeping the workforce fresh and dynamic.
- Dysfunctional turnover. Dysfunctional turnover occurs when an organization loses valuable employees who are difficult to replace or leave for reasons that could have been prevented. A toxic work environment, poor management, low pay, a lack of opportunities for advancement, or a lack of work-life balance are among the common causes of such situations.
How to calculate employee turnover rate
Calculating your employee turnover rate requires only a few steps, which we cover in the sections below.
1. Determine the time frame
The first step in calculating your employee turnover rate is determining the time frame it’ll cover. The significance of your chosen time frame depends on the purpose of the analysis.
Many companies calculate turnover rates annually to evaluate the effectiveness of retention strategies. At the same time, other businesses may choose to calculate turnover rates monthly or quarterly to identify and address retention issues in real time.
For instance, a retail store may calculate turnover monthly or quarterly, while a large corporation may do so annually. Shorter periods may provide more detailed information and help identify trends, while longer periods may offer a more comprehensive view of the organization’s overall employee retention rate.
2. Find out the number of employees who left the company
Differentiating between voluntary and involuntary departures can help your organization identify potential areas for improvement in its retention strategies.
For example, if there’s a high rate of voluntary departures, your company may need to evaluate its management practices, compensation and benefits packages, or opportunities for career development.
To calculate the total number of employees who left, add the number of employees who left voluntarily and involuntarily during the specified time. You’ll use the total number to calculate your overall turnover rate.
3. Determine the average number of employees
To calculate the average number of employees during a chosen time frame, add the total number of employees at the start of the period and the number of employees at the end of the period and divide it by two.
The formula for calculating the average number of employees is:
Average number of employees = (total number of employees at the beginning of the period + total number of employees at the end of the period / 2
For example, if your company had 100 employees at the beginning of the year and 110 employees at the end of the year, the calculation would be:
Average number of employees = (100 + 110) / 2 = 105
If you want to use quarterly data to calculate an annual rate, simply add the numbers of employees at the beginning of the year and the end of each of the four quarters and then divide by five.
For example, if your company had 100 employees at the beginning of the year, 120 employees at the ends of the first, second and third quarters, and 110 employees at the end of the fourth quarter, the calculation would be:
Average number of employees = (100 + 120 + 120 + 120 + 110) / 5 = 114
4. Calculate the employee turnover rate
The formula for the average employee turnover rate is:
(Total number of employees who left during a specified time period / Average number of employees during the same time period) x 100
The resulting number from this calculation represents the percentage of employees who left your company during a specified time period relative to the average number of employees during that same period of time.
As an example, let’s say 20 employees left during the year and your average number of employees for the year was 105.
Employee turnover rate = 20 / 105 x 100 = 19%
A high turnover rate can suggest problems with employee engagement, poor job satisfaction, or issues with management practices. High turnover can result in increased costs to the company, such as recruitment and training expenses.
In contrast, a low turnover rate can suggest a solid organizational culture, a focus on employee development and growth, and effective retention strategies.
What is a good employee turnover rate?
Generally, a 10% or smaller employee turnover rate is a healthy turnover benchmark. However, achieving this number can prove challenging. According to the U.S. Bureau of Labor Statistics (BLS), the median employee tenure for workers in the United States is 4.1 years as of January 2022.
In other words, the typical worker stays with their employer for just over four years. In terms of turnover rate, this equates to approximately a 23.8% annual turnover rate (calculated as 100% / 4.2 years).
Recently, there’s been a lot of discussion about the Great Resignation, which refers to the large number of workers quitting their jobs in response to the COVID-19 pandemic.
A survey by Microsoft found that over 40% of workers globally considered leaving their current job in 2021. While the full impact of this trend has yet to be seen, some areas will likely experience higher turnover rates.
Some industries or job roles have significantly higher turnover rates. For example, the retail industry typically has a high turnover rate due to seasonal fluctuations and low wages.
The BLS report shows the median tenure for retail workers is just 2.8 years, or a turnover rate of approximately 35.7% per year. On the other hand, the telecommunications industry has a median tenure of 7.5 years and a 30% turnover rate.
What are some causes of high employee turnover?
Some of the primary reasons employees leave their jobs include:
- Poor leadership. When employees feel their managers or supervisors aren’t supportive, don’t provide clear direction or feedback, or don’t recognize their contributions, they’re more likely to leave.
- Lack of opportunities for career growth and development. Employees who feel there’s no opportunity for advancement or skill development within a company may seek opportunities elsewhere. The Work Institute reported 1 in 5 employees cited career issues as the principal reason they decided to leave their employer.
- Inadequate compensation and employee benefits. Employees may seek higher-paying opportunities elsewhere if they aren’t paid fairly for their work or their benefits package is insufficient.
- Poor work-life balance. When employees feel overworked or their work schedule is incompatible with their personal life, they may look for jobs that offer a better balance. The 2021 Randstad employer brand research global report found that 58% of employees consider work-life balance as a top factor for choosing an employer.
- Lack of job satisfaction. When employees are unhappy with their job duties or feel their work isn’t meaningful, they may become disengaged and seek other opportunities. A survey by Gallup found only 34% of employees in the U.S. were engaged at work in 2021.
- Toxic work environment. When employees feel their workplace is toxic or lacks respect or fairness, they are more likely to quit. According to the BLS, 4 million people quit their jobs in February 2022. A Flexjobs survey of 500 people who left their jobs during this time indicated that 62% quit due to a toxic company culture.
How high turnover rates can affect your business
The cost of employee turnover can be detrimental to the growth of any business. Below are common effects of having high turnover rates among large and small businesses.
Companies must incur costs for finding, hiring, and training new employees when employees leave. These costs can be high, especially if the turnover is frequent.
Some specific costs associated with turnover include:
- Recruitment costs. Companies must advertise open positions, screen resumes, and interview candidates. These activities can be time-consuming and expensive, especially if they require hiring an external recruiter or advertising on job boards.
- Training costs. Once new employees are hired, companies must train them in the required skills and procedures. According to a LinkedIn Learning resource, the cost of replacing a worker that earns $125,000 annually amounts up to $312,500.
Finding and training new hires is crucial after layoffs or when employees quit. However, the hiring and onboarding process can take time before the company finds a quality replacement and sees that worker performing as needed, leading to a temporary decrease in productivity.
Additionally, constantly training new team members can negatively impact productivity in several ways:
- Time and resources. Hiring and training new employees can require significant time and resources, which can drain productivity. Managers, HR staff, and team members may need to devote considerable time to recruiting and onboarding new hires, taking away from their other responsibilities.
- Learning curve. New team members often need time to learn the ins and outs of the job and become fully productive. During this period, productivity may suffer as the new team member is still learning the job and figuring out how to perform their tasks efficiently.
- Team dynamics. New employees may need time to build relationships with their coworkers and acclimate to the company culture, which can further impact productivity.
Companies can work to maintain productivity when faced with potential turnover by implementing cross-training and workforce flexibility, developing a culture with honest but positive communications about the future, and encouraging contributions from workers for operational improvements.
Reduced employee morale
When employees see their colleagues leaving frequently, the changes can create a sense of instability and uncertainty, leading them to question their job security.
As a result, the remaining employees may become disengaged or less committed to their work, decreasing overall productivity.
To mitigate the negative effects of high turnover on employee morale, improve communication by providing regular updates on company performance, plans for the future, and how the changes may impact employees.
A company with a reputation for high turnover may have difficulty attracting and retaining top talent, as prospective employees might hesitate to work for a company with a history of frequent departures.
Customers may also perceive a company with a high turnover rate as unstable or unreliable, eroding customer trust and loyalty.
To address the impact of high turnover rates on your company’s reputation, focus on establishing proactive communication with your team and the general audience. Acknowledge any shortcomings that may have contributed to the damage.
Creating a forward-looking strategy can also help you rebuild trust over time. Establish and reinforce employee-first policies, improve compensation plans, and encourage a more emphatic HR.
Providing recommendations and outplacement services to affected victims can further demonstrate your commitment to employee satisfaction.
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