Understanding your employee turnover rate is one of the most important metrics for HR professionals.
It can help measure employee satisfaction, evaluate hiring effectiveness, and understand the company’s performance within its industry.
If you want to improve retention and optimize the way you make new hires, then you will need to understand how and why employees leave your company.
In this guide, we’ll explain everything you need to know about calculating employee turnover rate and why it is important for your business.
What is Employee Turnover Rate?
An employee turnover rate reveals the average number of employees who leave a company over a certain period of time. This is calculated as an annual turnover rate, a monthly turnover rate, or a quarterly turnover rate.
A company’s employee turnover rate is displayed as a percentage. When you calculate the employee turnover rate, you consider how many employees leave the company over a specified time period and compare this to the total number of employees.
A company’s turnover rate generally includes all the reasons why employees leave. This includes when employees quit through voluntary resignations, retirement, dismissals, and non-certifications. Promotions and transfers are not included in this.
It’s important for companies to keep a close eye on their employee turnover rates. This is so that they can identify patterns and find ways to improve retention. A major goal for any HR manager is to reduce employee turnover over each given period, a task that can involve many different factors.
How to Calculate Employee Turnover Rate
Knowing how to calculate the employee turnover rate is very straightforward. To do this, you will need to start with three figures:
- The number of employees at the start of a specific period (A)
- The number of employees at the end of a specific period (B)
- The number of employees that left during the specific period (C)
Using three figures, you will need to calculate the average number of employees that left during the given period. To calculate the turnover rate average, you do the following:
Add your number of employees at the beginning with the number of employees at the end, and divide this by two:
[A + B]/2 = Avg
Now, you will need to calculate the turnover rate as a percentage. To do this, take the number of employees that left and divide this by your average number of employees (figured out above).
Then, multiply this by 100 to get your final employee turnover rate percentage:
[C/Avg] x 100 = employee turnover rate %
This formula is ideal for calculating a monthly employee turnover rate. However, most companies prefer to calculate the annual turnover rate or quarterly turnover rate. This is because the larger number of employees covered in these longer time periods will reveal patterns more clearly.
To calculate the annual turnover rate, you use the same formula but just take employees from the start of the year and the end of the year.
How to Calculate Employee Retention Rate
Your employee turnover rate formula is important, but you should also calculate your employee retention rate at the same time.
To calculate your employee retention rate, simply take your employee turnover rate and subtract it from 100.
Understanding Different Employee Turnover Rates
There are different approaches that you can take to measure your employee turnover rate. This depends on what elements related to losing employees you want to measure.
For example, you could calculate your turnover rate by only looking at voluntary resignations, leaving out dismissals, and retirement. This would help you understand competitive retention, and how many employees are choosing to leave to work for other companies.
You could also calculate an overall turnover rate, if you measure turnover by including all factors, be sure to make this clear. This is because employees leaving due to retirement is not a negative sign for your company.
A popular way to calculate your employee turnover rate is to compare your new hire turnover rate with your overall employee turnover rate. Start by defining what a new hire turnover is. Generally, this refers to employees who leave within the same year of being hired.
You use the same formula to calculate the new hire turnover rate, just make sure to include only employees who were hired and left within the allotted time period. Then compare this to your overall turnover rate.
What to Do with Your Employee Turnover Rates
The turnover rate should be an essential part of HR analytics. This is because it can be used to understand the overall health of your company, employee satisfaction, and retention.
There are three main questions to ask when digging into your employee turnover rate. These are:
- Who are the employees that leave?
- Why are these employees leaving?
- When are these employees leaving?
These questions will help you understand what actions HR professionals can take to improve retention and optimize the hiring process.
For example, high turnover issues could be due to the company culture, a lack of competitive salaries, a lack of growth and development opportunities within the company, or more. If you identify that your top performers suddenly start leaving, this can be a sign to take immediate action.
You can also compare your turnover rate to different time periods and different departments within your organization. This will help you identify turnover issues and patterns.
Conclusion
Understanding employee turnover is essential for being able to fix any issues related to retention. It’s normal to have employees leave, but if this number suddenly gets too high, there might be a problem.
This is why you should compare involuntary separations with voluntary separations and monitor your turnover rate over different time periods. It could be your magic formula to help you improve retention and employee satisfaction.
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