When an employee leaves, your company can lose between 30% to 200% of that employee's annual salary. High turnover rates not only drain financial resources but also disrupt team dynamics and hinder productivity.
Understanding how to calculate employee turnover rate is a key. It helps identify issues and develop effective strategies to retain employees.
This blog explores the concept of employee turnover, walks you through the necessary metrics, and provides a step-by-step guide. Plus, Excel and other methods to help you accurately calculate and analyze your turnover rate.
What is Employee Turnover?
Employee turnover rate measures the percentage of employees who leave a company during a specific period, including both voluntary exits (like resignations) and involuntary departures (such as terminations or layoffs).
For example: If a company starts the year with 100 employees and 12 leave by year-end, the annual turnover rate is 12%. This turnover percentage helps organizations assess employee retention and identify potential issues affecting workforce stability.
Key Metrics Needed to Calculate Employee Turnover
To gauge your workplace stability and satisfaction, understanding your company's employee turnover rate is essential. Here are the metrics you need to before starting with calculation:
- Number of Employees Who Left: This represents the total count of team members who departed during a chosen timeframe. Tracking this helps in understanding the turnover rate employee dynamics and identifying patterns or departments with higher turnover.
- Average Number of Employees: Calculate this by adding the number of employees at the beginning and end of the period, then dividing by two. This figure is essential when you aim to calculate turnover rate accurately.
- Voluntary Turnover Rate: This focuses on employees who leave the organization by choice, such as resignations. It's calculated by dividing the number of voluntary separations by the average number of employees, then multiplying by 100.
- Involuntary Turnover Rate: This pertains to employees who are terminated or laid off. It's determined by dividing the number of involuntary separations by the average number of employees, then multiplying by 100.
- Average Employee Tenure: This indicates the average length of time employees stay with the organization. It's calculated by dividing the total years of service of all employees by the number of employees.
- Average Employee Tenure: This measures the average length of time employees remain with your company. A longer tenure often reflects positively on your average turnover rate, suggesting effective retention strategies.
- New Hire Turnover Rate: This measures the rate at which new employees leave the organization within a specified period, often their first year. It's calculated by dividing the number of new hires who left by the total number of new hires, then multiplying by 100.
How to Calculate Employee Turnover Rate? 5-Step Guide
Employee turnover rate calculation will help you understand workforce dynamics and implement effective retention strategies. Here's a detailed, step-by-step guide to calculating employee turnover rate.
Step 1: Select the Timeframe
Determine the specific period you want to analyze: monthly, quarterly, or annually. Choosing a consistent timeframe allows for meaningful comparisons over time.
Step 2: Gather Employee Numbers
Employees at the Start: Note the total number of employees at the beginning of your chosen period.
Employees at the End: Record the total number of employees at the end of the period.
Step 3: Calculate the Average Number of Employees
Add the number of employees at the start and end of the period, then divide by two:
Average Number of Employees = (Number at Start + Number at End) / 2
Step 4: Count Departures
Calculate how many employees left during the period. This includes both voluntary resignations and involuntary terminations.
Step 5: Compute the Turnover Rate
Use the following employee turnover formula:
Turnover Rate (%) = (Number of Departures / Average Number of Employees) × 100
Example Calculation:
Assume you had 170 employees at the start of the year and 150 at the end, with 20 employees leaving during the year.
- Average Number of Employees:
(170+150) / 2 = 320 / 2 = 160 - Turnover Rate:
(20 / 160) × 100 = 12.5%
In this scenario, the annual employee turnover rate is 12.5%.
Additional Insights:
- Voluntary vs. Involuntary Turnover: Separating these can help identify whether departures are due to employee dissatisfaction or other factors.
- Benchmarking: Compare your turnover rate to industry standards to gauge your company's performance. For instance, the average turnover rate across all sectors is approximately 10.6%, but this can vary by industry.
Beyond the basic method of calculating employee turnover, several alternative approaches can offer deeper insights into workforce dynamics:
How to Calculate Employee Turnover Rate in Excel?
1. Set Up Your Table:
Create a table with the following columns:
- Month: The specific month or period you're analyzing.
- Starting Employees: Number of employees at the beginning of the period.
- New Hires: Employees hired during the period.
- Departing Employees: Employees who left during the period.
- Ending Employees: Number of employees at the end of the period.
- Turnover Rate: The percentage of employees who left, calculated for each period.
| Month | Starting Employees | New Hires | Departing Employees | Ending Employees | Turnover Rate |
| January | 100 | 5 | 8 | 97 | ? |
| February | 97 | 3 | 4 | 96 | ? |
2. Calculate Ending Employees:
For each period, use the formula:
Ending Employees = Starting Employees + New Hires - Departing Employees
3. Calculate Turnover Rate:
To find the turnover rate for each period, use the formula:
Turnover Rate (%) = (Departing Employees / Average Number of Employees) * 100
Where:
Average Number of Employees = (Starting Employees + Ending Employees) / 2
In Excel, if your "Departing Employees" for January is in cell D2, "Starting Employees" in B2, and "Ending Employees" in E2, the formula in the "Turnover Rate" column (F2) would be:
= (D2 / ((B2 + E2) / 2)) * 100
4. Format the Turnover Rate as a Percentage:
After entering the formula, format the "Turnover Rate" column to display percentages:
- Select the cells in the "Turnover Rate" column.
- Right-click and choose "Format Cells."
- Select "Percentage" and set the desired number of decimal places.
Example Calculation:
Using the data from January:
- Starting Employees: 100
- New Hires: 5
- Departing Employees: 8
- Ending Employees: 100 + 5 - 8 = 97
- Average Number of Employees: (100 + 97) / 2 = 98.5
- Turnover Rate: (8 / 98.5) * 100 ≈ 8.12%
We've provided an example calculation for January. By following these steps, you can calculate the turnover rate for February as well. Using this formula, you can efficiently track and analyze your company's employee turnover trends over time.
Other Different Methods to Calculate Turnover Rate
Beyond the basic method of calculating employee turnover rate, other methods include: separation, replacement, flux, voluntary turnover rate, involuntary turnover rate, and departure-specific turnover rate for specific departments or employee groups.
1. Separation Method: This approach calculates employee turnover by dividing the total number of employee separations (resignations and discharges) during a specific period by the average number of employees in that period, then multiplying by 100 to get a percentage.
2. Replacement Method: This method focuses on the number of employees hired to replace those who left. It calculates turnover by dividing the number of replacements by the average number of employees, and then multiplying by 100.
3. Flux Method: The flux method considers both separations and new hires, providing a comprehensive view of employee movement. It calculates turnover by adding the number of separations and replacements, dividing by the average number of employees, and multiplying by 100.
4. Voluntary Turnover Rate: This rate measures the percentage of employees who leave by choice. It's calculated by dividing the number of voluntary resignations by the average number of employees, then multiplying by 100.
5. Involuntary Turnover Rate: This rate measures the percentage of employees who are terminated or laid off. It's calculated by dividing the number of involuntary separations by the average number of employees, then multiplying by 100.
6. Department-Specific Turnover Rate: This approach examines turnover within individual departments or teams. It involves calculating the turnover rate for each unit separately to identify areas with higher attrition rates.
Analyze Your Turnover Rate
Understanding and analyzing your turnover rate is not just about knowing how many employees are leaving but also uncovering patterns and reasons behind their departures.
Who is Leaving?
Start by examining who is leaving: are certain age groups, departments, or job roles experiencing higher turnover? Identifying these trends can help pinpoint problem areas.
In the U.S., a shortage of skilled accountants has led to increased turnover among chief financial officers, with nearly 640 companies citing insufficient accounting personnel as a material weakness over the past year.
When Are They Leaving?
Next, consider when employees are leaving. Timing patterns in turnover can reveal underlying issues. For example, in October 2024, U.S. job openings increased to 7.744 million, while layoffs dropped by 169,000—the largest decrease in 1.5 years.
This suggests that employees may be more inclined to stay during periods of economic uncertainty or when job openings are plentiful.
Industry Benchmarks
Compare your turnover rate to industry benchmarks. Some industries, like hospitality and healthcare, naturally experience higher turnover, while others, such as utilities or government, tend to have lower rates.
Evaluating your turnover within the context of your industry helps determine whether your numbers indicate a normal trend or a deeper problem that requires attention.
Tips to Reduce Employee Turnover
Effective strategies can help retain valuable employees and foster a positive work environment. Here are several actionable tips to reduce employee turnover:
Hire the Right People
Ensuring a good fit between employees and the company culture is essential. Utilize behavioral interview questions to assess the right candidates' alignment with organizational values and their potential to thrive in the workplace.
This approach helps in selecting individuals who are skilled and resonate with the company's ethos.
Offer Competitive Compensation and Benefits
Competitive salaries and comprehensive benefits are significant factors in employee retention. Regularly review and adjust compensation packages to meet or exceed industry standards. Offering benefits such as health insurance, retirement plans, and performance bonuses can enhance job satisfaction and loyalty.
Provide Opportunities for Career Development
63% of employers found that developing career paths and opportunities for progression helped reduce turnover rates. Employees are more likely to stay with an organization that invests in their professional growth. Implement training programs, mentorship opportunities, and clear career progression paths.
Recognize and Reward Employee Achievements
Regular recognition of employee contributions fosters a sense of value and appreciation. Implementing recognition programs, whether through formal awards or informal acknowledgments, can boost morale and encourage continued excellence.
Ensure Effective Onboarding
A comprehensive onboarding process helps new hires integrate smoothly into the organization. Providing clear expectations, necessary resources, and early support can reduce early-stage turnover.
Conduct Exit Interviews
When employees do leave, conducting exit interviews can provide valuable insights into areas needing improvement. Understanding the reasons behind departures allows organizations to address underlying issues and enhance retention strategies.
Monitor and Address Employee Engagement
Regularly assessing employee engagement through surveys and feedback mechanisms helps identify dissatisfaction early. Proactively addressing concerns can improve morale and reduce the likelihood of turnover.
Conclusion - How to Retain Top Talent?
High turnover often signals underlying issues that require immediate attention. By identifying patterns and reasons behind employee departures, organizations can implement effective retention strategies and foster a positive work environment.
For better employee retention, focus on the methods above, evaluate your recruitment strategies, revise compensation and benefits packages, and implement proactive measures. Addressing turnover concerns promptly can lead to a more stable workforce and the retention of top talent.
Frequently Asked Questions
1. What is employee turnover?
Employee turnover rate measures the percentage of employees who leave an organization within a specific period, indicating workforce stability and employee satisfaction.
2. What role does employee engagement play in turnover rates?
High levels of employee engagement are associated with lower turnover rates, as engaged employees are more likely to be satisfied with their jobs and remain with the company longer.
3. How often should companies calculate their employee turnover rate?
It's advisable for companies to calculate their turnover rate on a regular basis, such as monthly, quarterly, or annually, to effectively monitor trends and address issues promptly.
