In recent years, employee turnover has become a key indicator for assessing the performance and health of a company. Companies use turnover as a way to measure employee satisfaction and job stability. Both are key to business success. That is why learning how to calculate employee turnover has become an imperative within People & HR teams.
Knowing how to calculate employee turnover correctly provides the company’s leaders and managers with valuable information. Without it, decisions to improve employee engagement, retention, company culture and work climate cannot be made in an informed manner.
What is employee turnover rate?
Let’s start with the first thing we need to be clear about in order to calculate employee turnover in our company: what is the employee turnover rate?
The turnover rate is one of the key metrics of employee engagement. It indicates the rate at which employees move in and out of the company during a specific period of time; either voluntarily or involuntarily. It essentially measures the proportion of employees who leave the company compared to the total number of employees who remain.
The turnover rate can be calculated based on the period of your choice. For a controlled measurement, within a period of one year, we advise you to measure it in such a way that you can obtain this data at the end of the year:
- Month by month.
- Quarter by quarter.
- Semester by semester.
- Compared to the previous year. Where we extract two data, both as of January 1 and December 31.
In parallel, and on an ongoing basis, the ideal is to measure the 30-day turnover rate. This is a time-consuming task, which is why many teams use People analytics tools to have this measurement fully automated.
What is a good employee turnover rate?
There is no People & HR team that is not concerned about rising turnover rates, and rightly so. The consequences of employee turnover are varied, and not good. In addition, they tend to snowball, the thing that has caused the departure of certain employees is a conception that becomes even more entrenched in the company. And yes, it does cause departures to occur more frequently. That’s why calculating your turnover rate on an ongoing basis will allow you to detect these trends and address them in time.
We must assume that the natural thing in any company is that employee turnover exists. We cannot expect that all the workers who join us will retire with us, can we? Nor can we expect everyone who joins the company to fit in perfectly; there may be times when this does not happen. Whether voluntary or involuntary, departures are commonplace.
But what turnover rate could be considered acceptable? It is important to keep in mind that turnover rates vary considerably from one sector to another. However, turnover rates should ideally be less than 10%. This 10% is considered a very healthy turnover rate no matter what industry you are in.
How to calculate employee turnover rate
Now let’s get down to the nitty-gritty. How do we calculate employee turnover rate? In order to calculate it, we must determine the number of employees who have left the company during a specific period and compare it with the total number of employees who still remain in the company, within the same period.
What data should we take into account? Here is a step-by-step guide to avoid making mistakes when calculating your employee turnover rate:
- The time period: over which you will analyze your employee turnover rate. As we mentioned above, the ideal would be to establish several measurement periods in order to carry out a more controlled analysis, at the same time that you make a continuous follow-up at 30 days. However, these periods will depend on the situation and needs of your company.
- Employees who left the company: gather all the information you can about those employees who left the company. It is important that you segment the information according to the 6 types of employee turnover that exist. This way you will be able to get a better context about your turnover rate that will allow you to take more appropriate measures to reduce it:
- Voluntary turnover.
- Involuntary turnover.
- Unavoidable turnover.
- Avoidable employee turnover.
- Functional staff turnover.
- Dysfunctional staff turnover.
- To this segmentation you can add subgroups such as retirements or leaves of absence.
- The total number of employees: during the defined period of time and including both those who left the company and those who are still with the company.
Employee turnover rate formula
To calculate the employee turnover rate, divide the number of employees who left the company during the defined time period by the number of employees who were with the company at the beginning of the period plus employees to date divided by 2. Then multiply by 100.
Remember that a high turnover rate could indicate underlying problems within the company, from a toxic work environment, to a lack of career growth opportunities, to uncompetitive salaries, to poor management. To be able to detect these problems, you should measure your turnover rate frequently and segment it in the way we have indicated in point 2.
Every HR team dreams of low employee turnover, a great indicator of stability and job satisfaction. To find out how to improve it, just measure it!
Example of employee turnover rate calculations
Acme is a company that has experienced a lot of employee turnover in the last year in terms of employees joining and leaving the company. They want to analyze their turnover rate to spot trends and improve for next year.
- As of January 1st: Acme had 425 employees.
- As of December 31st: Acme had 432 employees.
- For the full year: Acme recorded a total of 35 departures.
Applying the formula, Acme concluded that its turnover rate for the previous year was 8.16%, lower than the industry average of 10%.
How much does employee turnover cost?
If we go back to the previous example, we could say that Acme has a good turnover rate, and so it is, but with this indicator alone it would not be able to design actions that would allow it to understand this data 100%. Nor design actions to reduce employee turnover in the company.
The employee turnover rate alone does not tell us the costs associated with it. It does not tell us whether the departures of employees coincide with those who contributed the most value to the company and, therefore, will entail a higher cost. So what makes it more subjective to say that 8.16% is a good employee turnover rate? Everything has its nuances. Let’s take a closer look.
The cost to the company of an employee’s departure depends on factors such as the length of time they have been with the company and the rank they hold in the company. It is logical to determine that the longer an employee has been with the company and the more experience they have, the more economic “damage” they will cause to the company. According to GNA Partners, specialists in HR services:
- New employee: between 30-50% of annual salary.
- In the service or production area: between 40-70% of annual salary.
- Administrative: 50-80% of annual salary.
- Skilled in their duties: 75-100% of annual salary.
- Professional: 75-125% of annual salary.
- Highly specialized: 100-150% of annual salary.
- Supervisor: 100-150% of annual salary.
Continuing with the previous example, in Acme:
- The average salary: of the employees who left the company the previous year was 35.000€.
- The type of employees: 29 were new employees, 6 were employees who had been with the company for some time and were autonomous and fast in the execution of their tasks.
- The percentage of the average turnover cost: taking into account all the detailed specifications, it is 65%.
Breaking down the total costs: 65% of an average salary of 35.000€ equals 22.750€ per employee on average. The total number of employees who left the company was 35. 35 x 22.750€ makes a total of 796.250€.
Knowing how to calculate your company’s turnover rate will allow you to understand and effectively address this common phenomenon in the world of work. By regularly monitoring and analyzing your employee turnover rate, you will be able to identify trends and issues, predict changes and take action to improve employee engagement. And thus create an employee experience that everyone wants to be a part of.
