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What Is Turnover Rate and How Do Employers Calculate It?

What is turnover rate, and why is it important for your business? Employees leave companies for a variety of reasons, including retirement, relocation and changes in life circumstances. A high turnover rate, however, may suggest employee satisfaction issues within your organization. 

Hiring and training new employees takes considerable resources, which is why it’s important to maintain a healthy retention rate. In this article, we’ll discuss turnover calculations and how to improve employee retention.

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What is turnover rate?

Usually expressed as a percentage, the employee turnover rate measures the number of employees who leave an organization over a set period. Although turnover usually measures the total number of workers who leave, you can also use it to measure other categories such as demographic groups, voluntary or involuntary separations, departments and more.

Related: 10 Recruiting Strategies for Hiring Great Employees

Why employee turnover is important

Although you’ll have to manage inevitable employee turnover due to retirement, relocation or similar factors, high turnover rates can have greater consequences and implications for your business. With reports suggesting that direct replacement costs can reach as high as 60% of an employee’s annual salary, replacing employees is much more costly than retaining them. That’s not including indirect costs or consequences, such as lost revenue, reduced morale, overburdened and understaffed employees and negative impacts on productivity or customer experiences.

Turnover calculations are a valuable tool for HR that can provide insight into why employees may be leaving, such as issues with management, workplace culture and development opportunities.

Regularly completing an employee turnover calculation provides numerous advantages, including:

  • Uncovering data about the resources you spend hiring and training employees
  • Identifying internal opportunities for employee satisfaction
  • Highlighting employee separation costs such as unemployment compensation
  • Providing insight into the effectiveness of your talent acquisition strategy

Read more: Estimating the Cost of High Employee Turnover

How to calculate turnover rates

Turnover rates are generally calculated for monthly, quarterly and annual periods to show different trends. You can also further categorize and analyze turnover rates to reveal different insights, such as new hires, voluntary vs. involuntary turnover or specific demographics.

Turnover calculation formula

  1. Calculate the average number of employees for the period: Add (# of employees at the beginning of the period) and (# of employees at the end of the period), then divide by two
  2. Divide: (# of employees who separated from the company during that period) by (average # of employees)
  3. Multiply: (# calculated in step 2) x 100 = turnover percentage

Example: Monthly turnover calculation

On March 1, a company employed 30 people. On March 31, the company employed 35 people. During that month, three employees left the company.

  1. Calculate the average number of employees:
    • 30 + 35 = 65
    • 65 divided by 2 = 32.5
  2. Divide 3 (number of employees who left) by 32.5 (the average # of employees) = 0.0923
  3. Multiply 0.0923 (# calculated in step 2) x 100 = 9.23%

First-year turnover rate

To calculate the first-year turnover rate for new hires, use only the number of separated employees who worked at the company for less than a year. Replace the average number of employees with the total number of separations for one year.

  • Calculate: total number of employee separations within a 12-month period
  • Divide: (# of separated employees who worked at the company less than 1 year ) by (# of all separations)
  • Multiply: (# calculated in step 2) x 100 = turnover percentage

Example: During the 2019 fiscal year, five new hires left the company, and seven employees left the company (total separations).

  1. Divide 5 (# of separated employees who worked at the company less than 1 year) by 7 (total separations) = 0.7143
  2. Multiply 0.7143 (# calculated in step 1) x 100 = 71.43%

Tips for reducing employee turnover rates

If you find that your turnover rate is particularly high and includes top performers, here are some tips to reduce turnover and increase employee job satisfaction:

1. Improve your hiring and onboarding process

Studies show that strong hiring and onboarding can improve retention by up to 82%. Use strategies such as competency screening, behavior testing, and thorough interviewing to find the best fits for your organization. Develop an effective onboarding process with mentoring and training that promotes employee growth and connection.

Related: A Complete Guide to the Employee Onboarding Process

2. Offer a competitive salary, benefits and work-life balance

Fair compensation and regular raises can show employees they are valued and have room to grow at your company. You can enhance competitive salaries and comprehensive benefits, including health insurance, 401(k)s and paid time off with additional benefits such as work-from-home days and gym membership reimbursements. These perks can attract high-performers, improve your work culture, support work-life balance and reduce voluntary separations.

3. Provide career growth opportunities and development programs

Team members are more loyal when given plenty of growth opportunities, with 94% of employees willing to stay longer with an organization that’s invested in their professional development. Cross-training, education and career progression programs give employees valuable skills so they can grow within your organization.

4. Recognize top performers and team success

Recognition can show employees their value to their organization and in turn can boost morale, productivity and retention rates. Develop a recognition program that offers incentives such as bonuses, celebrations for employee successes or team events and parties.

Related: Employee Appreciation Day: How Recognition Transforms Companies

5. Train your managers

The managers within your company can significantly impact employee satisfaction and, ultimately, employee turnover rates. Training your managers to be as effective as possible can help reduce employee turnover and increase communication and performance among employees.

6. Analyze employee satisfaction

Highly satisfied employees are more likely to be loyal to your business and motivated to help achieve its goals. To measure and address employee satisfaction, consider methods such as:

  • Employee satisfaction surveys
  • One-on-one meetings
  • Specialized employee satisfaction software
  • Employee net promoter scores

Read more: 13 Effective Employee Retention Strategies

Frequently asked questions about turnover rates

What is a healthy turnover rate?

Healthy turnover rates vary across industries. In addition to comparing rates against similar businesses, each organization should determine a benchmark turnover rate that’s correlated with its best productivity and satisfaction outcomes.

Is employee turnover always bad?

Some employee turnover is good for your organization, such as when candidates are poorly matched to their roles or there are issues that disrupt workplace culture. Other employee turnover causes, including retirement or life changes, are a natural progression in your business’s workforce.

What are the common reasons that employees leave a company?

Employees can leave an organization for several reasons, such as:

  • Burnout in their current position
  • Limited ability to grow within the company
  • Insufficient compensation
  • Trouble establishing a healthy work-life balance
  • Poor management
  • Interest in a new position or career at a different organization

What is the average turnover rate?

The Bureau of Labor Statistics estimates a 47.2% average employee turnover, but turnover rates can vary significantly among industries. For example, a retail company that experiences increased holiday business would have a larger turnover rate due to hiring seasonal or temporary employees. In contrast, an accounting firm would likely see a much lower turnover rate due to the stable nature of the company’s business.

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