What is the turnover rate?
The employee turnover rate, typically expressed as a percentage, measures the number of employees who leave an organization over a set period. You can also calculate the turnover rate for specific departments and voluntary or involuntary separations.
Why monitoring employee turnover is important
Employee turnover can help gauge job satisfaction at your company. Some turnover is inevitable. Workers may leave their jobs for personal reasons or new professional opportunities.
When your turnover rate is high, it can have important implications and consequences for your business. Replacing an employee can cost between 40% and 200% of the worker’s annual salary.
An increase in turnover may also suggest internal factors are causing employees to leave. Monitoring the turnover rate helps human resources (HR) identify and resolve potential problems.
Tracking employee turnover can have valuable benefits, such as:
- Uncovering data about hiring and training costs
- Identifying internal opportunities to improve employee satisfaction
- Highlighting employee separation costs, such as unemployment compensation
- Providing insight into the effectiveness of your talent acquisition strategy
How to calculate turnover rates
You can use the employment turnover rate formula to calculate rates for monthly, quarterly and annual periods.
Employment turnover rate formula
- To calculate the average number of employees for the period, add the number of employees at the beginning of the period to the number of employees at the end. Divide that figure by two.
- Divide the number of employees who separated from the company during that period by the average number of employees.
- Multiply the number from Step 2 by 100 to calculate the turnover percentage.
Example: Monthly turnover calculation
On March 1, FreshBell Supermarket employed 30 people. On March 31, the company employed 35 people. During that month, three employees left the company. Here’s how to calculate the monthly turnover:
Calculate the average number of employees:
- 30+35 = 65
- 65/2 = 32.5
Divide 3 (number of employees who left) by 32.5 (average number of employees) = 0.0923
Multiply 0.0923 (number calculated in Step 2) x 100 = 9.23%
First-year turnover rate calculation formula
To calculate the first-year turnover rate for new hires, consider only the number of separated employees who worked at the company for less than a year. Use the same employment turnover rate formula, but replace the average number of employees with the total number of separations for one year.
- Calculate the total number of employee separations within a 12-month period.
- Divide the number of separated employees who worked at the company for less than 1 year by the total number of separations.
- Multiply the number calculated in Step 2 by 100 to get the turnover percentage.
Example: During the 2024 fiscal year, five new hires left FreshBell Supermarket, and seven employees left the company in total.
Divide 5 (number of separated employees who worked at the company for less than one year) by 7 (total separations) = 0.7143
Multiply 0.7143 (number calculated in Step 1) x 100 = 71.43%
Tips for reducing employee turnover rates
If you have a high turnover rate, consider following these tips to potentially increase employee job satisfaction and reduce turnover.
1. Improve your hiring and onboarding process
Effective hiring and onboarding can improve employee retention. A strong hiring process helps you find people who align with the company’s mission and culture. Onboarding helps ensure new hires understand the responsibilities and expectations of the role and provides the tools and training needed to succeed.
Skills-based hiring, pre-employment testing and interviewing in rounds or through panel interviews can improve your hiring approach. You can also develop an effective onboarding process that includes mentoring, training, an introduction to company culture and opportunities to connect with other employees.
2. Offer a competitive salary, benefits and work-life balance
Fair compensation, comprehensive benefits and regular raises generally support employee retention. They also help your business stay competitive with other employers. If possible, consider offering perks. Ideas could include flexible work arrangements, flex time, free meals and gym membership reimbursements. In-demand benefits can help attract quality candidates, improve company culture, support work-life balance and reduce voluntary separations.
3. Provide career growth opportunities and development programs
Empower your employees to advance their careers by offering opportunities for growth and development. Research finds companies that provide development programs are twice as likely to retain workers. Training programs, online courses, coaching programs, mentorships and in-person workshops can give employees the skills they need to grow.
4. Recognize top performers and team success
Recognition shows employees your company values their contributions, which can boost morale, productivity and retention rates. Develop a recognition program that offers incentives, such as bonuses, company-wide appreciation initiatives and team celebrations.
5. Train your managers
Supportive and effective managers can improve job satisfaction and help boost retention. Provide training for your managers to help them communicate, foster collaboration, manage conflict and guide employees’ career development.
6. Analyze and improve employee satisfaction
Increasing employee satisfaction is crucial to reducing turnover, as happy employees may be less likely to leave the company. Monitoring employee satisfaction can help you identify opportunities for improvement.
To assess how employees feel, consider methods such as:
- Employee satisfaction surveys
- One-on-one meetings
- Specialized employee satisfaction software
- Employee net promoter scores
Turnover is an important key performance indicator (KPI) for your business. Using the turnover formula for employee retention efforts can help you build a positive company culture and a loyal workforce.
FAQs about turnover rates
What is the average turnover rate?
Turnover rates can vary among industries. For example, a retail company that experiences increased holiday business might have a higher turnover rate due to temporary or seasonal employees.
Comparing your turnover rate to similar businesses can help you understand how your company performs. It’s also essential to determine an acceptable turnover rate for your organization that correlates with your best productivity and satisfaction outcomes.
Can employee turnover be good?
Some employee turnover is good for your organization. This can happen when employees’ skills don’t align with their roles, leading them to accept other employment opportunities. A certain amount of turnover also creates openings for employees who bring fresh perspectives and valuable experiences.
