How to Calculate Employee Turnover Rate?

Calculating the employee turnover rates for businesses is among the most important tasks of human resources personnel. It gives employers an objective look at how their business is doing, as well as tips on how they can improve.
Employee turnover rate refers to the number of employees who leave your company within a set period. It’s usually either a month or a year.
These employee leaves include voluntary resignations, lay-offs, as well as retirements.
Throughout our article, we’ll tell you how to calculate the employee turnover rate for your business. We’ll also tell you why you need to calculate turnover rates for your business. Finally, we’ll tell you how to deduce facts about your business and its progress.

How to Calculate Employee Turnover Rate?

Various equations are used to calculate the employee turnover rate for a business. However, we’ll walk you through the easiest and most widely used formula.
Employee turnover rate = (number of employees lost in a specific time period/ average number of employees in the same time period) ✕100
To calculate the employee turnover using the above equation, you’re going to need three numbers:
  • The number of employees lost during the specified time period
  • The number of employees at the beginning of the specified time period
  • The number of employees at the end of the specified time period
Finding these numbers sounds fairly straightforward, right? Not quite, unfortunately.
Finding the numbers to put into your equation usually baffles people. So, let’s take it step by step.

Step 1: Make a List of All the Employees

Generally, when calculating the number of employees you have at the specified time frame, you should include all employees on your company’s payroll in the equation. This includes full-time workers, part-time workers, and even those on paid or unpaid leave.

Step 2: Calculate the Number of Employees No Longer at Your Company

The next step is calculating the number of employees you lost in the specified time frame. Now add up all the voluntary resignations, lay-offs, and retirements.
You shouldn’t add up employees who were promoted or transferred within your company since they are still on your payroll.
We realize that these employees have left for different reasons, and that certainly would differ in any actions taken by employers. We’ll expand on that in a moment.
Here’s an example.
Say you want to calculate your employee turnover rate for January. You start the month with 100 employees.
Then, 10 leave for various reasons, and you’re left with 120 employees at the end of the month. Your equation should look like this:
Employee turnover rate for January = (10/((100+120)/2)✕100 = 9%
So, now you have an employee turnover rate of 9% for the month of January.

What Is the Meaning of the Calculated Employee Turnover Rate?

Now that you’ve calculated the employee turnover rate for your business, you’re probably thinking about whether this number is good or bad.
Due to multiple variables, there’s no one turnover rate that’s either all good or all bad for businesses. It depends on your business type and who they’re losing.

Understanding Your Business Type

For service-providing businesses like hotels, fast food restaurants, and retailers, a high employee turnover rate is standard. These businesses usually rely on students as part-time employees before moving on to another career once they graduate.
However, a high turnover rate can be disastrous for businesses whose employees require high training or education. The company spends lots of money on training new employees only to watch them leave after a short while. Then, the company is forced to spend more money to recruit and train new employees.

Understanding Your Employees

Employers must determine which employees they’re losing. This piece of information would help them to decide whether their calculated employee turnover rates are good or bad.
The above equation can calculate employee turnover for specific reasons, like lay-offs, resignations, and retirements. Employers can use this to figure out which employees are regularly walking away to adjust their work environment accordingly.
If all of their lost employees were, in fact, laid-off due to bad performance, this increase in turnover rate isn't bad at all. It just means they’re leaving behind lousy employees who were getting in the way of business performance.
It’s different, however, if the company loses valuable employees only to see them move on to other companies. That should be cause for concern.
In this case, employers might want to improve the working environment. For example, they can offer bonuses or facilitate professional developments to enhance their employees' business satisfaction and ensure they stay on as their employees.
Business owners and HR personnel might also find it useful to analyze when employees leave exactly. If, for example, it's only a few months after they’re hired, this might mean that the new hires didn't find what they expected of working in the company.
A perfect fix for this would be looking into and adjusting the job descriptions in their advertisements. Employers can also invest in a proper training program for their newest employees. This will work to facilitate their initiation and help them get the hang of their new role’s responsibilities.
It should also be mentioned that your business's employee turnover rate should be taken in the proper context. For example, losing ill-qualified workers might be considered a win for the company. Yet, the same number of leaves can be a debilitating loss if you lose highly qualified workers.

Conclusion

Knowing how to calculate an employee turnover rate is one of the vital parts of any business. In addition, it serves as an indicator of how your business is performing.
Although most businesses calculate it on a monthly or yearly basis, it’s better to repeat this process at various times during the year. It’s pretty basic and straightforward, yet it goes a long way in helping you to gather helpful information about your company. You can, then, use this data to help build your company and boost its growth.