Every business has employee turnover. But there’s an expected, manageable level of employee turnover — and then there’s a problematic level of employee turnover that means there is a serious issue with your business. The only way you’ll know if your employee turnover falls into the “expected” or “problematic” category is by calculating your employee turnover rate.
Understanding your employee turnover rate will give you key insights into the rate at which employees are leaving your company — and, just as importantly, why they’re leaving.
Let’s take a look at everything you need to know about how to calculate employee turnover rate, why it’s important, and how to lower your turnover rate and keep top talent at your company.
What Employee Turnover Rate Is and Why It’s Important
Your employee turnover rate is the percentage of employees that leave your organization during a given time frame. Knowing the rate at which employees are leaving your company is a must if you want your organization to thrive.
“Calculating your employee turnover rate is like getting your annual physical; it is how you get a sense of the health of your organization,” said Edie Goldberg, PhD, founder and President of consulting company E.L. Goldberg & Associates and author of The Inside Gig: How Sharing Untapped Talent Across Boundaries Unleashes Organizational Capacity. “When you know how your turnover is trending — and how your turnover compares to industry benchmarks — you can learn if there are problems that need to be addressed,” like recruitment or management issues, she explained.
Not only can understanding your employee turnover keep you from losing your best people, it can also prevent you from losing a lot of money.
“The costs [of high employee turnover] to an organization are great,” said Goldberg.
“Estimates of the cost of turnover vary, but commonly it is [around] 33% of an individual’s salary,” she continued. “But when you add in all of the indirect costs of turnover, [like] lost business opportunity, training new employees, [or] lower productivity [of newly hired employees] in the beginning...others estimate the cost of turnover to be one-and-a-half to two times annual salary.”
Calculating employee turnover rate is crucial if you want to keep your organization healthy and successful. Here’s how to do it.
How to Calculate Turnover Rate
When you’re calculating employee turnover rate, the first step is to choose a time period for which you want to measure turnover. For instance, do you want to know the turnover rate for the past year, or the past month?
From there, it’s time to look at your actual turnover numbers. “To calculate employee turnover, you need to know three numbers,” Goldberg explained. They are:
- Number of people who have left the company during the time period
- Number of employees at the beginning of the time period
- Number of employees at the end of the time period
Once you have these numbers, “the actual calculation of a total turnover rate is quite simple,” said Cabot Jaffee, PhD, CEO and President of hiring software company AlignMark. “Take the total number of people leaving the job and divide that by the average number of people in the company [average the number of employees at the beginning and end of the time period].” Then, take that number and multiply it by 100 to get the employee turnover rate.
Or, in formula form, the employee turnover calculation for a designed time period would look like this:
While this formula can be used to calculate general employee turnover (regardless of the reason), you can replace total departures with employee and employer-initiated departures for more detailed insights. For example, a high voluntary turnover rate might suggest that you aren't providing employees with enough opportunities for long-term growth. A high involuntary turnover rate might mean you should rexamine your hiring or new hire onboarding processes.
Ready to give it a try? To determine your own turnover rate, use the interactive calculator below. The tool also makes it possible to calculate voluntary and involuntary turnover, giving you better insight into why employees might be leaving.
Using Employee Turnover Rate
Calculating employee turnover rate is an important step in getting turnover issues under control — but it’s not the only step.
“Many companies simply look at the overall [rate] of turnover, as calculated above,” said Goldberg. “But if you really want to understand what is happening in your company, you need to examine this data with a finer lens.”
Digging deeper into the details of your turnover rate (like which employees are leaving, which departments they’re leaving from, and how long they’re staying with your company) can give you key insights into the issues driving your employee turnover. This, in turn, can help you develop an effective strategy for dealing with those issues.
For instance, “if you are losing a lot of undesirable employees, you might have a problem with your recruitment or selection process; you are not hiring well,” Goldberg said. “[But] if you are losing a lot of desirable talent from one part of your business, you may have a management issue that needs to be addressed.”
There’s more to employee turnover than simply calculating your turnover rate. If you want to improve retention (and keep your turnover rate at a manageable level), you need to dig deeper to understand the factors contributing to employee turnover — and take action to address those factors and get your retention back on track.
Strategies to Lower Employee Turnover Rate
Calculating your employee turnover rate, and digging into the data to understand what’s driving turnover, is essential for improving employee retention. But there are also steps you can take on an ongoing basis to keep your turnover rate low — and keep your top employees at your organization. Here are some steps you should be taking to lower employee turnover and bolster retention.
1. Measure turnover rate regularly.
If your turnover rate is high, there’s an issue driving it. In order to lower that rate, you need to address that issue as soon as possible. But if you’re only looking at your turnover metrics once a year, chances are, you won’t know there’s an issue until it’s already driven a lot of employees out of your organization. So, if you want to keep employee turnover low, make sure you’re calculating turnover rate on a regular basis (for example, monthly or quarterly).
“Turnover should be examined at least annually, but...to be more proactive in addressing issues, it is important to measure more frequently,” Goldberg advised.
2. Consult with your staff.
If you want to keep your employees from leaving your organization, one of the best things you can do is ask them what it will take to keep them there — and then take action accordingly. “Conduct stay interviews with your high-performing and high-potential talent to get in front of potential turnover,” Goldberg recommended. “Understand what is important to them and address those issues when possible.”
3. Set your employees up for success.
Employee retention starts from the moment you decide to bring a new team member on board. So, if you want to lower your turnover rate — and prevent employees from leaving your organization — you need to set them up for success from day one. “Create a great onboarding process to make sure that each new hire is given the best opportunity to succeed,” Jaffee said.
4. Give employees opportunities to grow.
If your employees don’t feel like they have the opportunity to grow within your organization, eventually, they’re going to seek out other opportunities. To keep turnover rate low, make sure you’re giving your employees the space and opportunity to grow and evolve in their careers. “Provide clear development opportunities and career paths for all employees,” advised Jaffee.
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Employee turnover rate is a critical metric in understanding the overall health of your organization. Now that you know how to calculate employee turnover rate (and how to use that information to reduce turnover and improve retention), you can start taking steps and implementing strategies right away to make your organization that much healthier — and keep your top employees around for a long time to come.
