What is Employee Turnover Rate and How Do You Calculate It?

Employee turnover rate is the percentage of employees who leave a company within a specific period. Calculating it is fundamental for assessing talent retention, identifying underlying HR issues, and optimizing recruitment strategies. Based on industry standards from sources like the Society for Human Resource Management (SHRM), a high turnover rate often signals problems with company culture, compensation, or management, directly impacting operational costs and productivity.

What is the employee turnover rate?

The employee turnover rate is a key HR metric that quantifies the number of employees who depart from an organization during a set timeframe (e.g., monthly, quarterly, or annually). It is calculated by dividing the number of leavers by the average number of employees. This statistic provides critical insight into workforce stability and the effectiveness of talent retention strategies. For example, a high turnover rate in a sales department might indicate issues with commission structures or sales targets, prompting a strategic review.

How to calculate employee turnover rate?

Calculating turnover involves a clear, four-step formula. The most common method, endorsed by HR professionals, uses the following calculation for a specific period:

• Step 1: Determine the number of employees who left (both voluntary and involuntary).
• Step 2: Calculate the average number of employees. This is done by adding the number of employees at the start of the period to the number at the end, then dividing by two.
• Step 3: Divide the number of leavers by the average number of employees.
• Step 4: Multiply the result by 100 to get a percentage.

Formula: (Number of Leavers / Average Number of Employees) x 100

For clarity, here is a practical example:

Why is calculating turnover rate important for your business?

Understanding your turnover rate is crucial for several data-driven reasons. It provides a baseline for organizational health. A rate significantly higher than the industry average (which can be benchmarked against data from organizations like LinkedIn Talent Solutions) demands immediate attention. Furthermore, calculating turnover helps businesses:

• Pinpoint retention problem areas: By analyzing turnover by department, tenure, or manager, you can identify specific issues rather than applying broad, ineffective solutions.
• Quantify financial impact: Employee turnover carries significant costs, including recruitment agency fees, training expenses, and lost productivity. Calculating the rate is the first step in understanding this financial drain.
• Improve employer branding: A consistently high turnover rate can damage your company's reputation among potential candidates, making it harder and more expensive to attract top talent.

How can you use turnover data to improve talent retention?

Simply calculating the rate is not enough; the value lies in the actionable insights. Based on our assessment experience, the most effective strategies use turnover data proactively. This involves conducting thorough exit interviews to understand the real reasons for departure and correlating this qualitative data with the quantitative turnover rate. For instance, if data reveals a spike in turnover after the first year of employment, it may indicate a failure in the onboarding process or a misalignment of job expectations.

To build a robust retention strategy, focus on the drivers behind the metric. This could mean reviewing compensation bands to ensure they are competitive, implementing professional development programs, or improving management training. By addressing the root causes identified through turnover analysis, companies can reduce costly churn and build a more stable, engaged workforce.

In summary, the key takeaways for HR professionals are:

• The employee turnover rate is a critical indicator of organizational health.
• Calculate it consistently using the standard formula to track trends over time.
• Dig deeper than the number itself to understand the 'why' behind employee departures.
• Use these insights to inform targeted retention strategies and reduce hiring costs.