What Is Employee Turnover Rate and How Is It Calculated?

Employee turnover rate is a metric that human resources departments track. It measures the percentage of employees who leave an organization over a specific period of time, usually quarterly or yearly.

Retaining top talent is essential for an organization’s stability, growth and overall success. Therefore, tracking employee attrition and employee retention can help predict what an organization’s immediate future looks like.

Voluntary vs. Involuntary Turnover

Turnover is either voluntary or involuntary. When an employee decides to leave of their own accord, this is voluntary turnover. When an employer terminates an employee, it is involuntary turnover. Generally speaking, involuntary turnover is much lower than voluntary turnover.

Follow the below step-by-step process to calculate staff turnover:

• Collect Data

For this calculation, you need to collect two pieces of information for the time period you want to measure: 

• Total number of employees who left within the period 
• Average number of employees within the period

The first data set is just a headcount. For the second data set, you need to plug the number of employees at the beginning of the period and the number of employees at the end of the period into a simple equation. Move on to the next step for this equation.

• Average Number of Employees

To calculate the average number of employees, add the number of employees at the beginning to the number of employees at the end, and divide the sum in half. 

(Number of employees at beginning of period + Number of employees at end of period) / 2 = Average number of employees

• Plug Data Into Formula

You now have all your data. Divide the number of employees who left by the average number of employees. Multiply this total by 100 to get a percentage. 

(Number of employees who left / Average number of employees) x 100 = Employee turnover rate

Overall, there are three adverse effects of high employee turnover:

• Increase in organizational cost
• Disruption of business operations
• Downturn of employee morale

Let’s look at each in more detail. Starting with cost, it’s expensive to recruit a new employee to replace the leaving one. You have to:

• Post the job
• Comb through the applications
• Interview the top candidates
• Hire a candidate
• Onboard the new hire

If you’re doing this internally, your HR professionals are taking time out of their normal days for this, which isn’t technically a direct cost. However, you could choose to outsource the recruitment process to a third party, which would cost several hundred or thousand dollars.

To build off the point about remaining employees having to disrupt their normal days, team members who closely worked with the leaving employee now have to shoulder additional responsibilities. Being stretched so thin means fewer tasks get done or tasks don’t get done as well.

Having to take on the work of multiple people can lead to burnout. This creates a cycle of departures because then the burnt-out employees leave. This cycle creates an atmosphere of instability and uncertainty.

All of this to say, tracking turnover matters. Companies can use this number to predict employee and company performance in the short term with the team they have remaining. They can also use it to determine what changes to make to company culture to improve turnover in the long term.

There is no universal healthy turnover rate. It varies based on company size, location and other factors. However, there are some benchmarks by industry.

Government and education sectors have low turnover rates. Employees often start these jobs soon out of school and stick with them throughout their careers. On the other hand, high turnover rates are common in hospitality, retail and customer service. These industries are popular for entry-level and seasonal employment.

That being said, all industries share turnover trends in two areas:

Pandemic Turnover Rates

All industries saw a spike in turnover around 2020 with the COVID-19 pandemic. According to the Job Openings and Labor Turnover Survey from the U.S. Bureau of Labor Statistics (BLS), this spike came from involuntary layoffs, not voluntary separations. 

First-Year Turnover Rates

Several studies have been done about turnover rates among new hires. They all cite different percentages for how many new hires quit within the first few months — from 20% to 60%. But regardless of the exact percentage, it’s clear that new hires leave quickly once they realize that the company or position isn’t what they expected.

The best way to track why an employee is leaving is to conduct an exit interview with them during their last week. Ask them what they like and what they would change about their role while you still have the chance to.

You can ask similar questions to employees during performance reviews. This can help you predict turnover, giving you the opportunity to address common complaints before they lead to departures.

According to SHRM, the top reasons for voluntary turnover are:

• Inadequate compensation (e.g., lower annual salary than similar positions at other companies)
• Limited career growth opportunities (e.g., no workshops for skill development)
• Lack of workplace flexibility (e.g., no remote work allowed)

However, you still want to use exit interviews and performance reviews to see if there are any other issues specifically affecting your organization. For example, you might get reports of poor leadership, burnout, lack of work-life balance or something else.

Once you know the reasons your employees are leaving, you can create an action plan to address them. The action plan is going to vary depending on the departure reason. However, here are ideas on how to address some of the most common reasons:

• Teach employees the skills they need to succeed in their current roles and to be eligible for future promotions.
• Give employees flexibility on when they can work from home or in the office and what hours they must be online.
• Set a cadence for reviewing compensation to ensure that employee salaries remain competitive.

Calculating and managing employee turnover is critical for the long-term success of your organization. Compare your turnover rate to industry standards, and implement best practices to keep it low. The result will be a positive work environment with maximum employee satisfaction and productivity.