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Your guide to calculating employee turnover with emphasis on the frequency of calculation, benefits, and importance.
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Employee turnover rate is typically a reliable indicator of your company's success. It measures the average number of employees exiting a company within a period, whether monthly, quarterly, or annually.
Turnover rates provide insight into a company's brand, culture, and recruitment exercises. And keeping track of your turnover rate helps you avoid major pitfalls in business.
Every business undergoes turnover at one point or another, but a high turnover rate is cost-intensive due to replacing existing employees. So, it's essential that you know how to calculate and analyze your employee turnover rate and interpret it for the continued survival of your business.
This article will show you how to calculate your turnover rate, how often you should do it, and how these exercises benefit your company’s bottom line.
Let's get right to it!
Calculating your employee turnover rate requires three variables. They include;
The formula for turnover calculation is - (Number of exiting employees/Average number of employees) × 100.
Let’s break it down.
Suppose an HR company had 250 employees at the beginning of January 2022, and 40 employees exited the company the same year. Then, you recruited 20 new employees during the course of the year until January 1, 2023, and the total number of employees in the company was now 230.
You can calculate the employee turnover rate for this company for the year 2022 using the following steps:
The first step is to specify the period under review. In our example above, the timeline spans from January 1, 2022, to January 1, 2023.
This step is crucial as it helps you know which values to assign to the variables in the employee turnover calculation formula. Only the number of employees who left the company during that time should be used in the calculation.
The next thing is to work out the average number of employees in the company for the period.
For a given time, it's obtained by adding up the number of employees at the start and end, then dividing the sum by two.
In our example, the number of employees at the beginning of 2022 was 250. And the number of employees at the beginning of 2023 was 230. Hence; (250+230)/2 = 240
When working out this value, be careful not to include contractual employees. Their inclusion makes the result less accurate, as their exits from your company are primarily due to end-of-contract tenure and hence can't qualify as a turnover.
Do well to include direct labor and part-time and full-time employees on your payroll in estimating the total number of employees at the start and end of the period.
Next is to estimate the total number of departures in that time. In this example, the total number of departures is 20.
An accurate turnover calculation incorporates every single employee exit. For accuracy, you should include voluntary and involuntary employee departures within the period.
This, however, does not include employees who were absent temporarily, those on sabbaticals, for health reasons, or personal issues. The reason is that they're still part of your payroll.
Since we know the values of the different variables, we can now apply the employee turnover calculation formula to this example. The employee turnover rate is calculated as follows:
Number of exiting employees within the period = 20
The average number of employees within the period = 240
Employee turnover rate = (20/240) × 100 = 8.33%
It's not enough to just calculate the employee turnover rate. Much more importantly, it's key to know how to interpret it.
One good way of doing so is by comparing the value you get with industry standards. This helps you assess the effectiveness of your employee retention program. In addition, it provides a good measure of how well you're handling the competition.
According to LinkedIn, the HR industry had an average turnover rate of 14.6% in 2022. In our example, the turnover rate is 8.3%.
Employee turnover calculation can be daunting, especially when keeping track of the number of hires, departures, and employees both active and temporarily absent. However, Assembly is an excellent tool that helps you monitor these variables for a seamless calculation.
Book a demo today, for free.
The best way to calculate employee turnover is to do it quarterly or yearly.
This frequency provides a more holistic picture of the company's turnover rate. Deductions from employee turnover calculations offer valuable insights into the company's performance, retention efforts, brand, and culture.
An extended period allows the variables influencing employee turnover rate to become large enough to produce more realistic and actionable sequences.
Spreadsheet packages such as Excel make employee turnover calculation more seamless. They help in monitoring monthly hires and exits through a more precise representation.
Using Excel to calculate turnover involves the following steps:
Assign variables to six columns in the spreadsheet. The variables include;
● Month.
● Starting balance.
● Number of new employees.
● Number of departing employees.
● Ending balance.
● Turnover.
Under the column assigned to the year, include the months of the year in chronological order.
Input values for the following variables;
● Starting balance.
● Number of new employees.
● Number of departed employees.
Ensure that the values correspond to the month of the year to which they apply.
After manually imputing the values, you apply the employee turnover calculation formula.
The ending balance is obtained by summing up the starting balance (which is the number of employees at the start of the month) and the number of new employees during the month.
Then, you subtract the total sum from the number of departed employees. Resignations, retirement, layoffs, and people who were let go make up the employees who have left.
E.g., For February;
Column A1 represents the month of February.
Column B1 represents the starting balance for February.
Column C1 represents the number of new employees for February.
Column D1 represents the number of departed employees for February.
Then the closing balance, column E1 is calculated as (B1+C1) - D1, and the employee turnover calculation is D1/ {(B1+E1)}.
Once you apply the formula for a particular month, it can be extended to other months by simply copying and pasting the cell with the formula to the rest of the cells under the turnover column.
This also applies to the closing balance. And the formula is spontaneously modified for each new cell to reflect the corresponding values.
To express the results obtained as a percentage, it requires that you highlight the turnover column and select the percentage icon. Doing so will convert the results obtained to percentages.
HR departments measure turnover using the following metrics:
This is the average number of employees that remain in a company over a given period. And just like the overall turnover rate, it can also be expressed as a percentage.
You can deduce the overall retention rate from the employee turnover calculation. The calculation is Overall retention rate = 100 - Overall turnover rate.
This metric provides reliable insights into employee satisfaction, the company culture, and work-life balance. And a high retention rate signifies increased productivity and improved employee engagement.
This is a subset of the overall retention rate. Companies can obtain the retention rate for each department or position by calculating the turnover rate per department or position and subtracting it from 100.
This statistic lets you know which department or position requires more attention regarding the budget allocation and onboarding optimization.
For better analysis of a company's recruitment and onboarding practices, this metric helps reflect newly hired employees who remain with the company for a given period.
The new hire retention rate calculation is as follows: (Number of new hires who stayed / Total new hires) × 100
This metric provides additional insights into a company's turnover and retention efforts. It's an estimate of the average employment duration in an organization.
The figures allow companies to evaluate an organization's performance compared to other industry competitors. The calculation is as follows: Average length of employment = (Total years of service across the organization) ÷ (Total number of employees).
This represents employees leaving a company of their free will. This can be due to several reasons, including the pursuit of new challenges and new job offers.
The voluntary turnover rate is: (Number of employees who quit / Average number of employees) × 100.
Voluntary turnover rates help companies to understand the overall turnover rate better. An increase in the number of employees quitting a company due to finding better working conditions might require a review of the company's recruitment strategies; either the company is recruiting unqualified or overqualified applicants.
An increase in long-term employees' departure might imply the company's absence of career advancement programs.
Unlike voluntary turnover, involuntary turnover refers to employees who were laid off or fired.
You can calculate involuntary turnover as follows: Involuntary turnover= (Employee layoffs/Average number of employees) × 100.
A higher-than-normal involuntary turnover rate could mean the company hires individuals who cannot align with its brand culture or identity. It could also indicate a lack of funds to maintain employment.
This refers to the total cost of replacing an employee who left.
Onboarding costs, recruitment costs, overtime pay, unemployment benefits, and indirect costs such as productivity decline contribute to the total cost.
Employee replacement is capital intensive. Being aware of your turnover rate cost makes you more committed to fine-tuning your hiring practices and keeping the turnover rate low.
Making optimal business decisions relies on utilizing the right business metrics. One of those metrics is turnover rate.
Companies need to calculate employee turnover routinely, yearly or quarterly, due to its significant cost implications on business operations. Calculating employee turnover enables businesses to evaluate their performance concerning their competitors and industry standards.
Turnover rates should be monitored and correctly interpreted. And correct interpretation guarantees the identification of possible reasons for observed turnover and retention trends so that the company can make the necessary adjustments.
In a world of changing dynamics, knowing your turnover rate is only as good as having the correct interpretation and Assembly is your trusted tool. It keeps track of your turnover rates, providing valuable insights and identifying changes. You can book a free demo today.
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