How to Calculate Employee Turnover in 4 Steps
When you have a high turnover rate, it causes problems for your company. Hiring and retraining new employees is an expensive process. In addition, high turnover can impact your employees’ morale.
If you are dealing with a lot of turnover, you need to find a strategy to reduce it in the future. First, you need to calculate your turnover rate to see where the problem actually is. Afterward, you can figure out ways to reduce your rate.
Step One: Determine What You Are Calculating
If you have ever wondered what employee turnover is or why it’s important, you are not alone. The turnover rate is essentially the rate at which you replace existing employees with new ones.
This rate can be impacted by things such as resignations, layoffs, or firing someone. Positive changes like retirement can also increase your turnover rate. If you are streamlining your work processes, you may also have a higher turnover because of job elimination.
The goal of calculating your turnover rate is to see if it is a problem. The only real way to do this is by determining what kind of turnover you want to calculate. You could include all job losses or replacements. Some managers choose to include everything but retirements.
Step Two: Determine the Average Number of Employees
Once you determine what you are going to track, the next step is figuring out the average number of employees. You will do this for the time period you want to compare, which is often a one-year period.
Take the number of employees you had at the start of the year and the number of employees you still had at the end of the year. Then, add these two figures together before dividing them by two. The resulting figure is the average number of employees.
We can look at the example of Evergreen Subs to see how this calculation would work in practice. At the start of the year, Evergreen Subs has 22 workers. By the end of the year, they had 18 workers. Together, 18 and 22 equal 40. Divide this number by 2 to get an average of 20 workers.
Step Three: Calculate Your Turnover Rate
Now, it is time to calculate your actual turnover rate. To do this, you need to determine the number of employees who left during the year.
Next, divide this number by your average number of employees. To turn this figure into a percentage, you need to multiply it by 100. The figure you see is your turnover percentage.
We can use this calculation with the example of Evergreen Subs again. Last year, Evergreen Subs had four workers quit and get replaced by a new employee. We divide 4 by 20 before multiplying it by 100.
This brings us to a turnover rate of 20 percent. While this figure might be high for the technology industry, it is actually an extremely low rate for the food industry.
Step Four: Translate to Any Period
You can repeat this process as often as you need to. If you want to see if your turnover rate is improving, you do not have to wait until next year to find out. Instead, compare your turnover rate between different months or quarters.
For example, Evergreen Subs has lost one employee in the last month. At the start of the month, they had 20 workers. They had 19 workers at the end of the month because the company had not hired a replacement yet.
This means that their average number of employees was 19.5. We divide 1 by 19.5 and multiply it by 100 to get a turnover rate of 5.12 percent.
By looking at the turnover rate over a shorter time frame, you can see if changes in human resources, new wellness programs, or other factors are impacting your turnover rate. It also allows you to see seasonal variations.
If our company recently started a new project, we can see if the project is causing excessive stress levels and high turnover. In addition, we might want to calculate turnover rates for individual projects to see if different projects and managers are more difficult for employees to deal with.
The Cost of Employee Turnover
Business managers know that disengaged employees lead to higher turnover rates. When employees are not happy with their position, they leave it. For employers, this turnover can lead to higher costs.
You have to spend money to replace lost employees through recruitment advertisements, interviews, background checks, and other hiring costs. An estimated 70 percent of employers struggle to replace an employee.
Once you finally find a new hire, you still have to pay for training them and other onboarding costs. If the new employee does not work out, you have to pay all of those costs yet again.
Use This Information to Prevent Turnover
Once you have gathered information about your turnover rate, the next step is figuring out what you want to do with it. You should take some time to figure out why your employees leave.
This may involve gathering demographic details like the employees’ age to see if older or younger workers are more likely to leave.
You may also want to conduct an exit interview to ask workers directly about changes you can make to increase retention. Once you know why employees are leaving, you can do your best to prevent it from happening.
Employee Turnover Isn’t Always Bad
Sometimes, employee turnover can be a good thing. If you have a lazy employee, it would probably be better for them to quit than to keep paying them. Likewise, it is a good thing for someone to retire after they have enjoyed a long career with your company.
It is not a good idea to achieve a 0 percent turnover because some turnover is a good thing. Some sources are unavoidable. No matter how great your company is, you cannot stop your employees from moving to another state to be near their families, for example.
Your main goal is to learn what your turnover rate is, why turnover happens, and what you can do to minimize it.