How to calculate employee turnover
/What is Employee Turnover?
Employee turnover is the proportion of employees that leave a business for any reason during the measurement period. It includes both voluntary departures, such as resignations, and involuntary ones, like layoffs or terminations. High turnover can indicate problems with job satisfaction, compensation, or workplace culture, and may lead to increased recruitment and training costs. Conversely, low turnover often reflects a stable and engaged workforce, which can contribute to organizational efficiency and long-term success.
How to Calculate Employee Turnover
To calculate employee turnover, divide the number of employees who left the company for any reason by the average number of employees working for the company during the measurement period. The calculation is:
Number of employee departing the company ÷ Average number of employees = Employee turnover
The measurement is usually annualized when reporting on employee turnover for an entire business. However, it is also possible to narrow the focus of the measurement for more specific time periods, as well as by department. Doing so can bring management attention to bear on why people are leaving certain parts of the business. The human resources department usually calculates the turnover rate and investigates the reasons for unusual turnover levels, reporting its findings to senior management.
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Example of Employee Turnover Calculation
A company started the year with 200 employees and experienced 30 departures during the year, while ending with 220 employees. To calculate the average number of employees for the year, add the beginning and ending number of employees and divide by two: (200 + 220) ÷ 2 = 210. The employee turnover rate is then calculated as the number of departures divided by the average number of employees, multiplied by 100 to convert it into a percentage: (30 ÷ 210) × 100 ≈ 14.3%. This turnover rate indicates that approximately 14.3% of the workforce left the company during the year.
Evaluation of Employee Turnover
A low employee turnover rate is considered good, since the implication is that employees are being retained who have a high level of knowledge about company operations, which improves efficiency. However, this is not entirely the case. Some organizations follow a practice of ranking their employees and terminating the employment of those staff who rank at the bottom. Also, there is a natural amount of turnover that will occur, as employees move away for family reasons or change their careers. Further, some industries (such as fast food) are well known for having high turnover rates, which cannot be easily changed. Consequently, the circumstances in which a company finds itself must be evaluated in order to determine whether its employee turnover rate is unusually high or low.
A company wishing to improve its turnover percentage needs to evaluate the incremental cost of doing so against the cost of replacing those employees who are leaving. When the turnover rate is already low, it may require an inordinate increase in benefits or other factors to achieve an even lower turnover rate. Consequently, management needs to understand what is driving turnover, and the incremental cost of altering the situation.
What Does Low Employee Turnover Indicate?
Low employee turnover is generally considered to indicate the presence of excellent benefits and compensation, as well as enlightened management practices. However, a low ratio can also be driven by outside factors, such as economic conditions that are so poor that employees do not believe they can leave their current jobs to find work elsewhere. It may also indicate that managers are not doing a good job of counseling out poor-performing employees. Consequently, low employee turnover can indicate both positive and negative issues with the employment situation within a business.