How to Calculate Employee Turnover

Turnover is one of the most important metrics to measure in your organisation, and fortunately it’s also very easy to calculate. Here’s everything you need to know about calculating your employee turnover rate and how to use it to better understand the state of the company.

How is employee turnover defined?

Employee turnover refers to how many employees leave your organisation voluntarily or involuntarily. The employee turnover rate is defined as the percentage of employees who leave an organisation over a defined period of time.

What are the different types of turnover?

Employees leave companies for a range of reasons, but turnover can broadly be categorised into two primary types: voluntary turnover and involuntary turnover.

Voluntary turnover

Voluntary turnover, as the name suggests, is when employees choose to leave the organisation. This may be for a range of different reasons such as accepting a job offer elsewhere, deciding to re-train or change industries, or simply being unsatisfied with their current role. This is an important metric for HR to track because a high voluntary turnover rate may indicate an issue with company culture, onboarding, compensation, or many other factors.

Involuntary turnover

Involuntary turnover, on the other hand, is when an employee is let go by their employer. This may be because of the employee’s poor performance or incompatibility with the organisation’s goals or mission. Or, it may simply be because the role is being eliminated.

How do you calculate turnover rate?

The calculation for turnover rate is as follows:

Turnover rate = number of employees who left the organisation / average number of employees x 100 

Here are the steps you need to take to complete the calculation.

1. Define your time period

The first step is to decide what period of time you will use to calculate turnover rate. The normal time period for this is one year. For example, you might choose the dates of January 1, 2022 to January 1, 2023.

Note: while an annual turnover rate is often considered the minimum, it can be beneficial to calculate turnover more frequently than this, for example the quarterly turnover rate. More frequent calculations allow HR to keep a closer eye on turnover and issues that may be impacting it. This is particularly important in industries with typically high employee turnover rates such as hospitality and catering.

2. Calculate the average number of employees during the period

Your next step is to find out the headcount on the first day of the period (in our example January 1, 2022) and the employee headcount on the last day (January 1, 2023). This headcount should include full-time, part-time and direct-to-hire temporary employees but it should not include independent contractors.

Then, find the average of these two figures. This is done by adding the two numbers together and dividing by two.

Average number of employees = (headcount on first day of period + headcount on last day) / 2

For example, if your organisation had a total headcount of 165 on January 1, 2022 and 159 on January 1, 2023, you should add 165 and 159 together to make 324. Then, divide the total of 324 by two to get 162. This means that the average number of employees in your organisation at this timeframe was 162.

3. Find the number of separations

Next, define how many employees have left the company during this time. This number includes both voluntary and involuntary turnover but does not include employees on temporary leave or employees who have been transferred or promoted.

4. Calculate the turnover rate

Now, it’s time for calculating the turnover rate. Let’s take another look at that formula:

Turnover rate = number of employees who left the organisation / average number of employees x 100 

For example, let’s say that your time period is January 1, 2022 to January 1, 2023. The average number of employees in this timeframe was 162. The number of separations was 12. So:

12 / 162 x 100 = 7.4074

Your turnover rate, therefore, is around 7.4%.

However, a metric on its own is not particularly useful without context or points of comparison. The next step is to contextualise the turnover rate.

What’s a good turnover rate?

The rate of turnover varies substantially between different workplaces and industries, so it’s important to track and benchmark in your own particular industry.

In the UK, the average employee turnover rate is around 15% each year. The industries that typically have high turnover rates are hospitality, retail, call centres, media, and construction, whereas industries with the lowest turnover rates include accountancy, education, public sector, and law.

In general, an employee turnover rate of 10% or lower is considered ‘good’ but this will always depend on the particular industry or organisation. This is why internal benchmarking is important when evaluating turnover. This means closely tracking turnover in your organisation on a monthly or quarterly basis to learn more about the frequency and trends of turnover throughout the year. Then, compare this with your competitors’ turnover for external benchmarking.

Diving deeper into turnover

While your employee turnover rate is a crucial metric to be tracking, it doesn’t provide the full story. Additional metrics should be used to supplement your turnover data. Here are some of the ways to make more out of your turnover data.

Compare voluntary and involuntary turnover

Both voluntary and involuntary turnover are included in your turnover rate but it can be beneficial to differentiate between the two. Does voluntary turnover tend to spike at a particular time of year or in a department or job level? This may indicate that HR needs to step in to create policies that make employees want to stay. Is involuntary turnover high? Perhaps there’s a problem in the recruitment process where the wrong candidates are being chosen for roles.

Differentiate turnover by department, job level, and more

One of the key ways to get more insights out of your employee turnover rate is by differentiating the employees who are leaving. Key categories to look at are job level, department, length of service, performance level, location, age group, and gender.

By differentiating these different types of turnover, it’s possible to notice trends that are shaping the organisation. For example, if there’s a high level of turnover for a particular age group, HR needs to investigate why this is happening. A high level of turnover in a certain department or beneath a particular manager may indicate a problem, while turnover of performing employees is a sign that more needs to be done to encourage the best performers to stay.

Marrying this granular turnover data with other HR analytics such as engagement rates, absence rates, and productivity data can be a useful way to better understand turnover within your organisation.

Look closer at new hire turnover

New hire turnover is a particularly important metric to track. This is the number of employees who leave their job voluntarily or involuntarily during their first six months, year, or another period defined by your organisation.

New hire turnover may indicate an issue with onboarding, inaccurate job descriptions, or problems in the hiring process. It can be expensive and time-consuming for an organisation, both because of the vacancy that now needs to be filled and also because it can take months to a year for new employees to reach their full productivity in a position. A high level of new employee turnover means high costs for the organisation and can also be damaging to company culture and engagement among other employees.

Therefore, it’s important to separate new hire turnover from your general employee turnover in order to better identify issues in hiring or onboarding.

What’s the difference between employee turnover and retention rate?

While employee turnover refers to the number of employees who leave your company, retention broadly refers to how many of them stay. However, your retention rate isn’t the exact inverse of turnover. When calculating retention rate, new hires are not accounted for, whereas new hires are included when calculating turnover. Both are useful metrics to track in your organisation.

Addressing the root causes of turnover

So, you’ve got all the data and it’s not looking good. What can you do to address the high levels of turnover in your organisation, especially among new employees?

The root causes of employee turnover are often found early in the recruitment and onboarding process. Poor quality or inaccurate job descriptions, for example, can lead to candidates applying who do not understand the role and are not well suited to it. Upon starting the role, they may find that their expectations are not met and they may hand in their notice quickly. Or, an unsuccessful or unstructured onboarding process can leave new hires struggling to assimilate into the company culture, damaging their engagement and leading to quick turnover within a year.

Of course, turnover can be caused by a wide range of things that may or may not be in HR’s control. However, if you want to improve your retention rate, re-evaluating your hiring and onboarding process is a good place to start.

Hireserve’s ATS is an invaluable tool for ensuring a smooth and successful candidate journey from the moment you publish a job listing all the way through to interview scheduling and contract e-signatures to pre-employment checks and onboarding. With our powerful software you can streamline the entire recruitment and onboarding process to ensure a great candidate experience that sets the stage for successful long-term retention of every new employee.

Want to see the capabilities of Hireserve ATS for yourself? Book a demo today or contact us to learn more.