Cracking the code for calculating employee turnover rates

Employees leaving your business are a normal part of the employee lifecycle. Most companies aim for a healthy employee turnover rate, and as the global talent shortage continues, it's crucial for business owners to be mindful of the rate at which their number of employees changes over time.

Employee separations can be difficult for businesses, especially when they happen frequently. If you are concerned about your ever-changing number of employees, then you'll find this article useful.

In this guide, we'll outline why you should be concerned about your company's turnover rate and explain how to calculate employee turnover.

Businesses that measure turnover frequently have better insights into why employees are leaving. With this beneficial information, you'll prevent your business from losing valuable employees by using proven strategies to reduce your turnover rate and improve your retention rate.

What is employee turnover calculation?

Employee turnover refers to the percentage of employees who leave your business, and you need employee turnover calculations to measure the rate at which your employees leave your company over a period of time.

These calculations may involve voluntary and involuntary turnover, and the time period varies depending on your business's needs. Depending on the information you're trying to obtain, you can calculate turnover monthly, quarterly, or yearly.

As mentioned earlier, it's vital for you to conduct employee turnover calculations frequently to determine whether your company has a healthy turnover rate. This will give you the correct insights into how frequently employees are leaving your business and why they're leaving. It also informs you what steps you should take to reduce it and retain your top talent.

Why should HR calculate employee turnover?

Your turnover rate is an important metric for several human resources functions. If your business doesn't have a dedicated HR department, it can be a useful metric for assessing management performance or whether your HRIS system is effective.

Employee turnover matters because it can have serious consequences on different aspects of a business, such as its finances, company morale, and productivity.

A company with a high turnover rate is also more likely to face challenges like spending more on recruiting to backfill roles and dealing with disengaged or disgruntled staff who may be uncertain about their job security.

How do you calculate employee turnover?

There are different methods for calculating employee turnover, depending on what results you're looking for.

For example, if you are calculating the annual turnover rate, you would take the following steps:

Annual turnover rate

Step 1: Take the number of employees your business had at the start of the year and add it to the number of employees at the end of the year.

Step 2: Take the results from step 1 and divide it by half.

Step 3: Take the number of employees who left during the year and divide it by the results of step 2.

Step 4: Take your final headcount and multiply it by 100 to get the percentage of your employee turnover.

Now, if you want to calculate your monthly employee turnover rate to have a closer view of how many employees your employees left in a given period, it will look a little different from the calculation for the annual turnover rate.

For example, to calculate your monthly employee turnover rate, you would take the following steps:

Monthly turnover rate

Step 1: Take the number of employees who left your business during that month.

Step 2: Take the number of leavers and divide it by the total number of active employees.

Step 3: Take the results of step 2 and multiply it by 100.

Turnover rate formula

To assess workforce stability over a period of time, you would calculate turnover rate by comparing the number of employees who have left with the average number of employees during the same period.

Understanding what steps to take when you calculate employee turnover rate makes it a lot easier to carry out successfully. The basic formula for calculating your employee turnover rate can also be visually represented with the formulas below:

Annual turnover rate

Monthly turnover rate

New hire turnover rate

What's the best turnover rate formula?

There is no absolute best turnover rate formula as different formulas are used for measuring different kinds of turnover rates.

For example, if you want to see your new hire turnover rate, you would use a formula that takes only the number of new employees who leave your business less than a year after they were hired, divide it by the number of employees leaving the business in the same given period, and then multiply that by 100.

What is a good employee turnover rate?

As mentioned earlier, turnover is normal in every business, so the goal should not be to have zero turnover but to aim for a healthy turnover rate.

But after you measure and calculate the turnover rate, what determines whether your turnover rate is good, bad, or on par with the average turnover rate? You may also wonder what determines a healthy turnover rate.

Most companies aim for a turnover rate of at most 10%, but it's also not uncommon to have a number higher or lower than that.

So, a good way to determine if you have a healthy turnover rate is to compare it to industry standards and your business location and benchmark it against internal turnover data.

Some internal metrics you can consider include comparing the turnover rate between departments, over different periods of time, or under different managers.

Costs of employee turnover

Employees leaving your company has both financial and non-financial implications. The financial outgoings will largely come from hiring replacements, advertising the job, and onboarding newly hired employees.

The non-financial costs could manifest as a decrease in employee engagement, a loss of morale and productivity in remaining employees, or a loss of knowledge and expertise in departing employees.

Keeping your employee turnover rate as low as possible should be one of your main priorities, as it's more beneficial for your business to retain its staff instead of constantly hiring new ones. Remember, a team that works together over time will have stronger working relationships.

How to calculate the cost of employee turnover

Calculating the cost of an employee leaving is a simple process. It might not seem necessary, but it helps you understand how much a departing employee actually costs your business.

Working out the cost of high employee turnover can show you how important it is to reduce your staff turnover and indirect costs as much as possible.

Employee turnover costs can be broken down into five areas:

• Benchmark employee costs: The total amount of the employee’s compensation (salary and benefits owed).

• Vacant position costs: The number of days the position remains vacant multiplied by the rate of benchmark costs. Simply, it’s the amount it costs your company to cover the empty role.

• Cost to rehire: The total amount it costs to hire a replacement (advertising, background checks and recruitment fees).

• Onboarding costs: Any costs incurred to integrate the new hire into your business like training resources and work requirements like uniforms and laptops.

• Productivity ramp-up cost: The cost of a new employee learning the ropes and training (measured by their salary and benefits expense). This is typically because a new starter is doing more learning than producing.

Adding these five totals up gives you the total cost of employee turnover. This should make you aware of how costly and important employee turnover is to your business.

Understanding your team's turnover rate

Calculating your turnover rate is one step in improving your retention numbers. To understand what could be influencing your turnover rate, it's helpful to ask yourself the following questions and analyze the answers to learn how to improve your employee retention rate.

When are employees leaving?

Identifying any patterns around the timing of when employees leave your company can be useful in understanding why your turnover rate is high.

For example, if you find that new hires tend to leave your business at a higher rate than tenured employees, it could point to problems in your recruitment process; job descriptions may be unclear, or the induction/orientation process isn't as in-depth as it should be.

Why are employees leaving?

Learning why employees leave can help you make informed changes to your business so you stop losing employees.

Exit interviews help you understand why your employees decide to leave. If there are any trends or similarities in reasons why employees are leaving your business, such as company policies, management style, or company culture, then it's time to make appropriate changes in response to the reported issues.

Who is leaving?

The calibre of employees leaving your business also matters in understanding your turnover rate.

For example, if they tend to leave after the employee's annual salary reaches a certain threshold, then it could be an indicator of employees leaving because of dissatisfaction with their pay.

Another factor to consider when examining who's leaving is whether you're losing top talent or low performers. You may have a low turnover rate, but if your business consistently loses its top performers, then you need to come up with solutions to boost your retention rate. On the other hand, if you have a high turnover of mostly low performers leaving the business, you may not have much to worry about.

Strategies for lowering employee turnover rate

If, after calculating turnover, you compare your company's turnover rate with the average number for your industry, location or internal metrics and find an undesirable result, it's time to consider adopting strategies to help improve your retention rate and boost employee engagement.

Below are a few strategies you can adopt to boost your company's retention rate:

Collect feedback

Part of the steps you can take to unravel why your employee turnover rate looks like it does is to collect feedback from employees frequently. This is important not only for retention rates but also for keeping your finger on the pulse of how employees feel about the business in general.

A great way to do this is by conducting frequent employee engagement surveys. Structure your surveys to ask relevant questions that address topics that matter to your employees.

Collecting feedback is just one step in this process. It's also important to act on the information you receive. This way, your employees know you actually care about their input, and they'll be motivated to share more, which can lead to even better results.

Provide professional development and support

Your company's turnover rate could be high because your employees leave for competitive job offers that offer more support. It's well known that most modern workers care about more than pay and often prefer to work where they're offered opportunities to develop themselves, even if the pay is less than industry standards.

Many businesses these days offer their staff a variety of personal and professional development opportunities, such as free training courses to build new skills and strengthen existing skills.

Offering continuing development doesn't have to be costly. With the right e-learning courses developed in line with industry standards and available at all times, you can upskill your staff to meet your business's evolving needs and satisfy their need for professional development.

Give room for growth

A common theme in why many employees leave their jobs is the lack of clear career paths. When employees feel there is no upward growth in the company, they'll be more likely to look for alternative employment opportunities.

To help improve your employee turnover rate, focus on providing clear career paths and upward growth opportunities by promoting internally and allowing employees to grow into new roles as their responsibilities increase. Doing this will improve employee engagement and, in turn, lead to positive retention and reduced employee departure rates.

Prioritise company culture

Your company's performance and culture could be a deciding factor in whether or not employees decide to stay-especially new hires. Creating a culture that recognizes employees' needs, such as the need for their work to be recognized, and prioritizing a healthy work-life balance can go a long way in reducing voluntary turnover rate.

It also helps to have a clearly defined company culture relating to your business's attitudes and beliefs, which you can share with existing staff and prospective employees before they join the company. That way, you can determine if they're a good fit from the start.

Improving your employee turnover rate with BrightHR

The whole point of calculating your employee turnover rate is to develop strategies for improvement where needed. It provides valuable insights into your workforce dynamics so you can make informed decisions on improving employee retention, building a positive workplace culture, and maintaining productivity.

BrightHR's custom reporting feature helps reduce the time-consuming and stressful aspects of calculating turnover by providing comprehensive data on your new and existing employees, which you can filter according to your needs in just a few clicks.

With unlimited document storage, you'll know you can recall valuable, confidential information from our cloud-based storage system whenever you need it to calculate turnover.

Lowering your turnover rate has never been easier, thanks to BrightHR's suite of employee engagement features. Our exclusive online marketplace, BrightExchange, places thousands of discounts and offers directly in front of your employees at no additional costs, helping to improve your company culture.

You can also empower, incentivize, and praise your outstanding team members via our employee recognition platform. Recognizing your team's effort results in better productivity and improved employee morale.

Plus, with our learning management system BrightLearn, you can satisfy your employees' desire for development and growth by giving them 24/7 access to industry-standard e-learning courses at no extra cost. Upskill your staff to improve their skills and capabilities, track their progress, and issue course completion certificates to increase motivation.

Interested in learning more about how we can help transform your staff retention rates? Speak to one of our friendly software specialists by booking a demo today!