Employee turnover is a vital metric that reflects the frequency with which employees leave an organization. In India, the IT and Business Process Management (BPM) sector has been particularly affected, with over a million resignations recorded in 2021 alone.
This high attrition rate underscores the importance of calculating turnover percentages to assess retention strategies and organisational health.
Accurately calculating turnover percentages allows HR professionals to identify trends, pinpoint areas for improvement, and implement targeted interventions. By understanding the factors contributing to turnover, organisations can develop strategies to enhance employee satisfaction and reduce attrition, leading to a more stable and productive workforce.
What are the key benefits of tracking the employee turnover rate regularly?
How does employee turnover impact overall business performance
What common pitfalls should I avoid when calculating turnover percentage
How can turnover data help me improve employee retention strategies
Which HR tools make calculating and analysing turnover easiest and most accurate
Employee turnover rate is a key metric that measures the percentage of employees who leave your company over a specific period. It helps you understand how well your organisation is retaining talent and highlights potential issues with engagement, management, or workplace culture. In this section, we'll break down the formula for turnover rate and explain how it can offer valuable insights into your workforce stability.
Definition and Significance of Employee Turnover Rate in HR
This metric is essential for HR teams as it provides valuable insights into workforce stability, employee satisfaction, and retention strategies. Understanding turnover helps identify potential issues within the organisation, such as employee dissatisfaction or ineffective management. By regularly tracking turnover, HR professionals can make informed decisions to improve employee engagement and reduce recruitment costs.
What It Measures: The percentage of employees who leave the company during a specific period.
Why It Matters: High turnover can signal issues like poor job satisfaction, weak leadership, or lack of growth opportunities.
Impact on Business: Tracking turnover helps prevent the costs associated with constant hiring and training.
Strategic Decision-Making: Allows HR to refine policies and align workforce planning with company goals.
Read more: Understanding Employee Turnover: Causes and Solutions
How to calculate turnover percentage so that it helps businesses gauge their ability to retain talent?
This metric provides valuable insights into how stable your workforce is, helping HR teams identify trends, pinpoint areas for improvement, and make better decisions about recruitment, training, and overall employee satisfaction. By following a step-by-step approach, you can calculate the turnover rate accurately and use the data to strengthen your HR strategies.
Let's walk through the key steps involved in calculating employee turnover rate with practical examples to make the process clearer.
Also read: Talent Retention: Key Strategies & Benefits for Employers
Step 1. Determine the Total Number of Employees
Step number one is to determine the total number of employees. This includes full-time, part-time, temporary, and seasonal employees, basically, everyone who is part of your workforce at the start of the period.
Why this step matters: This starting point forms the baseline for your turnover rate. Without a clear picture of how many employees you had initially, it's impossible to gauge how many have left.
Example: Let's say your company started the year with 150 employees. This is your total number of employees at the beginning of the period and will be used in the calculation to assess how much of the workforce has turned over during the period.
Step 2. Calculate the Number of Departures (Separated Employees)
The next step is to calculate the number of employees who left the company during the selected period. Departures include all types of separations, such as voluntary resignations, retirements, and involuntary terminations (e.g., layoffs or dismissals). It's important to track this number accurately to understand why employees are leaving and identify trends.
Why this step matters: By understanding the number of departures, you can gain insights into employee satisfaction, management effectiveness, and possible issues within your organisation that are causing people to leave.
Example: During the year, 12 employees from the initial 150 left the company. This could include 8 voluntary resignations, 2 retirements, and 2 employees who were laid off due to restructuring. These 12 departures will be used to calculate the turnover rate.
Step 3. Calculate the Average Number of Employees Over the Period
The average number of employees is crucial to ensuring the accuracy of the turnover rate. To get this figure, you add the number of employees at the start and end of the period, and then divide by 2. This accounts for fluctuations in headcount during the period (e.g., new hires, temporary staff leaving, etc.).
Why this step matters: Using the average number of employees helps to standardise your turnover calculation, especially when the workforce size changes throughout the period.
Example: If your company started with 150 employees and ended with 160 employees (after hiring 20 new people), you can calculate the average number of employees like this:
(150 + 160) ÷ 2 = 155 employees (average)
This average number of employees will now be used in your turnover rate formula.
Step 4. Apply the Turnover Rate Formula
Now that you have all the necessary numbers, you can apply the turnover rate formula to calculate the percentage of employees who left your company during the period.
Formula:
Employee Turnover Rate = (Number of Departures ÷ Average Number of Employees) × 100
This formula gives you the percentage of your workforce that left, offering valuable insight into retention and workforce stability.
Example:
Using the numbers from the previous steps:
Number of Departures = 12 employees
Average Number of Employees = 155
Turnover Rate = (12 ÷ 155) × 100 = 7.74%
So, in this case, 7.74% of the workforce left during the year. This percentage helps the HR team understand how much turnover occurred.
Why Is This Important?
Calculating employee turnover rate is essential for assessing the effectiveness of your retention strategies. A higher turnover rate often points to dissatisfaction, while a lower rate can indicate strong employee engagement and satisfaction. By regularly calculating turnover and reviewing the data, HR teams can:
Identify trends: If turnover is consistently high in specific departments or roles, it may signal issues that need to be addressed.
Evaluate HR practises: Turnover data can help HR assess the effectiveness of onboarding, employee development, and management.
Improve retention strategies: Knowing your turnover rate allows you to implement targeted interventions, such as improving work culture, offering better benefits, or enhancing career growth opportunities.
We have covered the step-by-step process of calculation turnover percentage. Now, let us look at some key examples for the turnover rate calculation.
Calculating the employee turnover rate is essential for understanding workforce stability and identifying areas where improvements are needed. Let's explore turnover calculations through practical examples, which will help you grasp the process and see how it applies to different time frames.
Example 1: Monthly Turnover Rate Calculation
Tracking turnover on a monthly basis allows you to address short-term fluctuations. This approach is helpful in industries where employee movement happens quickly, or in response to specific challenges or events.
Scenario:
Starting employees at the beginning of the month: 250
Employees who left during the month: 5
New hires during the month: 10
Ending employees at the end of the month: 255
To calculate the turnover rate, we exclude new hires, as they don't affect the existing workforce's stability.
Step-by-step calculation:
Number of separations: 5 employees left during the month.
Average number of employees:
(250 starting employees + 255 ending employees) ÷ 2 = 252.5Turnover rate formula:
Turnover Rate = (5 ÷ 252.5) × 100 = 1.98%
The turnover rate of 1.98% indicates that just under 2% of your employees left during the month. If you track this over time.
Example 2: Quarterly Turnover Rate Calculation
The quarterly turnover rate provides a broader view, helping businesses identify trends over three months. This can be especially useful for monitoring the impact of internal or external changes that may influence retention.
Scenario:
Starting employees at the beginning of the quarter: 400
Employees who left during the quarter: 20
New hires during the quarter: 30
Ending employees at the end of the quarter: 410
Step-by-step calculation:
Number of separations: 20 employees left during the quarter.
Average number of employees:
(400 starting employees + 410 ending employees) ÷ 2 = 405Turnover rate formula:
Turnover Rate = (20 ÷ 405) × 100 = 4.94%
A 4.94% turnover rate for the quarter suggests that about 5% of your workforce left. This figure provides insights into workforce stability over a longer period than monthly turnover. If this number is higher than in previous quarters, HR can investigate causes such as changes in leadership, job satisfaction, or market conditions.
Example 3: Annual Turnover Rate Calculation
Annual turnover is a critical metric for assessing long-term trends. It allows HR teams to evaluate the overall effectiveness of retention strategies and understand the workforce's trajectory over the year.
Scenario:
Starting employees at the beginning of the year: 800
Employees who left during the year: 40
New hires during the year: 60
Ending employees at the end of the year: 820
Step-by-step calculation:
Number of separations: 40 employees left during the year.
Average number of employees:
(800 starting employees + 820 ending employees) ÷ 2 = 810Turnover rate formula:
Turnover Rate = (40 ÷ 810) × 100 = 4.94%
An annual turnover rate of 4.94% shows that 5% of the workforce left throughout the year. This longer-term metric allows HR to review the success of employee engagement, compensation strategies, and professional development programmes. If turnover is high, it may indicate a need for adjustments in retention policies or workplace culture.
There are multiple ways to calculate turnover rate. Let's look at two of the most prominent ones below.
Calculating employee turnover is a key activity for HR professionals, but it can be a labor-intensive task, especially for larger organisations with many employees. The good news is that several tools can simplify the process and make it more accurate.
From using simple Excel templates to leveraging more advanced HR software solutions, the right tools can help ensure you're calculating turnover with precision and consistency.
Use of Excel Templates for Turnover Calculation
For many organisations, Excel remains the go-to tool for tracking turnover due to its flexibility and ease of use. With Excel templates, HR teams can quickly input data and calculate turnover rates without needing additional software or complicated setups.
Why Excel Works:
Customizability: Excel allows you to create turnover calculation templates that can be tailored to your company's specific needs.
Widely Accessible: Most businesses already use Excel, making it a practical choice without requiring new investments in software or training.
Simplicity: Once you set up a template, Excel's formula features can quickly calculate turnover rates, and you can easily generate reports to share with leadership.
How to Set It Up in Excel:
Column 1: Starting employee count at the beginning of the period.
Column 2: Number of employees who left during the period.
Column 3: Ending employee count at the end of the period.
Use Excel's average formula to calculate the average number of employees, then apply the turnover rate formula:
Turnover Rate = (Number of Departures ÷ Average Number of Employees) × 100
To simplify turnover calculation in Excel, you can create a basic table to track the necessary data. Here's an example setup that you can use as a template:
Description | Value |
Starting Employees | 250 |
Employees Who Left | 10 |
New Hires | 15 |
Ending Employees | 255 |
Average Number of Employees | = (250 + 255) ÷ 2 = 252.5 |
Turnover Rate Formula | = (10 ÷ 252.5) × 100 = 3.96% |
Other Digital Tools for Accurate Metrics
While Excel is useful, many organisations use HR software systems or other digital tools that automate the turnover calculation and offer deeper insights into workforce trends. These tools track not only employee turnover but also provide analysis on retention, engagement, and more.
1. HR Management Systems (HRMS)
Many HR management systems are built to track all aspects of the employee lifecycle, from hiring to exit. These systems can automatically calculate turnover rates based on employee data stored within the system, saving time and reducing manual errors. They often provide real-time data, making it easier to track turnover trends as they happen.
Why This Works:
Automation: Automatically tracks and calculates turnover, reducing administrative workload.
Comprehensive Insights: These systems can provide turnover rates across different departments, roles, or locations, offering a more detailed view of workforce stability.
Real-Time Tracking: As soon as employee data is updated, the system adjusts turnover rates, keeping the information current and actionable.
Take the next step in optimising your HR processes with Craze. Our platform streamlines turnover tracking and provides real-time insights, allowing you to make data-driven decisions with ease. Explore More or Book a 15 min demo to know more.
2. Turnover and Retention Analysis Tools
Dedicated tools focused on turnover and retention analysis can provide detailed reports and insights into why employees leave. They help HR teams identify patterns across various demographics such as tenure, age, role, or location. These insights can drive targeted retention efforts, improving employee engagement and reducing overall turnover.
Why This Matters:
Deep Data Insights: These tools can track turnover trends by factors like employee tenure, reasons for leaving, and department, helping HR make data-driven decisions.
Retention Strategy: They highlight potential issues with management practises or workplace culture, providing actionable insights to improve retention strategies.
Predictive Analytics: Some tools even offer predictive capabilities, helping HR forecast potential turnover and proactively address it before it becomes a problem.
By tracking employee turnover, HR teams can make informed decisions that improve retention, boost productivity, and foster a positive workplace culture. This metric provides key insights into employee satisfaction and organisational health, allowing businesses to address challenges and optimise strategies.
At Craze, we simplify HR processes with powerful tools that help you track, manage, and analyse key HR data. Our platform streamlines your HR operations, ensuring better decision-making and a more engaged workforce.
See how Craze can transform your HR management by booking a demo today.
1. What factors influence a company's turnover rate?
Several factors, including company culture, job satisfaction, management quality, career growth opportunities, and compensation, influence the turnover rate. High turnover might signal issues with one or more of these elements. By tracking turnover, companies can identify specific pain points. Understanding these drivers can help HR teams address retention challenges more effectively.
2. How do voluntary and involuntary separations affect the turnover rate?
Voluntary separations occur when employees choose to leave, often due to dissatisfaction, better opportunities, or personal reasons, whereas involuntary separations are initiated by the employer, such as layoffs or terminations. Distinguishing between these two is crucial because high voluntary turnover might point to internal issues like poor management or lack of growth, while involuntary turnover could indicate external factors like company downsizing. Understanding both types helps businesses target specific retention strategies.
3. Can the employee turnover rate be calculated for individual departments or teams?
Yes, turnover rate can be calculated at the departmental or team level, which provides more granular insights into specific areas of the organisation. For instance, if the HR department has a higher turnover rate than others, this could signal issues such as poor leadership or inadequate support. By segmenting turnover data by department or team, HR teams can target their efforts to the areas that need the most improvement.
4. How often should employee turnover be calculated?
Employee turnover should be calculated regularly, but the frequency depends on the company's needs. For most businesses, calculating turnover on a monthly or quarterly basis offers timely insights into workforce stability. In fast-changing industries or during periods of significant organisational change, tracking turnover monthly allows HR to quickly identify trends and take corrective actions. Annual turnover rates provide a longer-term view of overall retention and engagement strategies.
5. What are the implications of a high turnover rate on a business?
A high turnover rate can have several negative implications for a business, including increased recruitment and training costs, loss of company knowledge, and a decrease in team morale. High turnover often signals deeper issues within the organisation, such as poor culture, ineffective leadership, or lack of employee engagement. It can also impact productivity as teams may be in constant flux. Addressing high turnover proactively helps maintain stability and reduce associated costs.
