School of studies of Management,
Jiwaji university Gwalior (M.P.)
Mba2nd Sem.
Subject: Human Resource Management
Unit-3
Employee turnover rate is a good indicator of an organization’s work culture, the
effectiveness of hiring policies and overall employee management. An understanding of
turnover rate compared to industry standards as well as global employee retention
benchmarks can help businesses drive growth and improve workforce engagement. In this
article, we will discuss how you can calculate employee turnover rate and what those
numbers indicate about your organization.
What Is Employee Turnover?
Employee turnover is the percentage of employees that leave your organization during a
given time period. Organizations typically calculate turnover rates annually or quarterly.
They can also choose to calculate turnover for new hires to assess the effectiveness of
their recruitment policy.
Employee turnover is a crucial metric for measuring the performance of human resources
departments or human resource management apps.
Why Employee Turnover Matters
Replacing an employee is expensive compared to retaining them. The whole recruitment
process must start again, which requires time and resources. If your turnover rate is high,
i.e., lots of people are leaving simultaneously, it can result in:
• Extra expense in recruiting a replacement
• Lower morale for those who are left
• Shortage of skilled and knowledgeable workforce
• Loss of belief in team’s capabilities
When employee turnover has so many serious consequences, it makes business sense to
keep a tab on it so that you can take necessary action when it starts getting high.
Voluntary vs. Involuntary Turnover
When employees leave an organization of their own will, typically to work in a different
organization or relocate to be with their family, it is called voluntary turnover.
When employees leave an organization because they were asked to do so, it is called
involuntary turnover. Retirement and firing are two of the most common examples of
involuntary turnover. To get a deeper understanding of their turnover rate, organizations
may choose to calculate voluntary and involuntary turnover rates separately.
How to Calculate Employee Turnover Rate in 3 Steps
Before starting with employee turnover rate calculations, you need to decide the period for
which you want to calculate. It could be monthly, quarterly or annually.
Here’s how to calculate employee turnover rate in three simple steps:
Step 1. Collect Necessary Information
To calculate employee turnover, you will need to collect three pieces of information. First,
the number of employees your organization had at the beginning of the time period (e.g.,
year). Second, the number of employees your organization had at the end of the time
period. And third, the number of employees who left your organization during the said time
period.
To calculate the turnover rate, you need these three pieces of data:
• Number of employees at the beginning of the period
• Number of employees at the end of the period
• Total number of employees that left during that period
Once you have collected this information, move on to the next step.
Step 2. Calculate the Average Number of Employees
In order to calculate your employee turnover rate, you need to first calculate your average
number of employees. To do this, add your number of employees at the beginning of the
time period (e.g., the beginning of the year) to your number of employees at the end of the
time period (e.g., the end of the year).
Here’s the formula to calculate your average number of employees:
Avg. # of employees = [(number of employees at the beginning + number of employees at
the end)/2]
For example, say, your organization had 42 employees at the beginning of the year and 62
at the end of it. And 13 employees left during the same period. To calculate your average
number of employees you would simply add 42 and 62, then divide the total by two.
average number of employees = 62+42/2 = 52
Step 3. Calculate the Turnover Rate Percentage
Next, use your average number of employees to calculate your turnover rate. To do so,
divide the number of employees who left by your average number of employees. Then
multiply that answer by 100 to get your turnover rate percentage.
Here’s the formula to calculate your turnover rate percentage:
Annual turnover = [(number of employees who left/average number of employees)*100]
Following the same example, divide 13 (the number of employees who left within the time
period) by 52 (the average number of employees), then multiply that number by 100 to get
an employee turnover rate of 25%.
annual turnover % = 13/52*100 = 25%
How To Analyze Your Turnover Rate
How good or how bad the turnover rate you have calculated depends upon your industry. If
we continue with our example, the turnover rate of 25% would be nothing if you are in
manufacturing or retail. However, if you are in education, you need to investigate the
reasons behind the high turnover rate.
Turnover rate is not just a metric. You should analyze it from different angles to better
understand the information hidden behind that number. To begin, ask these questions:
• Who are the employees that are leaving? Is it the new hires that are leaving or is it the
senior ones?
• Why are the employees leaving? If it is the new hires that are leaving, is it because they
find a gap between what they expected and what they are actually doing? Do you need to
train them more or rework your job description to ensure the right candidates are applying?
If senior employees are leaving, maybe you need to develop an upskilling or career
management program to retain them.
• Is there any pattern in their departure? For instance, if more employees are leaving just
before or after the annual appraisal, maybe they are not satisfied with the process or your
standard increment rates.
