Employee turnover: what it means and how to calculate it

Employee turnover is an important metric that helps a company or business’s HR improve on its method of recruiting, managing and retaining its staff. It offers insight into what workers outflow means for a company, but that’s not all. Keep reading to find out more about employee turnover and how to calculate employee turnover rate.

Introduction to Employee Turnover

At one point or the other, employees are bound to leave a business entity for different reasons. These include dismissals, retirements, lack of required qualifications and wilful resignations. In essence, employees may be asked to leave or they may leave out of their own volition.

What employee turnover then does is to measure the number of employees exiting a company. Also known as staff turnover, employee turnover is important for an organisation to know how many employees it loses per time.

Employee turnover rate shows the percentage of staff that left a particular organisation within a given duration. This can be calculated monthly or annually, or on both basis, depending on the industry and other factors.

Importance of Calculating Employee Turnover

Employee turnover rates are considered highly important, especially for Human Resources departments. Determining employee turnover rates is usually motivated by cost implications, especially in terms of expenses incurred by replacing employees. 

An employee’s exit opens up a vacancy the company has to fill and replacements don’t come cheap. In particular, onboarding and training new staff is costlier than retaining old ones. More so, new staff members typically aren’t so productive until after a few months. Research shows that employee turnover can cost an organisation about 90% to 200% of yearly salary, clearly a huge expense with ripple effects on a company’s finance.

At the same time, employee turnover can help organisations determine who is leaving their firm at a given time and for what reasons. This way, when top performers seek to take the exit door, the HR is alerted to adjust where necessary, so as to retain them. 

How to Calculate Staff Turnover

Three variables are required to calculate the staff turnover rate. Most companies calculate their staff turnover rate on a quarterly or yearly basis as monthly rates might not yield significant data.

The figures required for an employee turnover calculation are, first, the average number of employees, and secondly, the staff population that left within the period under review. To arrive at the average number of employees, the staff population at the beginning and the end of the period are usually added together, and divided by 2. 

The formula for calculating employee turnover rate looks like this:

This same formula can be applied for the monthly, quarterly or annual calculation.

The Average Employee Turnover Rate

Statistics show that the average yearly employee turnover rate is 10.9%. However, this figure doesn't represent the normal employee turnover rate for a particular company or organisation, as the industry and country largely determine what is considered a normal employee turnover rate.

Another significant point is that the rate only shows the percentage of employees lost, not show the quality of staff that left.  

Essentially, employee turnover provides a clue as to the outflow of workers from a company and helps HR adjust their methods where necessary.

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