Every business has turnover. But when you’re watching employees leave your company, you may begin to wonder if your annual turnover rate is higher than average. Or, maybe you’re worried your business is suffering from “turnover contagion” — a phenomenon wherein one employee’s resignation increases the likelihood of other employees leaving.
The only way to know whether your organization has a healthy turnover rate is to calculate it.
Understanding your turnover rate will give you key insights into the pace at which employees are leaving your organization — and why they’re leaving. Below, you’ll learn how to calculate employee turnover rate, why it’s important, how to reduce it, and how to keep top talent at your company.
Calculating Employee Turnover Rate
Your employee turnover rate is the percentage of employees that leave your organization during a given time frame. Knowing the pace at which employees are leaving your company is a must if you want your organization to thrive. “Calculating your employee turnover rate is like getting your annual physical; it is how you get a sense of the health of your organization,” said Edie Goldberg, PhD, founder and president of consulting company E. L. Goldberg & Associates and author of The Inside Gig.
When you’re calculating your company’s turnover rate, the first step is to choose a period of time for which you want to measure turnover. For instance, do you want to know the turnover rate for the past year or the past month?
From there, it’s time to look at your actual turnover numbers. “To calculate employee turnover, you need to know three numbers,” Goldberg explained. They are:
- Number of people who have left the company during the given period
- Number of employees at the beginning of the time period
- Number of employees at the end of the given period
Once you have these numbers, “the actual calculation of a total turnover rate is quite simple,” said Cabot Jaffee, PhD, president and CEO of hiring software company AlignMark. “Take the total number of people leaving the job and divide that by the average number of people in the company [average the number of employees at the beginning and end of the time period].” Then, take that number and multiply it by 100 to get the employee turnover rate.
While this formula can be used to calculate general employee turnover (regardless of the reason), you can replace total departures with layoffs or voluntary separations for more detailed insights. For example, a high voluntary turnover rate might suggest that you aren’t providing employees with enough opportunities for long-term growth. A high involuntary turnover rate might mean your recruitment strategies need revisiting in order to find better talent.
Ready to give it a try? To determine your own turnover rate, use the interactive calculator below. The tool also makes it possible to calculate voluntary and involuntary turnover, giving you better insight into why employees might be leaving.
Why Employee Turnover Rate Matters
Determining your company’s turnover rate can give you better insight into why employees might be leaving. “When you know how your turnover is trending — and how your turnover compares to industry benchmarks — you can learn if there are problems that need to be addressed,” like recruitment or management issues, Goldberg explained.
Not only can understanding your employee turnover keep you from losing your best people, but it can also prevent you from losing a lot of money, as the cost of employee turnover can add up.
“Estimates of the cost of turnover vary, but commonly it is [around] 33% of an individual’s salary,” Goldberg said. “But when you add in all of the indirect costs of turnover, [like] lost business opportunity, training new employees, [or] lower productivity [of newly hired employees] in the beginning…others estimate the cost of turnover to be one-and-a-half to two times annual salary.”
Because high turnover rates can be costly to companies, addressing issues that drive turnover can help keep your organization healthy and successful. Here’s how to use your turnover data to do it.
Using Employee Turnover Rate
Calculating your company’s average turnover rate is an important step in getting turnover issues under control — but it’s not the only step. “Many companies simply look at the overall [rate] of turnover, as calculated above,” said Goldberg. “But if you really want to understand what is happening in your company, you need to examine this data with a finer lens.”
Digging deeper into the details of your turnover rate can give you key insights into the issues driving your staff turnover. You might examine the following:
- Which employees are leaving
- Which departments they’re leaving from
- How long they’re staying with your company
Looking at those details can help you develop an effective strategy for dealing with issues that may be causing employees to leave. For instance, “If you are losing a lot of desirable talent from one part of your business, you may have a management issue that needs to be addressed.” Goldberg said. On the other hand, “If you are losing a lot of undesirable employees, you might have a problem with your recruitment or selection process; you are not hiring well.”
There’s more to employee turnover than simply calculating your turnover rate. If you want to improve retention (and keep your staff departure rate at a manageable level), you need to dig deeper to understand the factors contributing to employee departures — and take action to address those factors and get your retention back on track.
Strategies for Lowering Employee Turnover Rate
Calculating your company’s turnover rate and digging into the data to understand what’s driving departures are essential steps in improving your employee retention rate. But there are also steps you can take on an ongoing basis to keep your turnover rate low — and keep top performers at your organization. Here are some steps you should take to lower employee turnover and promote retention.
1. Measure turnover rate regularly.
If your turnover rate is high, there’s an issue driving it. In order to lower that rate, you need to address that problem as soon as possible. But if you’re only looking at your turnover metrics once a year, chances are, you won’t know there’s an issue until it’s already driven a lot of employees out of your organization.
So, if you want to keep employee turnover low, make sure you’re calculating your organization’s departure rate on a regular basis (for example, monthly or quarterly). “Turnover should be examined at least annually, but…to be more proactive in addressing issues, it is important to measure more frequently,” Goldberg advised.
2. Consult with your staff.
If you want to keep employees from leaving your organization, one of the best things you can do is ask them what it will take to keep them there — and then take action accordingly. This might mean conducting exit interviews with the employees who are leaving, but it should also consider your active employees. “Conduct stay interviews with your high-performing and high-potential talent to get in front of potential turnover,” Goldberg recommended. “Understand what is important to them and address those issues when possible.”
3. Set your employees up for success.
Employee retention starts from the moment you decide to bring a new team member on board. So, if you want to lower your turnover rate — and prevent employees from leaving your organization — you need to set them up for success from day one. “Create a great onboarding process to make sure that each new hire is given the best opportunity to succeed,” Jaffee said.
4. Give employees opportunities to grow.
If your employees don’t feel like they have the opportunity to grow within your organization, eventually, they’re going to seek out other opportunities. To keep turnover rate low, make sure you’re giving your employees the space and opportunity to grow and evolve in their careers.
“Provide clear development opportunities and career paths for all employees,” advised Jaffee. By fostering a company culture that prioritizes growth, you can bolster employee engagement and retention while also helping your employees excel at their work.
Your company’s employee turnover rate is a critical metric in understanding the overall health of your organization. Now that you know how to calculate employee departure rate (and how to use that information to reduce turnover and improve retention), you can start taking steps and implementing strategies right away to make your organization that much healthier — and keep your top employees around for a long time to come.
Looking for other ways to improve retention and reduce turnover? Find all the human resources metrics that matter to your business and compare your organization to industry averages with our HR Metrics Cheat Sheet template.