Written by: Seth Richtsmeier
Are you looking to improve your employee retention rate? The first step is to understand just how many of your employees are leaving and why. Use this simple formula to get a better grip on the people side of your business and make better, data-driven decisions.
For any business, it's important to understand the percentage of people who leave your company over a given time period. Knowing your employee turnover percentage and comparing it from year to year can help you improve your recruiting and retention strategies, as well as clue you in to management or personnel changes that need to be made to prevent expensive employee turnover.
There’s a simple formula you can use to calculate your employee turnover rate. You can adjust the formula to calculate monthly, quarterly, or annual turnover rate.
You’ll need three numbers to calculate your monthly employee turnover rate:
- The number of active employees you had at the beginning of the month (A)
- The number of employees you had at the end of the month (B)
- The number of employees that left the company during the month (C)
Get your average number of employees (D) by adding A + B and dividing by two.
(A+B)/2 = average number of employees (D)
Then divide the number of employees who left the company (C) by your average number of employees (D), and multiply by 100% to get your final turnover percentage for the month:
[C/D] x 100 = final turnover percentage
What time period should I use to calculate employee turnover?
Large companies might calculate employee turnover every month, especially those with many locations. Calculating on a month-to-month basis can help you spot patterns within your organization and take action to increase employee retention sooner rather than later. Smaller companies, like startups, might want to hold off on monthly analysis and instead do quarterly or annual turnover calculations. It can take some time to see patterns.
The good thing is you can use this same formula to calculate monthly, quarterly, or annual employee turnover. You’ll just need to use the number of employees you had to begin the quarter or year (as A) and the number of employees you ended the quarter or year with (as B).
Should I calculate new employee turnover as well as overall turnover?
You should calculate new employee turnover if you want to make sure you’re keeping up with your industry’s standards of new employee retention. If you have a high new employee turnover rate, it might be time to rethink your onboarding or orientation methods and investigate other reasons new employees might be leaving.
To calculate new employee turnover, add up the number of new employees who left within a given time period (whether that’s a month, a quarter, or a year). Then divide that number by the total number of employees who left the company within that same period to get your new employee turnover percentage.
Should layoffs or terminations be included in my calculation?
When you want to get an overall percentage of the amount of turnover you had, you need to include turnover of all types, including
voluntary and involuntary turnover. Involuntary turnover (also called desirable turnover) is when a company replaces employees who are underperforming with employees who have greater performance. Voluntary turnover (also called
undesirable turnover) happens when high performing employees leave the company, which causes expensive, time-consuming recruitment and training to replace them. Employees who retire would fall into the voluntary turnover category, since they were not terminated.
You can do separate calculations to determine your voluntary and involuntary employee turnover rates. Simply replace the total number of employees who left the company (C) with the number of first employees who left voluntarily and then employees who left involuntarily.
So, let’s assume you had 100 employees at the beginning of the year and 96 employees at the end of the year. During this time, five quit and 12 were fired. You should have these calculations:
(100+96)/2 = 98 average number of employees
(5/98) x 100 = 5.1% voluntary employee turnover
(12/98) x 100 = 12.2% involuntary employee turnover
[(5+12)/98] x 100 = 17.3% total employee turnover
Should I include temporary workers in my employee turnover calculation?
Turnover refers to the number of employees who held a position within a given time frame, factoring in employees who left voluntarily or involuntarily. Temporary workers who are hired to fulfill one position and then aren’t replaced once their contract is over, should not be factored into your overall employee turnover calculation since the
turnover rate for this one position would be zero.
However, direct-to-hire temporary workers should be factored into your calculation since your goal is to hire these employees full-time once their contract period is over.
What is a 'Good' Employee Turnover Rate?
Gallup recommends employers aim for around 10% turnover rate, but that rate could be a high or low target for your company depending on your industry. The best way to determine what a healthy turnover rate is for your company is to see what the average employee turnover is at other companies in your industry, and you can do this by looking at trends in employee turnover in major industries from the
Bureau of Labor Statistics. This list can give you an overview, but it’s still broad – for instance, professional and business services is listed as one category when there are at least a dozen sectors that can be classified as professional and business services.
The best way to see how you’re doing as an organization is to compare your employee turnover rate year over year. If you’re a new company, you can look at monthly or quarterly turnover rates to see if there are trends or patterns.
Industries with high employee turnover rates
Industries with the highest turnover rates over the last few years are mainly service-based. These include staffing (352%), hospitality (60%), retail (59%), and fast food (100%).
There are many reasons for high turnover in these industries. It’s not uncommon that folks enter the workforce through one of these industries, only to move into another industry for career advancement. It can also be easy to move from one company to another in these industries, as adequate training and career growth opportunities aren’t always provided.
If your company is in one of these high turnover industries, know that turnover is common. Providing thorough training, competitive salaries, and career advancement opportunities can help lower your employee turnover and make your company more appealing to quality job candidates.
Jobs in the technology sector are also starting to see high turnover, as are jobs in the healthcare industry. In 2017, the
healthcare industry’s turnover rate was over 20% and that percentage is expected to continue to climb.
Employee turnover in tech companies has been around 13% with employees leaving due to poor leadership, an unhappy environment, and a lack of career advancement opportunities.
Industries with low employee turnover rates
There are several industries with
low turnover rates, some at almost zero. Government jobs, somewhat unsurprisingly, have the lowest turnover. Government pensions and straightforward paths to retirement can make staying more appealing for employees. Federal government jobs have a low 1.3% turnover rate, while local education and state government jobs have a 1.4% turnover rate.
Finance and insurance jobs also have low turnover (1.7%), as do wholesale trade jobs (1.9%). If your business is in either of these industries, your turnover rate should be in the single digits. If it isn’t, it’s likely that issues with culture or career growth are to blame.
How to analyze your company’s employee turnover
Some employee turnover is good, so don’t be quick to panic when doing your calculations. You don’t necessarily want to have the same employees from one year to the next, unless your company is extremely small. Even in those cases, letting go of underperformers and replacing them with new, passionate workers can help you move your company to the next level.
You also don’t want excessive employee turnover. Here are some things to think about when you’re analyzing your turnover rates and trying to understand why people are leaving your company:
What types of people are leaving?
Are people leaving from the same department or are the people leaving evenly across the board? Look at the managers in charge of the people who are leaving. Seeing a noticeable number of people leaving who worked under one or two particular managers is a red flag. There could be an issue with the manager that needs to be addressed, or at least investigated more thoroughly. Individuals will leave a bad manager even if they like the company. The option for an employee to speak up about management may be there, but there could be fear of repercussions, no incentive for giving feedback, or no system in place to see any movement on the solution to a problem.
Unless the positions you’re concerned about have built-in high employee turnover rates, such as entry-level positions, it’s critical to consider the importance of employee retention. Hiring the best candidate is just half of the process. You also need to retain them. Want to know the truth behind what keeps employees engaged? Download the TINYpulse
Employee Retention Report.
When are people leaving?
Doing monthly, quarterly, and annual employee turnover calculations can clue you in to any seasonal patterns of when people leave. Do employees leave after a stressful yearly event, like a company-hosted conference? Or maybe there’s no relief from mid- or end-of-year sales and record keeping. Expected events like these could indicate that employees are burning out, and this give you a direction in which to find solutions to retain staff.
What do people say in their exit interviews?
Exit interviews can give you a lot of insight into why people leave. Make sure the person or team managing the exit interview is asking the same questions to everyone, so you have a consistent baseline for analyzing responses. Take note of answers that come up repeatedly, like a lack in development opportunities, low morale, management issues, or work-life balance challenges.
Employee turnover rate matters
Improve your recruiting and retention strategies by comparing your employee turnover year to year, and you’ll better understand the management or personnel changes that need to be made to prevent costly turnover.
The employee turnover rate itself may not hand the specific issues that should be addressed to you on a silver platter. Further investigation and analysis are needed to support any major decision. It’s important not to overlook the fact that an underlying issue could be contributing to a higher turnover rate – dig deep to uncover the cause of these issues and improvement awaits your business.
Related:
15 Employee Engagement Activities Your Team Will Actually Enjoy
