How to calculate your employee turnover rate

How to calculate employee turnover rate

Why calculate employee turnover?

According to the latest labour force survey by the Central Statistics Office, employment in the state surged 3.7 per cent in the first quarter of 2019 to just above 2.3 million compared to the same quarter the year before. In this tight workforce market, the war for talent is raging. Organisations cannot succeed without a proactive strategy for retaining key employees. But where do you start?

Employee turnover rate is a telling HR metric. It provides you with a good idea of where your company stands in relation to employee retention. Moreover, it also allows you to measure the effect of organisational changes. If an employer changes policy or goes through a large organisational restructuring, this number can help you understand the effect these changes are having on your workforce. By tracking statistics such as employee turnover rates and turnover cost, you have a way to measure the effectiveness of new HR initiatives such as a new employee engagement program or a formal on-boarding program.

 

How to calculate employee turnover rate

Employee Turnover Rate refers to the percentage of employees who leave an organisation during a certain period of time. Companies usually include voluntary resignations, dismissals and retirements in their turnover calculations.

We are going to show you two calculations. The first is probably the most commonly used formula which we believe will cause a problem in the accuracy of your answer. The second is an adjusted formula which is more accurate. In our examples, we are measuring the monthly turnover rate, though this can be done quarterly, every six months or yearly.

The most commonly used formulae to calculate the turnover rate divides the number of employees that depart in a given month by the average number of employees in an organisation in that given month.

This formula can be seen here.

 

    \[Employee Turnover Rate =( \frac{The Number Of Employee Departures During Month}{ The Average Number Of Employees During Month} ) X 100\]

 

The average number of employees can be calculated by adding the number of employees at the start of the month to the number of employees at the end of the month and dividing by 2.

 

    \[Average Number Of Employees=\frac{No At Start Of Month - No At End of Month}{2}\]

 

Now we are going to apply some real numbers to these formulae. Let us say that a company has 200 employees at the start of the month, and they take on 30 new employees during that month, but 36 employees left during the month. Then the number of employees at the end of the month is 200 + 30 – 36 = 194.

Then the average number of employees during the month is;

 

    \[Average Number Of Employees=\frac{200 - 194}{2}=197\]

 

This yields the following turnover rate ;

 

    \[Turnover Rate = \frac{36}{197} X 100 = 18.2\%\]

 

Now here is the problem. Let us suppose that the company is going through an expansion and they had 100 new employees during that month instead of 30. Then the number of employees at the end of the month will be 200 + 100 – 36 = 264.

Then the average number of employees during the month is;

 

    \[Average Number Of Employees =\frac{200 - 264}{2}= 232\]

 

This would yield the following turnover rate ;

 

    \[Turnover Rate = \frac{36}{232} X 100 =15.5\%\]

 

This is showing the turnover rate is 2.7% lower than the first calculation. What has happened is the second result is diluted by hires and thus does not provide a true reflection of the turnover rate of the existing employees at the start of the month that left the company. Therefore, we recommend using the following formula.

 

    \[Turnover Rate =\frac{The Number Of Employee Departures During The Month}{The Number Of Employees At The Start Of The Month}  X 100\]

 

Applying the numbers above to this formula yields the following turnover rate;

 

    \[Turnover Rate = \frac{36}{200} X 100 = 18\%\]

 

What this number tells you is the turnover rate of the existing employees in the company at the start of the month. If you would like to identify if there is a problem with employee turnover within you company, then we believe this is the baseline formula that you should use.

 

So what can this baseline formula tell you about what is going on in your organisation?

To be honest, this formula does not tell you a huge amount about what is going on in your organisation. You can compare this number to the industry average to see if your company is performing above or below other companies in the same industry, but that is about it.

To get a real insight into your turnover rates you would need to ask yourself critical questions like “Who are the employees who are leaving?” and “why are they leaving?”. To answer these question you would need to subdivide your turnover rate into different demographics such as job function, geographic location, gender, age and tenure, among others. It would also be useful to sub-divide into other categories such as voluntary turnover, involuntary turnover, functional turnover and dysfunctional turnover.

If we use the figure we obtained in our earlier example you may find that out of the 18% of people leaving your organisation, 30% of them may be from the Sales department, 30% may be mission critical personnel across the company, 15% may be new hires, 15% may be females with young families and the remaining 10% covers everyone else in the company. These figures would definitely provide you with more insight into the problem areas in your organisation and would facilitate further investigation and drive data driven initiatives.

Further investigation could be through employee feedback surveys. These surveys may highlight issues the sales department have with regards to frequency of travel; or they may provide feedback on your onboarding process for new hires; or female perceptions on company attitudes towards women with families etc. With these insights, a company can then take corrective action to improve the retention rates of these demographics.

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