How to Calculate Employee Turnover (and What's an Ideal Retention Rate)

Don't worry...you don't need to be a math genius to calculate employee turnover rate.

Calculating employee turnover rate expressed as a percentage is quite simple and only requires you to have a few solid company figures handy, whether you want to calculate turnover rate on a monthly or annual basis.

So, let's jump in right away and break down how to calculate employee turnover and analyze your results.

What Is the Employee Turnover Rate?

Employee turnover is the number of employees who leave an organization within a specific period of time.

Employee turnover rate is a metric that gives you insight into the health of your culture and the effectiveness of your management practices. For example, if a company's turnover rate is high, it could indicate employee engagement challenges. On the flip side, a low turnover rate could point to higher levels of job satisfaction.

HR leaders and managers usually pay attention to both voluntary (employees who choose to leave) and involuntary (employees who had no choice but to leave) turnover rate, as these numbers indicate different types of trends.

Calculating your employee turnover rate isn't enough though, it's important to understand your result and dig into why employees are leaving or staying. But it can provide valuable data to inform your HR strategies.

How to Calculate Employee Turnover Rate

Monthly Turnover Rate Formula

To calculate the monthly employee turnover rate, all you need is three numbers:

• The number of active employees at the beginning of the month 

• The number of active employees at the end of the month

• The number of employees who left during that month

Then, calculate the average number of employees by adding your beginning and ending workforce and dividing by two.

Finally, you should divide the number of employees who left by your average number of employees and multiply by 100 to get your final turnover percentage.

Monthly turnover rate = (Employees who left in a month/Average number of employees for that month)/x 100

Annual Turnover Rate Formula

To calculate the annual employee turnover rate, you can use the same exact process but focus on:

• The number of active employees at the beginning of the year

• The number of active employees at the end of the year

• The number of employees who left during the year

To calculate the average number of employees for the year, add the number of employees you had on January 1 and on December 31 and divide that number by two.

Annual turnover rate = (Employees who left in a year/Average number of employees for that year) x 100

What Is a Good Average Turnover Rate?

Losing some employees is inevitable. So, you're probably wondering what is a good average turnover rate, or, on the flip side, what the "ideal" retention rate is. In short, what's the benchmark you should aim to maintain.

Unfortunately, the answer is not so straightforward. Determining a universal employee retention benchmark is difficult, as turnover rates vary widely from industry to industry. According to recruiting giant Monster, "every firm should establish its unique ideal rate."

Pro tip: It's important to note that turnover rates vary significantly from industry to industry. However, turnover rates should (ideally) be lower than 10%, which is a very healthy turnover rate across the board.

For example, the hospitality industry is notorious for high turnover rates; according to a 2016 Compensation Force study, turnover soared at 28.6 percent; almost triple the "healthy" rate of 10% mentioned earlier. That said, if you're curious to know more about turnover rates in your industry, check out this useful tool from Nobscot.

Regardless of your industry benchmark, organizations should keep these three points in mind when considering retention:

• Strategically planning the flow of talent through the organization.

• Decreasing the flow of top performers out.

• Increasing the flow of top performers in.

By keeping track of these important metrics, you can start to define your own internal benchmarks for success.

Analyzing Employee Turnover Rate

It is crucial to keep track of your company's global turnover rate. Yet, this metric gives HR managers and executives only a limited idea of who is leaving their company.

This means we cannot determine how and why people leave simply by looking at the overall turnover rate. Employees quit for all types of reasons.

To gain a better insight into employee turnover at your company, you need to learn about more nuanced turnover metrics. 

Each of them is discussed below.

Involuntary Turnover

This type of turnover results from an employee being terminated due to poor job performance, excessive, unjustified absenteeism, or grave violation of workplace policies. It is considered involuntary because the departure wasn't a decision made by the employee and is also referred to as employee "termination" or, more colloquially, understood as being "fired."

An employee layoff due to unfinished work, a slow down in business, or departmental restructuring, can also be considered an involuntary turnover. However, turnover caused by any of the reasons above is handled very differently compared to a termination.

While layoffs can have some federal, provincial, or state provisions that help the employee out, not all of these provisions apply to someone fired due to poor business performance and not meeting their job requirements.

Voluntary Turnover

Voluntary turnover occurs when an employee leaves a company of their own volition. In short, they quit.

When employees don't feel satisfied or impressed by a company's offerings, high voluntary turnover is usually the first symptom. Or they might be unfairly compensated or challenged. As a result, they have eyes for organizations offering a higher salary and a more challenging position.

Voluntary turnover is dreaded most by businesses. When you lose out on scarce talent, HR may need to investigate the root cause of the departure. Other members of your company may be experiencing similar levels of dissatisfaction as well.

On the other hand, the cause may be entirely outside the organization's control. The employee may be unable to work due to personal issues, which can be corrected, depending on the situation. Still, voluntary turnover is generally assumed with either written or verbal notification of at least two weeks.

Desirable Turnover

While turnover generally has a negative connotation, it can sometimes be positive. Firing an employee whose performance has fallen well below what's expected of them and already have a new employee who begins meeting those expectations and surpassing them is referred to as positive or desirable turnover.

Top talent turnover

On the other hand, when an organization loses its top performers, the business can take a significant hit. Organizations should have a solid grasp of whether they are losing top talent or not.

If the answer is "yes," some deeper digging must be done to get to the bottom of the underlying reason and fix the issue as quickly as possible. Attrition of top performers is sure to negatively impact a business's bottom line.

Final Thoughts

Remember: Turnover in and of itself isn't intrinsically harmful to a business. As can be seen above, several types of turnover can be beneficial, but the ones which cost billions of dollars a year are incredibly hurtful to businesses. So, be sure to invest in the right initiatives to reduce employee turnover.