How to Calculate Employee Turnover

This blog post was originally written by Alex D’Angelo in 2010. Due to its popularity, it was updated in December 2018.

Why is measuring turnover important?

Turnover is a basic metric in every HR professional’s toolbox. Turnover tells a story about your company processes, procedures, leadership and culture. Turnover also speaks volumes about your compensation. Because turnover and retention are opposite sides of the same coin, you can seek the right balance between them to ensure that you’re driving the right talent to and through your organization.

From hiring to firing to replacement, losing employees can be costly. Some employee replacement costs include:

• Time spent on sourcing (how you find applicants and how they find you)
• Time spent interviewing
• Hiring expenses

On-boarding costs include:

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• training the new employee
• acculturation of the employee to the organization’s culture and expectations

Employee separation costs include:

• unemployment compensation
• COBRA benefit continuation costs
• conducting exit interviews

Aside from the important issue of costs, measuring turnover also helps ensure that your talent strategy is moving in the right direction. In this piece, we’ll show you how to calculate employee turnover and interpret the results.

Before we dive into the calculation piece, it’s crucial to remember that measuring turnover rate is just the starting point. There are many variables that can affect your turnover rate and affect how you choose to interpret the results of your employee turnover calculations.

The data and the benchmarks will give you a baseline and provide a starting point for further investigations. What you’ll ultimately want to understand is who’s leaving and why they are leaving. That deep understanding will help you determine what needs to be done in order to hold onto the employees who are critical to your business. With that said, let’s take a look at the different costs that roll up into the overall turnover cost.  

Analyzing the Cost of Employee Turnover Rates

Beyond just looking at your overall employee turnover rate, taking the time to look closely at certain segments of your organization will provide you even more insights into your organization’s health.

For example, you could focus on employees who leave in the first-year of employment. From hiring to firing to replacement, losing employees in the first year can be costly.

Some employee replacement costs include:

• sourcing (how you find applicants and how they find you)
• interviewing
• hiring expenses

On-boarding costs include:

• training the new employee
• acculturation of the employee to the organization’s culture and expectations

Employee separation costs include:

• unemployment compensation
• COBRA benefit continuation costs
• conducting exit interviews

the formula for calculating employee turnover rate

Employee turnover is usually expressed as employee turnover rate. It is the percentage of employees who leave within a given time period, divided by the total number of employees in the same time period.

A common way to look at the turnover rate is on a monthly basis. Looking at monthly employee turnover can be useful for spotting when employees tend to leave in their first year. To calculate monthly employee turnover rates, divide the number of employee separations in one month by the average number of active employees at the worksite during the same month. 

We’ll say we have one site of operations. For example, let’s say we lose four employees out of 200.

That gives us an employee turnover rate of two percent. What if we repeated this employee turnover calculation to highlight the turnover rate just in the new hires, not in the whole company, over the course of a year?

Calculate Employee Turnover Rates within the First Year

Have you wondered how new-employee turnover (e.g. employees leaving in less than 12 months) impacts your business? What about on your business practices? You can learn both by learning about first year employee turnover.

To compute this, divide the total number of employees who leave in less than one year by the total number of employees who leave in the same period.

Here’s what the formula looks like:

For example, let’s say that you have 31 employees who departed your organization within their first year at your organization in your measurement time period. You have 116 employees in total who departed your organization in the same time period.  

Now to pull numbers into our formula for first year employee turnover:

26.7% = 31 employees in first year of employment / 116 Employee turnover in a time period

Once you have this number, it’s time to understand it in context.

how to interpret employee turnover numbers

Beyond just looking at your overall employee turnover rate,  looking at the data by the reasons for turnover and by employee segments will provide you even more insights into your organization’s health.

Why are your employees leaving? Is it due to performance issues, ethics violations (hopefully rare), personal or health reasons, wanting higher compensation, wanting career advancement opportunities, or something else? What percentage of employees voluntarily resign due to personal reasons versus wanting higher pay or better career opportunities? If you aren’t doing this already, make sure to collect this information during every exit interview.

Additionally, look to see what employees who are voluntarily leaving have in common with one another. Here are some questions to consider:

1. Are the majority of these employees leaving within the first year?

If your turnover rate for new / first-year employees is high, it’s likely you have issues with your candidate screening and onboarding processes.  Consider whether these scenarios are true for your organization:

• What questions were asked when the employee was hired? Did the questions relate to the job? If not, they may have set up the application for the job to be quite different than the job really is. If so, why was that done?
• Did those who sorted applicants by their responses understand what skills the job required? Did they end up looking for or finding the wrong things?
• Did the employee get an orientation? Was the employee made to feel comfortable in the organization after the orientation? Why or why not?
• How did the employee’s supervisor interact with the employee?
• How did the existing workforce interact with the new employee? With acceptance and assistance, or with a cold shoulder? How did the supervisor react to that? Did the supervisor take any steps in response to the workforce interaction with the new employee?
• How might the supervisor’s training have contributed to this percentage?

As a side note, effective orientation programs in the first several months after a hire have been proven to have a direct, positive impact on the employee’s choice to stay with the organization.

2. Did many of these lost employees come from the same department?

If that’s the case, it means that this department is facing particular challenges. Are any of these challenges you can support the department headers in alleviating?

3. Did many of these lost employees report to the same hiring manager?

This is a case where the particular manager may need additional training or a reminder of the expectations that come with being a people manager at your organization. At worst, the manager could be the one that needs to go.

4. Do they all have a specific set of skills?

Is it possible that employees with specific, in-demand skills are leaving for opportunities where their skills are compensated more than what you’re paying?

5. Have these employees been in the same role for a long time (e.g. 3 years) without a promotion?

When people stay in their role for too long, they may start to think that they need to leave your organization in order to grow in their careers.

6. When was the last time these employees received a pay increase?

Compensation tends to be a common reason for why people jump ship, especially when we consider employees who haven’t received a pay increase in a while (e.g. 18 or 24 months or longer).

[Related Blog Post: 5 Ways to Avoid Losing Top Talent to a Higher Paycheck ]

By investigating these all questions, you will figure out where you may be falling short in your effort to retain good employees.

resources on how to prevent turnover

• Identify at-risk employees: read article “5 Ways to Spot Flight Risk Employees“
• Understand the drivers of employee satisfaction and dissatisfaction: read article “Improving Employee Satisfaction: Proven Tips from Research“
• Learn about common recruiting practices that can lead to turnover down the road: read article “3 Recruiting Pitfalls to Avoid“