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How to Calculate Employee Turnover Rate: A Comprehensive Guide
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Employee turnover is one of those HR metrics that can tell you a lot about what is happening within your workforce.
You may know how many employees left your company during the year. However, that number alone does not tell you much. A company with 20 employees that loses five people has a very different turnover situation from a company with 500 employees that loses the same five people.
Employee turnover rate shows the proportion of employees who leave an organisation during a specific period compared with the average number of employees during that period.
More importantly, the number can help HR identify workforce trends, investigate retention problems and make better decisions about recruitment and workforce planning.
What is Employee Turnover Rate?
Employee turnover rate is the percentage of employees who leave an organisation during a specific period.
An employee may leave voluntarily by resigning, or the employer may initiate the separation through dismissal, redundancy or another form of involuntary exit.
Therefore, employee turnover can include different types of employee exits depending on how the organisation defines and reports the metric. If your HR team includes resignations, dismissals and redundancies in one turnover calculation, continue using that definition when comparing periods.
Why Calculating Employee Turnover Rate is Important
Employee turnover rate is necessary because employee exits affect more than headcount.
When an employee leaves, the organisation may need to advertise the role, interview candidates, conduct background checks, onboard a replacement and spend time helping the new employee become productive.
At the same time, the departing employee may take institutional knowledge with them. Therefore, a consistently high turnover rate can put pressure on recruitment, managers, productivity and operating costs.
However, HR should not assume that every employee departure is a problem. Some turnover is normal. Employees retire, change careers, relocate, move into different roles or leave for reasons outside the employer’s control.
The employee turnover rate formula is:
Employee Turnover Rate = Number of Employees Who Left During the Period ÷ Average Number of Employees During the Period × 100
To calculate the average number of employees, use this formula:
Average Number of Employees = Beginning Headcount + Ending Headcount ÷ 2
Example
Find out the turnover rate of a company that had 120 employees at the beginning of the year. During the year, 30 employees left. By the end of the year, the company had 140 employees.
Find out the turnover rate of a company that had 120 employees at the beginning of the year. During the year, 30 employees left. By the end of the year, the company had 140 employees.
Answer
First, calculate the average headcount:
Beginning Headcount = 120
Ending Headcount = 140
Average Number of Employees = Beginning Headcount + Ending Headcount ÷ 2
Average Number of Employees = 120 + 140 ÷ 2
Average Number of Employees = 130
Next, divide the number of employees who left by the average headcount:
Employee Turnover Rate = Number of Employees Who Left During the Period ÷ Average Number of Employees During the Period × 100
Employee Turnover Rate = 30 ÷ 130 × 100
Employee Turnover Rate = 23.1%
Therefore, the company’s annual employee turnover rate was approximately 23.1%. This number tells you how much employee movement occurred. However, it does not tell you why people left.
Track Turnover by Department
Overall company turnover can hide problems in individual teams. For example, a company might have an overall turnover rate of 10%, while one department has a turnover rate of 28%.
HR can compare turnover across:
- Departments
- Locations
- Job roles
- Managers
- Tenure groups
- Employment types
- Performance levels
This analysis can help identify what the company wide turnover figure cannot show.
What is a Good Employee Turnover Rate?
There is no single employee turnover rate that every organisation should aim for. That is because turnover varies by industry, location, job type, workforce structure, business stage and economic conditions.
HR should compare its turnover rate with its own historical data, relevant industry information and the organisation’s workforce strategy.
When is Turnover a Concern?
A high turnover rate deserves attention when it becomes persistent, concentrated or expensive. For example, HR should investigate when:
- Turnover keeps increasing over several periods
- High performers leave frequently
- Critical roles experience repeated exits
- New employees leave shortly after joining
- One department has significantly higher turnover
- Employees repeatedly cite the same reason for leaving
- Recruitment costs continue to increase
- Managers struggle to maintain stable teams
- Customer service or productivity suffers after employee exits
How Employee Turnover Affects the Business
- Recruitment costs increase when the company repeatedly needs to fill the same position.
- Managers and existing employees spend time interviewing and onboarding new hires.
- Productivity can temporarily fall while new employees learn their roles.
- Frequent departures can affect team morale, particularly when employees feel that they are constantly losing colleagues.
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