This blog post on How to Calculate Turnover Rate was originally written in 2010. Due to its popularity, it was updated in January 2023.
It’s hard to remember a time when retaining your top performers and hiring the right people was quite so challenging—or more critical to your organization’s success. Voluntary turnover rates had already escalated post-pandemic, with employees seeking out opportunities that paid more, provided a better work-life balance—or both. Then, came 2022, ushering in the highest inflation rates the U.S. has seen in more than four decades, ratcheting up the cost of labor and causing many employees to leave their current employers for compensation packages that were more in line with their present-day needs.
This employee turnover, whether its high-performing employees quitting or terminations, can come with a high price. Finding, interviewing, hiring, and training new employees is both costly and time consuming. According to the Society for Human Resource Management, the average cost to hire an employee is $4,129, with around 42 days to fill a position, not to mention the strain an understaffed workforce puts on those employees left behind.
So, what can human resources professionals do to mitigate the turnover, and ensure they have the right talent strategy in place? Start by calculating and analyzing your employee turnover rates to understand what’s happening in your organization. With this information in hand, you can identify who is leaving, why they are leaving, and take action to reduce employee attrition.
The Formula for Turnover Rate Calculation
By definition, the employee turnover rate is the percentage of employees who leave during a particular period of time divided by the total number of employees who leave during that same period of time. Most companies track this percentage per calendar month, to see specific patterns, in addition to looking at rates year over year.
Let’s say we have one location with 200 employees, and in the month of June, four of those 200 employees leave the company. That’s a two percent monthly turnover rate, calculated like this:
If you have multiple locations with similar jobs, make sure you look at employee turnover as a whole and by location. If one location has a significantly higher rate than the others, investigate why. Is the market value for those jobs in that location higher than what you’re paying? Are the working conditions different? Or are employees retiring, were they let go or has there been a mass exodus to the competition?
Calculating New Hire Turnover
When you’re analyzing employee turnover rates, it’s important to segment out your new hires, so you can identify how many in this group leave your company within their first year of employment. Simply divide the new hire attrition by total employee attrition for the same period, using this formula:
For example, if of the 116 employees who left your company during the month of June, 31 of those were new hires with less than one year tenure, your new employee turnover rate would be 31 divided by 116, or 26.7 percent.
Again, the value of knowing what percentage of your new hires quit or were terminated within their first year is only the first step. To course correct, you have to uncover the reason why these new employees are leaving.
- Were they low performers hired during a production rush without extensive vetting, or did the job descriptions fail to accurately reflect what these positions actually involved?
- Did the employee get a solid orientation and training on his or her responsibilities, your processes and company culture? Would a more structured onboarding program have increased performance or comfort level more quickly?
- How did the existing team and supervisor/manager interact with the new employee? Does this group have a consistently high turnover rate among new hires?
- Did a larger or more visible competitor come to that region? Or is a local competitor offering signing bonuses or other perks to lure qualified employees away?
- Did the value of that job/position change within the year or was the new employee overqualified for the position from the beginning?
Looking at what was done, and what could have been done differently, is key to lowering new hire turnover rates in the future. It also helps you understand if the problem is with a department or region, a fluke, or a systemic issue that requires remediation.
Looking at Why Your Seasoned Employees Leave
It’s important to also look for patterns among your more seasoned employees and top performers who leave their positions.
- Have they gone three years, or more, without a promotion?
- Are they paid equitably, compared to their peers with similar positions and experience?
- Has their salary stagnated, or have they reached the top pay for their range?
- Has it been more than a year since those employees had received a pay increase?
- Were they looking for a more flexible work schedule, different benefits or remote options?
- Are you seeing waves of separations directly after bonuses are paid or other benefits are awarded?
- Does your competition offer a higher salary range or a more expansive compensation package for these positions?
By monitoring your turnover rates, and making the time to investigate where and why the turnover is happening, you can take positive steps to make better hiring decisions, retain the talent you have and improve employee engagement, loyalty and longevity.
