Calculating Employee Turnover

Roberto Scaramuzza - Linkedin profile

Roberto Scaramuzza – Linkedin profile

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Employee Turnover Rates

Employee turnover is driven by many factors including inadequate compensation, lack of employee engagement, poor job fit, etc. Whatever the cause, you can easily calculate your company’s rate of turnover. This is a critical benchmark that can help you understand your relationship with your competition and with your employees. You should continually monitor this rate so you can make informed choices in the future.

Calculating Monthly and Annual Turnover
Attention all non-math majors: These calculations are easy. To ease into it though, we will start with verbal explanations.

Monthly turnover is the number of employee separations in one month divided by the average number of active employees at the worksite during the same period. We’ll make it easy and say we have one site of operations.

Written as a math formula, here is the same calculation:

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Now to pull numbers into our formula for monthly turnover:

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Annual employee turnover is calculated by adding up the monthly turnover for a 12-month period. Makes sense, right? Okay, the next step follows.

Using the same example, if four employees leave each month, a yearly total of 48 leave. Plugging those numbers into the formula:

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The Costs of Employee Turnover for Your Organization
The costs of turnover will depend on your company’s particular mix of employees. Some will be relatively inexpensive to replace, some will be quite a bit more costly. Turnover of less skilled workers is still expensive. One estimate is that direct turnover costs are 50 to 60 percent of employee salary. It adds up! When thinking about retention you also have to consider the business costs of top talent leaving. For example, lost revenue because a project release date was delayed due to a key engineer’s departure or lost sales due to a top sales person moving on.

Calculating Turnover of Employees Within First Year of Employment
Among the most expensive of turnover is that of employees who leave in the first year of employment. In many jobs, an employee is not fully productive for months. A high turnover in the first year of employment can therefore represent a particularly painful cost.

To compute the value for your company, 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:

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Now let’s pull in the 48 employee number from our previous calculation, but note that nine left within their first year of employment.

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What Can Employee Turnover Calculations Tell You About Your Organization?
Whatever the number, you will likely want to compare yourself to similar organizations in your industry and in your region. Also be sure to check many years of data, as the last year might represent an anomaly. Those with very high turnover will want to examine their on-boarding and selection process. Those with high or low turnover should take another look at their compensation practices. You may be paying inappropriate amounts in either case.