Employee turnover rate: Calculation, definition & importance

To create genuine people-first teams, managers need a way to track red flags before they spiral out of control. Mounting pressure from executives and stakeholders often leads to intense (and stressful) internal audits, as managers search for explanations for low employee morale or declining productivity.

Employee turnover rate is one metric that smart employers must acknowledge from multiple angles, including from the perspective of employees who take the exit route. When leaders keep tabs on how frequently employees depart for outside opportunities, they’re more equipped to solve cultural challenges—and even avoid those painful “closed door” conversations about why teams aren’t performing up to par. 

The not-so-secret trick is to understand what employee turnover rate is and how to calculate it. Here, we’ll cover the details and provide effective ways to retain your top performers. 

What is an employee turnover rate?

Employee turnover describes what happens when existing employees leave an organization, effectively terminating the relationship. Turnover happens every day, but the reasons for it are as diverse as the workers who leave or stay.

As you explore the issue, keep in mind that turnover always has both positive and negative connotations. Positive opportunities (like accepting a promotion at another company) or negative consequences (such as being let go for lackluster performance) contribute to the total turnover rate at a place of employment.

Employee turnover rate is a calculation that shows what ratio of employees depart from a company over a specific period of time. On the other hand, employee retention rate pinpoints how many workers hold onto their employment status throughout the same period.

Importance of monitoring employee turnover

If there’s one thing to acknowledge when it comes to employee turnover, it’s that it’s not a basic vanity metric. Accessing realistic and practical employee motivations has multiple benefits for every department—not to mention the company’s bottom line.

• An accurate picture of employee turnover allows leaders to solve challenges and establish healthier, more supportive work environments.
• Businesses with lower employee turnover rates can reduce the need for costly rehiring processes that drain time, money, and mental energy.
• Improved retention rates allow companies to attract more top talent, including new recruits and job applicants who want to protect future opportunities.

The impact of high turnover affects companies on a macro level as well. When employees are constantly leaving to pursue other work, morale and productivity take a nosedive. This is because there’s always a need to patch the holes that open when employees leave existing duties behind. Rehiring is also expensive for HR and recruiting teams, which has a long-term impact on the bottom line.

Calculating employee turnover rate 

To calculate employee turnover rate manually, use the formulas below. Successful calculation requires the following values:

• Established time period for measurement (monthly, quarterly, yearly, etc.)
• Total or average number of employees retained in that same time period
• Total number of employees who leave (voluntarily or involuntarily)

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The basic monthly calculation for employee turnover is:

Employees leaving or separated / Average number of employees total X 100 = Turnover Percentage

For example, let’s say your early-stage startup is in a high growth phase, but you’ve also experienced high turnover in the customer service department for the past month. Your one-month calculation might look like this:

40 employees departed / 300 employees total = .133 X 100 = 13.3% turnover rate 

To calculate the employee turnover rate annually, adjust the formula to include the number of employees at the beginning and end of the year. The calculation becomes:

‍Employees leaving or separated / (Employees at start of year + employees at end of year)/2 X 100 = Turnover Percentage

For the same scenario, imagine that the company went on to hire 70 additional team members, but 5 more departed before the end of the year.

45 total employees left / (300 + 370)/2 = .134 X 100 = 13.4% turnover rate

In this example, we see that the monthly and annual employee turnover rate was about the same. So in context, this could mean that the business had a particularly worrisome turnover month or that hiring activity kept the annual turnover rate in check.

Monthly vs. annual employee turnover rate

There are perks and drawbacks to using specific time periods to measure employee turnover rate. For instance, recent hiring data shows that the average time to hire a new employee in the United States is roughly 42 days. As a result, calculating monthly turnover rates may not show the big picture.

Organizations can choose to keep tabs on monthly data but publish more conclusive findings like the annual turnover rate. Annual calculations allow space to make corrections, adjust retention strategies, and hire new employees.

For competitive or public-facing statistics, businesses might also choose to calculate the rates based on voluntary or involuntary turnover. This distinction indicates why employees are leaving and if the decision is mutual or one-sided.

Tips for accurate employee turnover calculation

It’s difficult to keep tabs on employee turnover rates (even with employee turnover software) without appropriate documentation and people processes. When these foundational pieces are missing, calculated totals are inaccurate and misleading.

If you’ve already established solid record-keeping, there are many things you can do to ensure that employee tracking procedures are up-to-date:

• Document a specific process for when employees first signal the intention to leave
• Ensure that new employees understand the reasons and process for involuntary turnover (termination), if and when a situation warrants it
• Host thorough exit interviews to gain valuable feedback and sentiments from employees who voluntarily exit the company
• Create a “chain of command” for delegating responsibilities when an employee leaves a gap in an existing team or process
• Perform regular audits of the internal turnover rate to spot red flags and issues early

Unfortunately, even if companies routinely evaluate turnover calculations, it may be nearly impossible to understand the genuine feelings that inspire eventual career decisions. That’s why textual analysis platforms like Erudit are extremely beneficial in pinpointing the source of employee sentiment.

Analyzing employee turnover data 

With all these calculations in mind, what’s really the ideal turnover rate for a business? Although companies might set their own internal goals or benchmarks, the perfect rate usually varies by industry type or company size.

For example, a business that relies heavily on seasonal or contract workers might not experience the same retention rates as companies that employ mostly full-time employees. 

Regardless, the general consensus is that turnover of 10% is ideal, and retention rates of 90% or higher are the gold standard. When determining a goal rate for your team, consider the following details:

• Company-wide hiring process for new employees
• Length of time in the traditional recruitment and hiring cycle
• Current stage of company growth
• Level of upward mobility on teams and departments (how likely it is to receive a promotion, switch roles internally, etc.)
• Competitive level of benefits and compensation packages 

Identifying patterns and trends in employee turnover

To fully understand what’s trending on your teams, dedicate resources to analyzing turnover data over time. This is the only method that inspires workplace improvements that keep employees engaged and fulfilled. 

You have two options: performing manual turnover calculations every month, or monitoring workforce sentiment in real-time as a way to intervene while concerns are actually happening.

As you monitor employee decisions, know which troublesome patterns to look for. Consider whether turnover issues are specific to individual teams, or if potential problems are company-wide in a top-down funnel. 

Most importantly, turnover analysis must always inform positive and proactive employee retention strategies. Whether that means re-upping your company’s compensation structure to make it more competitive or giving more employees the recognition they deserve, plan to leverage this data to create worthwhile change.

How to predict employee turnover 

The complexity of today’s job market mandates having a proactive, forward-thinking approach to employee relations. It’s not enough to merely wait and react to hiring and recruitment problems. Contemporary companies need to be one step ahead to maintain a healthy culture and earn a competitive foothold.

‍What if it was possible to actually predict employee turnover instead of waiting around for the chips to fall? With AI-powered workforce intelligence reporting, you can achieve that goal and more. 

Erudit, AI-powered people software, leverages live employee sentiment data to measure metrics like turnover rate and job satisfaction. What’s even better is that we’re not just making well-informed guesses. We’re leveraging actual behavioral psychology and proven data science to help you grow and retain more of your best employees.

Now’s the perfect time to make a positive change. Demo Erudit to see how it can help.

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