How to Calculate Employee Turnover Ratio
What is Employee Turnover Rate?
The term ‘employee turnover rate’ refers to the percentage of employees who leave an organization during a certain period of time.
Why is employee turnover rate important?
The employee turnover rate is usually a good indicator of how a company culture is and how well it is poised to deliver value to it’s customers in the future. A company’s manpower may grow over a period of time, yet it can have a high turnover rate.
Employee turnover is part of any business. However, retaining employees from the beginning will help reduce the hassle and wasted time. It is both costly and detrimental to a business to have low employee retention.
Think about it when an employee leaves a company, it takes a considerable chunk of time to deal with their departure. In fact, entry-level employees typically cost 50% of their salary to replace. Click here to learn more about cost of employee turnover and how to calculate it.
How to Calculate Turnover Rate?
Companies usually include voluntary separations, non-voluntary separations (dismissals or terminations), retirements in their turnover calculations. Normally internal movements like promotions or transfers are not considered in the calculations. Here is the formula to calculate employee turnover ratio:
Here is an example to help you understand this better
Calculating New Hire Turnover Rate
This is one useful measure that companies like to keep a watch on. If new hire turnover rate is higher than your overall turnover rate, it is time to think what changes were introduced that might have caused this. Here is how to calculate new hire turnover rate as the number of new employees who leave within a year.:
Important Tips
- You can calculate for different categories of separations (voluntary, involuntary etc) for deeper understanding.
- You can calculate the ratio quarterly and maintain record of data for analysis to understand patterns.
- Compare your rate with your industry and if your turnover rate is higher it probably means your management is not as effective as it could be. This is where I can help identify and address any internal issues.