How to Calculate Employee Turnover Rate

To calculate the new-hire turnover rate, divide the number of employees who are no longer with the company during a specific period (e.g., quarterly or annually) by the number of employees at the beginning of that period.

How do you calculate employee turnover?

Calculate employee turnover rate by dividing the number of employees who left by the average number of employees, then multiplying by 100. Your employee turnover rate is the percentage of employees that leave your organization during a given time frame, usually a year.

Employee Turnover Rate Equation

Turnover = ( Number of Employees Leaving / Average Number of Employees ) x 100

In the field of people analytics, employee turnover is one of the most debated metrics. This is largely because it can be quite difficult to calculate turnover. At present, there is no ‘correct’ method to quantify turnover. In fact, if you take a look at the results on Google, you will find many websites claiming that their formula is best. Even professional organizations tout different ways of computing turnover.

The American National Standards Institute (ANSI) is an organization that devotes itself to setting standards based on consensus. They promote a definition different than that of the International Organization for Standardization (ISO). The ISO’s formula for turnover is itself ambiguous, and it may be calculated, or explained, in several ways.

It is therefore understandable why HR professionals are confused by the topic of employee turnover. Beyond the technical issues involved in quantifying the total number worker and the individuals who leave, there remains the difficulty of factoring the rate of turnover. Ideally, there would be a clear formula to use.

To better answer the question of how to calculate employee turnover, we must first define what employee turnover is. According to the ANSI, an employee is a person that was paid during the payroll period that includes the twelfth day of the month. Further, it should be noted that the employee cannot be a new hire.

Turnover may be defined as departing a company due to attrition, dismissal, or other reasons. These individuals would not be included on the payroll for the following period.

The turnover rate is defined as the percentage of employees who depart a company in a certain time period.

It is necessary to define what employee means in this context. Consider the following example:

At the beginning of the quarter, ABC Company had fifty employees. During the quarter, ten employees left, while five joined. By the end of the quarter, ABC Company had forty-five employees.

Now let us pose the following question: must we include everyone in the turnover rate denominator, or only existing employees (excluding new hires)?

For this reason, our business lawyer in Los Angeles suggests to clearly define hires, employees, and terminations. These three categories have three separate metrics. Hires may be defined as individuals who joined the company during the period in question. They should be regarded as unique, with their own set of metrics.

Hires should therefore be considered part of the hiring rate for the period. In the event they depart the company early, they would be factored into the ninety-day turnover metric, as well as into the first-year turnover rate. We must thus make a clear distinction between employees and new hires.

Let’s look again at our example involving ABC Company. The business had fifty employees, ten terminations, and five hires. This would mean that the turnover rate in our example is twenty percent, because ten people out of fifty left the company.

Thus, we use the following formula to calculate turnover rate:

Turnover rate = # terminations during period / # employees at start of period

This formula agrees with the universal norm established for Human Capital Reporting in 2018. In that report, the total number of departures is divided by the total number of employees.

To calculate the annual turnover rate, we must then use the following formula:

Turnover rate (annual) = # terminations (annual) / # employees at the start of the year

Are there other methods of calculating turnover?

While the previously discussed formula is recommended for calculating employee turnover, it is worth mentioning alternative methods of calculation.

ANSI champions the following approach, and you may find it elsewhere on the Internet. This method suggests that the rate of turnover is calculated thus:

Turnover rate = # terminations (annual) / average # of employees for each of the 12 months

There are two issues with the above formula.

First, the ANSI defines employees as both existing workers and new hires. It combines both the hiring rates and numbers with the turnover values. The calculation is thus ‘impure’. Let’s study the following example, which takes place over three months:

In January, Sunshine Corp. has 100 employees. In February, the original employee pool is reduced to 90 employees, and in March they are down to 80. Therefore, each month there are ten terminations from the original employee pool. However, the company also hires 20 new people each month. Thus, the total employees in January is 100, in February 110, and in March 120.

According to the ANSI formula, which uses the average number of workers as the denominator, there are thirty total terminations and an average of 110 employees. This would make the turnover rate 27%.

Our recommended method produces a different result:

30 terminations / 100 employees at the beginning of the period = 30%

Note that ‘Hires’ dilutes the first formula. For this reason, it is recommended that you split Employees and Hires into two separate groups to produce a purer value. As discussed previously, Hires should have their own metrics, which would include first year turnover and ninety-day turnover.

When we have completed the turnover calculation, we may analyze the data. This is typically performed using some kind of multivariate statistical analysis to assess whether there exists a significant cause-effect dynamic between the dependent variable and the predictors of turnover.

It is possible that mixing terminations and hires may impact interpretation. To handle this, one might include a predictor that takes this factor into account.

The second issue with this alternative method is that it allows for a changing denominator within the period of time being studied. If we look at our previous example, every month, ten people depart. According to the ANSI formula, we should average the number of workers in the denominator, which would yield a turnover rate of 33%.

Our recommended method produces a different number: 30%. The three-month turnover rate would therefore be thirty percent. This would make sense, considering thirty out of a hundred people we began with departed.

From a practical perspective, the data will originate from a data warehouse or pool. The reports and dashboards that come from this data will need to fit within the measurements and practicalities of the system.

With regard to changing the denominator, it should make sense at the individual level. Let’s consider the example of a single employee leaving. The time period is 2 months. The alternative method would produce this result:

Turnover rate – # terminations / average # employees per month = 1 / (1 + 0) = 200%

It does not make sense to report a 200% turnover rate in an HR report. How do you explain that to a business partner or manager?

What is a good turnover rate?

Generally speaking, a good turnover rate does not exist. An acceptable rate will depend on the particular industry and the sorts of jobs a business offers. In retail or a call center, a 50% yearly turnover rate is acceptable. But when it comes to astronauts, anything over 5% is not preferable!

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