A business can evaluate its turnover rate by dividing the number of separations by the average number of employees during a predetermined period. If turnover is higher than previous years or exceeds industry norms, the business should analyze the reasons for high turnover, since the additional training and recruiting time associated with high turnover can be expensive for a company.
A company's turnover rate represents what percentage of employees the company loses on a periodic basis. Turnover can happen for a variety of reasons. If the business isn't diligent and transparent in the hiring process, employees may not have the right skills for the job or start with incorrect expectations. Employees may leave for positions that offer a higher salary, more work-life balance or more interesting work. It also may be that the employee is ready to retire or is unhappy with coworkers or management.
Turnover Rate Calculation
The basic formula for turnover rate percentage is the number of separations divided by the average number of employees. Separations include employees who quit, are dismissed, transfer to another another company or retire. Do not include employees who were promoted or transferred to another department in this figure. The average number of employees is the number of employees at the beginning of the period plus the number of employees at the end of the period, divided by two. For example, say you had 30 employees at the beginning of the year, 40 employees at the end of the year, and 5 separations. Your turnover rate for the year is 5 divided by 35, or 14 percent.
Variations on Turnover Rate
Different variations in the turnover rate formula allow you to hone in on trends for certain types of departures. Voluntary turnover rate measures employees who left voluntarily and excludes dismissed or fired employees. A company could hone in even further and exclude employees who retired from the calculation. Companies can calculate turnover rate on a monthly, quarterly or annual basis, or measure year-to-date turnover. Evaluating turnover rates over different periods of time can help the business predict when employees are most likely to leave and when to set aside time to restaff.
Analyzing Turnover Rate
Internal and external sources can be used to analyze turnover rate. Compare your turnover rate statistics to industry averages, if you have access to the data. You can compare turnover rates to previous months and years to see if it's changed. If your rate is significantly higher than the industry norms or historical averages, you may have a systemic problem within your organization. Take advantage of exit interviews and anonymous employee surveys to identify ongoing issues causing the excessive number of departures.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.