Turnover rate, or employee turnover, is the rate at which employees enter and leave a company. Employee turnover is defined as the percentage of employees who left a company during a given period of time. It is often described in relation to employee retention, which shows how successful companies are at retaining employees

See also the article “what does staff turnover tell about a company” in our knowledge base

Table of contents of this article

What types of decay are there?

There are two types of turnover. The first is voluntary turnover, when employees themselves choose to leave the company. The second is involuntary turnover, when an employee is fired by the employer. The latter usually occurs because an employee consistently underperforms, undermines the productivity of their colleagues, fails to respect the organization’s core values or detracts from the company’s culture

Companies want to track employee attrition from the organization so they can identify and minimize the causes of attrition. In our article Staff Turnover we address how percentages of turnover can be interpreted

How do you calculate the turnover rate?

The turnover rate is calculated by dividing the number of employees who leave during a month by the average number of employees multiplied by 100

Turnover Rate = number of employees leaving / average number of employees x 100

At first glance, this formula sounds fairly simple, yet it can be confusing as to exactly what data to use. For example, does an organization use full-time equivalent (FTE) or simply the number of employees when determining the number of employees and the number of employees leaving? What about temporary employees? What if an employee is on long-term sick leave or on unpaid leave? Here’s some more explanation. 

Step 1) Calculate the number of employees

To calculate employee turnover, the number of employees is counted instead of the number of FTEs. This number includes all employees on the payroll. Employers should also count directly hired workers (temporary employees on payroll) and employees on unpaid leave or long-term sick leave. Self-employed or temporary workers on the payroll of a third party are not counted as employees. To properly monitor turnover, it is advisable to calculate it monthly at a set time

Step 2) Calculate the average number of employees

The next step is to calculate the average number of employees. To do this, take the total number of employees as of the last day of the previous month and the last day of the previous month. Divide that by two to get the average number of employees on the payroll for the past month

Average number of employees = sum number of employees from each report) / number of reports used

Example:
Company A reports the number of employees once a month, at the end of the month. The number of employees on Jan. 31 is 143. The number of employees on Feb. 28 is 149. Using the formula above, Company A adds the two totals (143 and 149) together and divides this sum by the number of reports (2)

(143 + 149) / 2 = 146

Company A’s average number of employees in February is 146

Step 3) Calculate the number of employees who have left

The next step is to evaluate the list of people who left in the past month. This includes both voluntary and involuntary terminations, but does not include employees who are on temporary leave or on unpaid leave. 

Example:
In February, Company A has:

Two employees on unpaid leave. 
Five temporary employees laid off
One employee retired
Two employees laid off

Only three employees should be counted as turnover in this month: the one employee who retired and the two employees who were laid off for cause

Step 4) Divide the number of employees left by the average number of employees

The next step is to divide the number of employees who left during the month (determined in step 3) by the average number of employees on payroll for the month (determined in step 2)

Number of employees left / average number of employees 

Example:
Company A had three employees who left and an average of 146 employees on payroll for the month. Using the formula above:

3 / 146 = 0.0205

Step 5) Calculate turnover rate rare

Most employers report the turnover rate, or employee turnover, as a percentage. To do so, the answer in step 4 must be multiplied by 100 to arrive at the monthly employee turnover rate

Example
0.0205 x 100 = 2.05%
Company A had an employee turnover rate of 2.05% in February

Step 6) Annual employee turnover

Most employers want to track not only monthly employee turnover, but also year-to-date (YTD) or annual turnover. To determine YTD turnover, add up the monthly figures

Most employers want to track not only monthly employee turnover, but also year-to-date (YTD) or annual turnover. To determine YTD turnover, you add up the monthly figures

For example, if it’s April and you want to report on the first quarter, the formula for the YTD turnover rate (TR) is:

YTD turnover = January TR + February TR + March TR

The annual turnover rate is determined by adding up all the 12-month rates:

Annual TR = (January TR + February TR + March TR + April TR + . . . + December TR)

Turnover rate as a strategic tool

Your organization’s turnover rate is by far one of the best indicators of its long-term success. It provides an objective picture of the company’s culture, hiring efforts and employer brand. Maintaining this measure is vital to staying ahead of major business setbacks

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