Employee turnover is driven by many
factors including inadequate compensation, lack of employee engagement, poor
job fit, etc. Whatever the cause, you can easily calculate your company's rate
of turnover. This is a critical benchmark that can help you understand your
relationship with your competition and with your employees. You should
continually monitor this rate so you can make informed choices in the future.
Calculating Monthly and Annual Turnover
Attention all non-math majors: These
calculations are easy. To ease into it though, we will start with verbal
Monthly turnover is the number of
employee separations in one month divided by the average number of active
employees at the worksite during the same period. We’ll make it easy and say we
have one site of operations.
Written as a math formula, here is the same
Annual employee turnover is calculated by adding up the monthly turnover for a
12-month period. Makes sense, right? Okay, the next step follows.
Using the same example, if four
employees leave each month, a yearly total of 48 leave. Plugging those numbers
into the formula:
The Costs of Employee Turnover for Your
The costs of turnover will depend on your company’s particular mix of
employees. Some will be relatively inexpensive to replace, some will be quite a
bit more costly. Turnover of less skilled workers is still expensive. One
estimate is that direct turnover costs are 50 to 60 percent of employee salary. It adds up! When thinking about retention you also have to consider the
business costs of top talent leaving. For example, lost revenue because a project
release date was delayed due to a key engineer’s departure or lost sales due to
a top sales person moving on.
Calculating Turnover of Employees Within First Year of
Among the most expensive of turnover
is that of employees who leave in the first year of employment. In many jobs,
an employee is not fully productive for months. A high turnover in the first
year of employment can therefore represent a particularly painful cost.
To compute the value for your
company, divide the total number of employees who leave in less than one year
by the total number of employees who leave in the same period.
Here’s what the formula looks like:
Now let’s pull in the 48 employee number from our previous calculation, but
note that nine left within their first year of employment.
What Can Employee Turnover Calculations Tell You About
Whatever the number, you will likely want to
compare yourself to similar organizations in your industry and in your region. Also
be sure to check many years of data, as the last year might represent an
anomaly. Those with very high turnover will want to examine their on-boarding
and selection process. Those with high or low turnover should take another look
at their compensation practices. You may be paying inappropriate amounts in