Turnover is the rate at which a company loses and gains employees. Turnover is measured internally by examining the ratio of employees hired and employees separated from the business, whether voluntarily, or let go by management. You can analyze turnover by comparing your ratio to the industry turnover rate or even the national turnover rate, which, in 2018, was 3.0% according to the Bureau of Labor Statistics.
Having a lower turnover rate is typically positive; it indicates that your employees are not unhappy or unsatisfied and leaving voluntarily. It also suggests you are content with your employees’ performance. If you have a higher turnover rate there are implications for your company which I will discuss later.
How to Calculate Turnover
Here’s how to calculate your company’s turnover rate.
- Add up the number of employees who left your company in the last 12 months. Include both voluntary and involuntary separations. Voluntary means the employee left the company by choice. Involuntary means the employee was fired or left for other reasons beyond his or her control (such as death or moving to a new state).
- Divide this number by the total number of employees in your company at the end of the 12 months. Don’t spend a lot of time trying to calculate in the employees who left and were replaced. You just need the total number of employees at the end of the year.
An example of turnover calculation:
Company A has 35 employees at the end of the year. Over the course of the year, one employee left to continue education and another took a position at another company. One was fired for misconduct. This means a total of three people left Company A in the past year.
In the example, Company A has a very high turnover rate of 8.6% as compared to the national turnover rate of 3.0%. This means a few things for Company A.
High turnover rates could imply a shortage in the workforce if Company A is losing employees faster than new employees are hired. Company A should consider this possibility, and use best judgment when enacting any workforce shortage strategies such as hiring temporary employees or contracting out work.
Company A should also try to determine whether any changes in management or initial selection of an employee would change the rate at which the employees are leaving the company. The biggest concern for Company A, however, is the cost of high turnover, which I will go into in a later post.