An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What Is the Turnover Rate?
The turnover rate is a percentage that illustrates how many employees left an employer over a period of time, typically a year.
Use the following steps to calculate your turnover rate:
- Determine how many employees left your organization over a period of time.
- Determine the average number of employees your organization employed during the same period. You can do this by adding your headcount from the beginning of the period to your headcount at the end of the period. Divide this number by two for the average.
- Divide the number of employees who left by the average number of employees.
- Multiply this result by 100.
For quick reference:(Employees who leave/[(Beginning Employee Count + Ending Employee Count)/2]) x 100 = Turnover Rate %
So if an organization has 50 employees at the beginning of the year and ends the year with 100 employees, the average number of employees for the year would be 75 (50+100=150, 150/2=75). If 15 employees left the organization that year, the turnover rate would be 20 percent (15/75 = 0.2, 0.2 x 100 = 20 percent).
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What Is an Acceptable Turnover Rate?
As with many other people-based statistics, determining an acceptable turnover rate is highly dependent on context. Measuring a company-wide turnover rate only tells part of the story. Using the formula to measure combinations of certain employees and certain periods of time can highlight turnover hot spots.
Continuing with the previous example, a turnover rate of one in five employees may seem manageable for a small company. But if five of those employees left the same position and the same manager in the space of a year, it indicates a worrisome trend that needs to be solved on a managerial level instead of implementing universal changes.
What Is a Good Cadence for Measuring the Turnover Rate?
Many organizations take their overall turnover rate into account in an annual review. With the support of software-based reporting, however, managers and executives can review turnover trends more frequently without a significant time cost. Calculating the turnover rate can provide additional insights for quarterly planning, managerial performance reviews, and semi-annual employee satisfaction measurements.
How Does Employee Turnover Impact an Organization?
High employee turnover can have far-reaching effects on an employer, including:
- Decreasing overall productivity within the organization
- Increasing costs of hiring and training new employees
- Putting extra strain on remaining employees to take up the departing employees’ workload
- Decreasing employee trust in the organization
- Weakening company culture and morale
- Causing strain on the relationships among employees and between employees and managers