Understanding how to calculate employee turnover is crucial for every company to evaluate the stability and effectiveness of human resource management. A high turnover rate can indicate internal issues such as an unsupportive work environment, ineffective policies, or suboptimal retention strategies.
That’s why knowing the correct calculation method is vital to help businesses take the right improvement steps. Let’s dive into the details below!
How to Calculate Employee Turnover?
Here are two common ways to calculate employee turnover:
1. Monthly Turnover
To calculate monthly employee turnover, you’ll need three key data points:
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Number of employees at the beginning of the month (B)
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Number of employees at the end of the month (E)
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Number of employees who left during the month (L)
Formula:
Monthly Turnover % = (Employees who left / Average number of employees) x 100
Where:
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Employees who left = L
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Average number of employees = (B + E) / 2
Example Calculation::
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Beginning of the month: 100 employees (B)
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End of the month: 110 employees (E)
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Employees who left during the month: 5 (L)
Calculation:
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Average employees = (100 + 110) / 2 = 105
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Monthly Turnover % = (5 / 105) x 100 = 4,76%
Monthly turnover is commonly used by companies with large workforces and high employee rotation. It helps HR identify significant changes within a short time frame.
2. Annual Turnover
For smaller companies with fewer than 100 employees, the annual turnover method is more appropriate.
Formula:
Annual Turnover Rate % = (Employees who left / ((Employees at the beginning of the year + Employees at the end of the year) / 2)) x 100
Example:
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Beginning of the year: 80 employees
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End of the year: 100 employees
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Employees who left during the year: 12
Calculation:
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Average employees = (80 + 100) / 2 = 90
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Annual Turnover Rate % = (12 / 90) x 100 = 13,33%
Both monthly and annual turnover data should be further evaluated to understand the underlying reasons behind the numbers. This helps companies design better employee retention strategies.
Read Also: How to Calculate Overtime Pay Accurately
What’s Considered an Ideal Turnover Rate?
According to Gallup, a healthy employee turnover rate is around 10% annually. However, this figure can vary significantly depending on the industry.
For example, the retail and hospitality sectors typically have higher turnover rates than manufacturing or tech industries.
That’s why companies should benchmark based on industry standards and their internal performance.
When is Turnover Considered High?
Employee turnover is considered high when the rate exceeds the industry average or causes operational disruptions.
According to a 2022 study by the Work Institute, the average turnover rate in the U.S. is 17.3% annually.
If a company consistently reports a higher rate, it's likely facing significant HR challenges.
High turnover may indicate internal issues such as job dissatisfaction, poor management, or lack of career development opportunities.
5 Signs of Healthy Employee Turnover
Turnover isn’t always a bad thing. Here are some signs that turnover is still within a healthy range:
1. No Impact on Productivity
If turnover doesn't affect output or company targets, it's likely under control. This shows that the organization has a solid system that adapts quickly to staff changes.
2. Due to Poor Performance
Turnover that results from letting go of underperformers can be beneficial. It helps maintain high performance standards and boosts overall team effectiveness.
Read Also: 6 Effective Strategies for Employee Performance Appraisal
3. Supported by Efficient Recruitment
Companies with a fast and structured recruitment system can quickly fill vacant positions, minimizing disruptions in business operations.
4. High Employee Satisfaction Remains
Even when some employees leave, those who stay are still satisfied and loyal. This reflects a positive and supportive work culture.
5. No Burnout Among Remaining Staff
Turnover within reasonable limits doesn’t overwhelm existing employees. Proper workload distribution ensures continued productivity without fatigue.
What are the Impacts of High Turnover?
If not managed properly, high employee turnover can have serious consequences for a company, such as:
1. High Recruitment Costs
Replacing employees involves extra costs—from job postings to selection, interviews, and training. These costs can quickly add up if turnover is frequent.
2. Operational Disruptions
Unfilled roles may delay processes, increase workloads, and potentially reduce service quality to clients or customers.
Read Also: 3 Effective and Objective Ways to Evaluate Employee Performance
3. Decreased Employee Morale
Remaining staff may feel uncomfortable or insecure as coworkers leave, resulting in lower morale and workplace engagement.
4. Loss of Institutional Knowledge
Departing employees take with them valuable experience and insights. Replacing them means starting the learning curve all over again.
5. Damaged Company Reputation
Companies with high turnover may gain a negative reputation, making it harder to attract top talent or maintain long-term business relationships.
Understanding how to calculate employee turnover isn’t just about the numbers—it’s about evaluating your HR management's effectiveness and crafting better retention strategies.
By regularly monitoring turnover, your company can maintain stability, productivity, and a loyal workforce aligned with your business goals.
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With skilled, industry-standard employees, SOS helps boost your company’s efficiency and productivity.
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