How to calculate employee turnover rate

The process of recruiting, hiring and onboarding talent for your business is a time-consuming and expensive process. According to the Society of Human Resource Management (SHRM), the average cost to hire a new employee is $4,700. However, some employees estimate the true cost to be anywhere from three to four times the salary of the position.

In a tight labor market, where an employee could potentially leave for better opportunities, pay or benefits, it’s key to pay close attention to the turnover rate of your business. It’s a market of how happy your employees are.

Here we’ll cover what employee turnover rate is, how to calculate a turnover rate and what a good turnover rate is for your industry. 

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What is employee turnover rate?

Turnover rate is the percentage of employees who have left your company over a period of time. It’s usually compared against the employee retention rate, which is the opposite of the employee turnover rate. The employee retention rate is the number of employees who are retained during a set period and is expressed as a percentage. 

• Voluntary turnover: This is when workers decide to leave the company. 
• Involuntary turnover: This is when workers are terminated by the company. It can happen when the employee isn’t doing their job, is no longer in step with the company’s values or when they are underperforming.

Voluntary turnover typically negatively impacts your business, while involuntary doesn’t. It’s important to recognize that some turnover is functional and can help maximize an organization’s ROI on its talent strategy, explained Dr. Janet Lenaghan, Dean of the Frank G. Zarb School of Business at Hofstra University.

“Functional turnover is effective as it reflects the separation of poor performers and others who no longer contribute to the organization’s mission,” she said. “However, dysfunctional turnover — the loss of higher performers — negatively impacts the organization’s success.”

How to calculate turnover rate

Calculating the turnover rate can be fairly straightforward. You’ll need to gather the following information: 

• Number of employees on the first day of the set period. 
• Number of employees on the last day of that set period.
• Total number of employees that left, either voluntarily or involuntarily. 

The formula for turnover rate is [(# of employees who left)/(average number of employees)] times 100. Here’s an example: 

• MeowApples Pet Food company had 50 employees on Jan. 1, 2022. On Dec. 31, 2022, they had 60 employees. During the course of the year, there were 10 people who left.
• The average number of employees is 80 — (50+60)/2.
• Turnover formula: (10/80) x 100 equals 12.5%. This makes the turnover rate 12.5%.

When figuring out the employee turnover rate, watch out for common mistakes. For one, it’s easy to mix up time frames, Kraig Kleeman, CEO and founder of The New Workforce, pointed out. To avoid this, stick to one period — like monthly or yearly.

You’ll also want to include part-time or seasonal workers. “Everyone counts, regardless of their contract,” said Kleeman.

What is a good turnover rate?

Across industries, generally, an employee turnover rate of 10% is considered a “good” or “healthy” percentage.

A “good” turnover rate can be tricky to figure out. A healthy turnover rate varies from industry to industry, and you can expect higher turnover rates in certain industries, like accommodation and food services, retail trade, leisure and hospitality and professional services. 

Another factor to consider is that voluntary turnover, especially from those in managerial or higher-level positions, can have a greater negative impact than involuntary turnover, where someone is let go due to, say, job performance. 

What factors impact turnover?

There are many factors that affect turnover, explained Lenaghan. Some can be attributed to the organization, but others stem from factors outside the employer’s control. Further, the factors that impact turnover vary by company and across industries. 

That being said, several main factors impact voluntary turnover.

• Pay and benefits. No surprise here, but this is the single most common reason why workers leave their jobs voluntarily. 
• Career advancement opportunities. Good talent commonly leaves their current job post for opportunities that can help them advance in their career. 
• Managers and leaders. Maybe there was new leadership, and the employee found themselves at odds with a direct supervisor or manager. Or, over time, conflicts or differences of opinion arose between the employee and their supervisors.
• Relocation. Workers might leave because they are relocating to a different part of the country for perhaps a lower cost of living, to start a family or for a change of scenery. 
• Personal reasons. Employees might voluntarily quit for medical reasons, to take care of family or other non-work-related circumstances. 
• Engagement and work culture. A worker might leave because a job had unrealistic expectations and responsibilities, the work was no longer interesting or their skills and talents weren’t a good fit for the work responsibilities. Other reasons might be that they weren’t treated with respect, the company’s values didn’t line up with their own values or they didn’t jive well with the workplace culture. 
• Well-being and work/life balance. Lack of flexibility to work from home, incompatible work schedules or difficult physical working conditions can all be reasons employees may choose to leave.

Well-being is becoming a more common reason. According to a Gallup poll on employee retention, in 2022, three times as many workers voluntarily left their jobs due to well-being and work-life balance or “engagement and culture” reasons compared with the number of workers who mainly left for better compensation. 

How can you improve employee turnover?

As employee turnover can be costly, time-consuming and take a hit on employee morale, it’s in your best interest to improve conditions that can contribute to it. Here are a few ways to improve employee turnover:

• Schedule regular check-in meetings from the beginning. 
• Pay your talent well and offer an attractive benefits package.
• Develop a mentorship program. 
• Cultivate trust between employees and management. 
• Ensure all employees are treated with respect. 
• Create opportunities for employees to demonstrate value and put their talents to use. 
• Consider ways to increase work-life balance.

Research suggests that employees are more likely to stay if they feel engaged and committed to the organization and can flex different muscles by stretching beyond their current role and contributing to the organization’s success, explains Lenaghan.

“Creating a culture where employees feel valued and participate in shaping strategy will enhance engagement and employee buy-in,” she said. “Listen to your employees—use stay interviews and other techniques to understand what motivates them, and make changes as a result of that feedback.”

Think of employee turnover like a business’s pulse, added Kleeman. It tells you who’s coming and going and, more importantly, gives clues about the ‘why.’

“High turnover can be a red flag, signaling higher costs because, let’s face it, hiring and training new folks is costly,” he said. “It also signals a shaky ship since constantly bringing in new people can be pretty disruptive. Plus, keeping tabs on turnover helps you plan better for the future.” 

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