How to Calculate the Turnover Rate for Your Company (and why you need to)

Over the past few years, company turnover has increased substantially. With high turnover rates, 47.2% in 2021 and continuing through 2022 — now may be the most important time ever to calculate your turnover rate. 

Just as one bad seed can destroy the bunch, a high turnover rate can take down a workforce. While some turnover is unavoidable, excessive turnover can have detrimental repercussions. Understanding how to calculate your turnover rate helps you see where and why people are leaving your company.  

Once you understand your turnover rate, you will be better equipped to understand the why and take steps to address it. 

What Is Employee Turnover?

Employee turnover is the rate at which employees leave your company. It is usually measured by a certain time period (years, normally). Your overall turnover rate includes retirement and involuntary separations, but does not include in-company promotions or transfers.

Losing employees is not only incredibly inconvenient, it results in low productivity from lack of experience, and becomes expensive. The rule of thumb is that it costs you 1.25 to 1.4 times the salary to recruit and hire one new employee. So if the position pays a salary of $50,000, it will cost you roughly $65,000 to recruit them (factoring in loss-of-productivity, recruiting costs, and onboarding). 

Low productivity and high recruitment costs are reasons alone to be paying close attention to your turnover rate and working to improve it.

What Is A Good Turnover Rate?

What constitutes a good turnover rate depends on the industry. In K-12 education, employees tend to stay at their organization for much longer than, for example, retail workers. The Bureau of Labor Statistics produces a detailed yearly report so you can see how your company measures up.

Here are some current employee turnover statistics for individual industries:

How To Calculate Turnover 

To calculate your turnover rate, you only need three numbers: the number of employees on the first day of your analysis, the number of employees on the last day of your analysis, and the number of separations that occurred over that duration. 

Now, put those numbers into this turnover rate formula to find your turnover rate:

Let’s break this down with an example of a made-up technology company;  we will call it Lightbulb Inc. Lightbulb Inc had 300 employees on day one of their analysis, 294 employees on the last day of their analysis, and 26 separations over that span of time. Here’s a graphic to show you how to calculate: 

Lightbulb Inc has an impressive low turnover rate (for their industry) of only 8.75%. We can hope that your turnover rate adds up to also be low for your specific industry, but if it comes in high, you need to take a deeper dive.

Types Of Turnover And Reasons For Turnover

There are three types of turnover – voluntary, involuntary, and retirement. 

• Voluntary turnover is when an employee chooses to leave (quits or resigns).
• Involuntary turnover is when the employer makes the decision to separate from the employee (fired or eliminates the position). 
• Retirement needs no explanation, it is simply retirement. 

What is Voluntary Turnover?

Having employees resign is unavoidable. People will not always stay in the same company for their entire careers, but there are ways to make sure you’re engaging your employees and creating a great work environment.

Reasons employees choose to leave can be:

• Cultural fit. 73% of people have left a job due to poor cultural fit. Luckily, cultural fit is something you can screen for in your interviewing process. Check out our 5 questions you need to be asking to assess cultural fit from the start to cut out this reason for voluntary turnover.
• Poor hiring and/or onboarding experience. “Candidate experience” and “employee experience” are both important pieces to consider when evaluating retention. 50% of job seekers have passed on a position due to a poor candidate experience and 28% of new hires have left within the first 90 days due to a poor onboarding experience. Video interviews + interview scheduling allow you to automate parts of your hiring process – giving you more time to dedicate to your candidates. 
• Poor employee engagement. The most common reasons cited for leaving a job are related to engagement – a poor relationship with their boss, dissatisfaction with their salary, or a lack of advancement opportunities. Engaged employees are happier, more productive employees. And, they’re more likely to stay working for you. 
• Poor work-life balance. The pandemic made working from home the norm. Cutting out the commutes allowed people to enjoy more time with family and friends. Poor work-life balance is one of the top three reasons people leave companies – it is now a dealbreaker. 

All these reasons for voluntary turnover are preventable. Keeping track of why an employee leaves will help your company see places they can improve. 

Involuntary Turnover 

Involuntary turnover is when the company asks the employee to leave. There are a number of reasons this happens.

• Poor performance
• Behavioral issues
• Budget cuts
• Structural reorganization

There will always be reasons for involuntary turnover, however, some are preventable. Poor performance and behavioral issues can stem from a poor employee experience or burnout. 

Retirement 

Some may say turnover due to retirement is unavoidable, but that is not always the case. Employees may become disengaged and choose to retire early. Collecting exit interview data on retirees is equally important because that data can help strengthen your workplace and keep other employees for the long haul. 

How To Reduce Your Turnover Rate And Boost Your Employee Retention

1. Find the right talent the first time. Begin with improving your hiring process. Is your process thoughtful and selective? New hires should have the necessary skills and soft skills, but also should fit in with your company culture. Make a structured interview plan, including both behavioral and skill-based questions. And be sure you have an employee referral program as well – retention rates jump 24-45% when an employee is hired via a referral program. 
2. Recognize and reward employees. When your employees are happy, they are up to 20% more productive and they stay longer at their company. Your employees need recognition and appreciation. Great work should be rewarded with promotions, salary increases, added benefits, etc. (The cost of the reward is still far less than a new hire!) It will go a long way in keeping them happy, motivated, and on your team.
3. Identify a clear career path. Create a plan that allows your employees plenty of opportunities for growth and development. Employees want to be challenged and advance in their career. When they feel like they can grow within the company, they are far more likely to stay. 

Start Reducing Turnover By Hiring The Right Candidates, The First Time

Employee retention takes a consistent effort. It requires you to check in with your current employees regularly, improve your hiring practices, and improve processes when turnover does occur.

interviewstream helps companies reduce turnover by helping you hire the right candidate, the first time. Through video interviews and interview scheduling, you can grow your candidate pool 30% and get a better image of your candidate from the first interview. More hiring choices means better informed hiring decisions and ultimately, less turnover. If you’re interested in learning more – see how we can help you here.

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About The Author

Caroline Chessia is the Marketing Operations Specialist at interviewstream. She loves color-coordinated graphs, hiking in the mountains, and every dog she meets—especially the Golden Retrievers.