How to Calculate the Turnover Rate in 4 Steps (Plus FAQ)

By Indeed Editorial Team

Published 6 December 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Turnover rate is a term for the rate at which an employer loses and hires team members. It's an important term for human resources and recruitment to consider, as it helps them evaluate their performance. If you're a human resources specialist or want to discover more about turnover rate, learning to calculate it can be beneficial. In this article, we explain how to calculate the turnover rate, describe different types and answer common questions about turnover rate.

Related: What Does a Human Resources Manager Do? (With Skills)

How to calculate turnover rate monthly and annually

Learning how to calculate turnover rates can be important for human resources or recruitment professionals. There are two different formulas you can use to determine the staff member turnover rate in the company. You can follow these steps to calculate it:

1. Determine if you want to calculate monthly or annually

The first step is determining if you want to calculate the monthly or annual rate. Though both are useful, one may be better than the other depending on your goals and the information you want to gather. Monthly turnover rates can show short-term success or provide insights about how to improve recruitment and hiring quickly.

Annual rates can be more helpful for evaluating long-term performance and comparing how recruitment and hiring processes change each year. Many professionals choose to include both numbers in their hiring department performance reviews.

2. Gather information about hiring and team member loss

Before you can calculate the turnover rates within a company, you gather information about the hiring and team member losses. You may determine how many team members stay in a month and the average number of staff members the company had in the same month to calculate monthly turnover rate. For the annual rate, you gather information about how many team members the company had at the beginning and end of a year.

You can use data tracking systems to gather this information and accurately record hiring and team member loss. During this step, it's also important to determine which kinds of turnover rates you plan to include in your calculations. Creating a system for turnover rate tracking and assigning information management to members of the recruitment team can help make this more efficient and accurate.

3. Use the monthly turnover rate formula and calculate the rate

After gathering data, you can use the monthly turnover rate formula to determine the short-term turnover rate. This is the formula:

Monthly staff member turnover rate = (Team members who left in a month/average number of team members in a month) x 100

Example: In March, the company you work for had an average of 50 team members. In that same month, two team members left the company. This gives you the following calculations: (2/50) x 100 = 4. This means that in March, the company had a 4% staff member turnover rate.

4. Complete an annual turnover rate calculation using the formula

To calculate an annual turnover rate, you can use this formula:

Annual team member turnover rate = [team members who left in a year / (beginning number of staff members + ending number of team members / 2) ] x 100

Example: In 2018, the company had 100 team members at the beginning of the year and 98 team members at the end of the year. During the same year, five team members left the company. This gives you the following calculations: [5/(100+98/2)] x 100 = 5. Using this formula, you can conclude that your team member turnover rate for 2018 was 5%.

Related: What Does a Recruiter Do?: Duties, Skills and Salary

Types of staff member turnover rate

There are several different types of team member turnover rates that you can analyse when determining the overall turnover rate for the company. Understanding the differences is important for determining which statistics to include in your considerations and calculations. The most common types include:

Voluntary turnover rate

Voluntary team member turnover rate is when a staff member chooses to leave their position. This can occur when a person takes a job at a different company, completes an internal transfer or changes careers. This type of rate may be more expensive and affect profits more significantly because team members who leave voluntarily may be more likely to be high-performing than others.

Involuntary turnover rate

Involuntary turnover rate is when the company chooses to end the employment relationship with a staff member. This can include layoffs and terminations for poor performance. This kind of rate may be less costly to the company than voluntary losses because the staff members they terminate may not be as high-performing as those who choose to leave.

Retirement

Retirement is a form of voluntary turnover rate that happens when a person chooses to stop working. It's different from the other types because the staff member can communicate their plans for retirement to their employer in advance and prepare their replacement. This kind of voluntary turnover rate can be easier for companies to manage because they can plan for a person's retirement far before they leave. This includes finding and training new staff members replacements and adjusting teams.

Related: Top 20 Retirement Jobs (With Average Salaries and Duties)

FAQ about calculating turnover rates

Learning more about turnover rates can help you implement practices in a recruitment team that improve performance and lower costs. These are the answers to some common questions you can explore:

What is the staff member turnover rate?

Team member turnover rate is a measurement used to determine how many staff members leave a company during a set period of time. Turnover rates can be an important key performance indicator (KPI) for human resources and recruitment teams. Team member turnover rate is most commonly calculated as a percentage, and this rate includes both involuntary and voluntary separations. Voluntary separations include:

  • retirements

  • resignations

Involuntary separations include:

  • dismissals based on performance

  • downsizing of team members

  • layoffs due to financial reasons

Related: What Does Human Resources Do? 11 HR Roles and Responsibilities

Why is it important to calculate the turnover rate?

It's important because high turnover rates can cost a lot and impact the business. Human resources specialists and recruitment professionals calculate turnover rates to assess recruitment performance and determine how to improve the hiring and recruitment process.

High turnover rates can help hiring specialists to identify team member satisfaction rates, underdeveloped hiring strategies and recruitment competition. Low turnover rates show professionals when their hiring practices are effective, indicate a positive company culture and provide information about how the company supports team members and encourages staff member engagement.

How can turnover rates affect recruitment and hiring costs?

Calculating the turnover rate is important for human resources professionals because it allows them to determine how hiring practices affect recruitment and hiring costs and the company's overall profit. High turnover rates can increase separation expenses, reduce productivity and increase hiring costs. These are some of the negative impacts on profit:

  • retrenchment benefits for staff members who leave

  • cost of removing team members from systems

  • fees for publishing job listings and posting online

  • training material and programme creation costs

  • lost profits and sales for the vacated position

  • unproductive new team members reducing profit

How do I interpret the team member turnover rate?

Staff members leave their jobs for different reasons and those reasons themselves are important when you consider the turnover rate. For example, a staff member who leaves because they've been with the company for 20 years and have retired is a much different metric than a team member who leaves after one year for a job with a better opportunity for advancement. With that in mind, it's important to consider these factors when looking at the rate:

  • What is the reason for the staff member leaving?

  • Was there any way to retain the team member?

  • Is there any way to make changes that prevent other staff members from leaving?

  • Are team members leaving after a relatively short period of employment?

Related: What Are Recruitment Strategies? (Plus 10 You Can Use)

How can I determine if the company has a good turnover rate?

It's important to know the turnover rate for your particular industry when deciding if the company's rate is above or below average. Another aspect to consider when deciding if the rate is healthy is to consider the staff members who have left the company. If your turnover rate is mostly underperforming staff members, you likely have a healthy turnover rate but may benefit from updating your hiring standards.

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