Monitoring turnover is an important function of human resources. Companies want to monitor the movement of employees out of the organization so they can look for and minimize causes of turnover. Controlling turnover is one of the many quantitative ways the HR department can affect the bottom line.
Turnover rate is calculated by taking the number of separations during a month divided by the average number of employees, multiplied by 100:
Turnover Rate = # of Separations / Avg. # of Employees x 100
At first this formula sounds pretty simple, but deciding which data to include and when can be confusing. For example, does an organization use full-time equivalent (FTE) or straight head count when determining the number of employees and separations? What about temporary workers? What if an employee is on a leave or furlough? This guide breaks down each aspect of the formula and explains best practices.
Step 1: Calculate Number of Employees
When determining the number of employees in organizations for turnover rate purposes, employee head count rather than FTE is used. This head count should include all employees on the payroll. Employers should also count direct-hire temporary workers (temporary workers who are on the company payroll) and employees on temporary layoff, leave of absence or furlough. Number of employees should not include independent contractors or temporary workers on an agency’s payroll.
The human resource information system (HRIS) or payroll system should be set up to report total employee head count as explained above, and employers should run this report at regular intervals within the month (weekly or at the beginning, middle and end of each month). The employee head count can vary depending on the day or week, so the more data points used, the more accurate the turnover calculation will be.
Step 2: Calculate Average Number of Employees
The next step is to add the total head count from each report run throughout the month together, and then to divide by the number of reports used to obtain the average number of employees on payroll that month.
Avg. # of Employees = (SUM Head Count from Each Report) / Number of Reports Used
Example
Company A runs head count reports three times a month at the beginning, middle and end of each month. Head count on January 1 is 143 employees. Head count on January 15 is 148 employees. Head count on January 30 is 151 employees. Using the formula above, Company A would add the three head count totals (143, 148 and 151) together and then divide this sum by number of reports (3).
(143 + 148 + 151) / 3 = 147.333
Company A’s average number of employees in January is 147.333.
Step 3: Calculate Number of Separations
The next step is to obtain a list of the individuals with termination dates within the month. The number of separations during a month includes both voluntary and involuntary terminations, but employees who are temporarily laid off, on furloughs or on a leave of absence are not included. The HRIS or payroll system should easily generate an employee list by termination date.
Example
In January, Company A:
Had two employees on Family and Medical Leave Act (FMLA) leave.
Let go of five agency temporary workers.
Had one employee who retired.
Terminated two employees for cause.
Placed one employee on unpaid furlough.
Only three employees should be included in the number of separations for the month: the one employee who retired and the two employees terminated for cause. As stated above, only voluntary and involuntary separations within the month are counted; this does not include leaves of absence or furloughs. Also, Company A would not track agency temporary workers because they are not on the payroll.
Step 4: Divide the Number of Separations by Average Number of Employees
The next step is to divide the number of separations in the month (determined in Step 3) by the average number of employees on the payroll in the month (determined in Step 2).
# of Separations / Avg. # of Employees
Example
Company A had three separations and an average of 147.333 employees on the payroll for the month. Using the formula above:
3 / 147.33 = 0.0204
Step 5: Calculate the Turnover Rate
Most employers report turnover rates as a percentage; therefore, HR would multiply the answer in Step 4 by 100 to arrive at the monthly turnover rate.
Example
0.0204 x 100 = 2.04%
Company A has a January turnover rate of 2.04%.
Step 6: Annual Turnover Rate
Most employers want to report not only a monthly turnover rate but also a year-to-date (YTD) or annual turnover rate (TR). To determine the YTD turnover rate, the employer adds the monthly turnover rates together.
For instance, if it is April and the employer just completed calculating the monthly turnover rate for March, the formula for the YTD turnover rate would be:
YTD Turnover Rate = January TR + February TR + March TR
The annual turnover rate is determined by adding all 12 monthly turnover rates for the entire year:
Annual TR = (January TR + February TR + March TR + April TR + . . . + December TR)
SHRM’s Turnover Calculation Spreadsheet may be helpful. This spreadsheet allows organizations to enter the average number of employees and number of separations and will automatically calculate monthly, quarterly and annual turnover rates.
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