How to Calculate Turnover Rate (With Formula & Example)

Employee turnover rate is important for organizations as it affects efficiency, morale, and profits. In 2023, US companies spent nearly $900 billion to replace employees who left. Knowing this rate helps companies understand their workforce and retention. High turnover can point to problems like poor management or low engagement, while low turnover usually means a healthy work environment.

This article explains how to calculate turnover, the best formula to use, why it matters, common causes, and provides an example to show its application. You'll also learn how Salary.com's Pay Equity tool can help mitigate turnover with its innovative solution for addressing the gender pay gap, pay raises, general pay inequality, and more.

What is employee turnover rate?

Employee turnover rate is the percentage of employees who leave a company within a specific period, usually a year. As mentioned, it's a crucial metric for businesses as it indicates the stability and satisfaction of the workforce.

Key insight:

• High turnover rates may point to problems like poor management, low engagement, or inadequate pay.

• Low turnover rates usually indicate a healthy work environment with committed, satisfied employees.

There are two types of turnover: voluntary and involuntary. Voluntary turnover happens when employees leave on their own, often for personal reasons or better opportunities. Involuntary turnover occurs when employees are fired or let go by the company.

A good or healthy turnover rate is 10% or lower, meaning 90% of employees stay, which is a positive sign. The US Bureau of Labor Statistics reports that total separations, including quits, layoffs, and other separations, were 5.4 million, or 3.4% of US workers, in July 2024, with the number of quits, or voluntary separations, at 2.1%.

Moreover, Salary.com's 2024 Pay Practices Survey notes that turnover remains an issue among organizations, increasing from 16% in 2022 to 17% in 2023. One cause of turnover is pay gaps. Use Pay Equity tool to check if pay levels are fair and match your business goals and DE&I initiatives.

The best formula for calculating turnover

Knowing the right formula for calculating employee turnover rate is important for understanding workforce stability and planning. Here are the formulas for annual and monthly turnover rates:

Monthly turnover rate = (number of departures in a month / average number of employees for the month) x 100

Annual turnover rate = (number of departures in a year / average number of employees for the year) x 100

Here are some examples for calculating turnover rate:

Monthly turnover rate = (number of departures in a month / average number of employees for the month) x 100

If 5 employees left in a month and there were, on average, 50 employees during that month, then:

Monthly turnover rate = (5 / 50) x 100 = 10%. This means that 10% of the employees left the company during that month.

Yearly turnover rate = (number of departures in a year / average number of employees for the year) x 100

For calculating annual turnover, here's an example:

If 30 employees left over the year and the average number of employees was 50. The computation should be:

Annual employee turnover rate = (30 / 50) x 100 = 60%.

Considering the 60% employee turnover rate, the company should review its policies and practices related to employee satisfaction and retention.

Why does the employee turnover rate matter?

Before we discuss the steps on how to calculate turnover, let’s first explore why the employee turnover rate matters:

• Financial impact: High turnover means more expenses for hiring and training new employees and a loss in productivity as they get up to speed.

• Morale and culture: Frequent turnover can hurt employee morale and disrupt company culture, making it harder to maintain a strong, positive work environment.

• Operational challenges: High turnover disrupts daily operations and reduces productivity. Constantly training new staff can strain existing employees and cause inefficiencies.

• Customer satisfaction: Frequent employee departures in sales disrupt customer service, harm the company’s reputation, reduce customer loyalty, and make it harder to meet annual sales targets due to time spent on recruitment and training.

Replacing an employee can cost up to a third of their annual salary. To avoid this, reduce turnover by conducting a pay equity analysis. Salary.com helps by using regression and cohort analyses to find pay disparities between employees doing similar work.

Causes of employee turnover

According to a 2023 study, one reason employees quit is unfair compensation. However, a 2024 retention report shows that in 2023, workers primarily left their organizations due to career issues, with 17.4% citing a lack of career advancement opportunities. This was followed by health and family concerns, and then work-life balance.

Here's the complete list of reasons employees quit:

Career issues: 17.4%

Health and family: 12.3%

Work-life balance: 11.9%

Job characteristics: 9.8%

Manager behavior: 9.8%

Relocation: 9.1%

Compensation & benefits: 9.1%

Work environment: 7.7%

Retirement: 7.1%

Involuntary: 5.3%

Understanding these causes helps you identify turnover risks, avoid disruptions, extra costs, and lost productivity. If you’re struggling to retain top talent due to pay issues, use Salary.com's Pay Equity Suite to create a plan that fits your organization’s compensation strategy and resources.

How to calculate turnover rate

So how to calculate employee turnover rate? Since you already know the two formulas for calculating employee turnover rate, here’s a step-by-step guide:

1. Step 1: Choose the time period

   Choose the time period for calculating turnover rate, such as monthly, quarterly, or annually. This helps set the timeframe for analyzing employee departures and understanding the company’s turnover rate.

2. Step 2: Count how many employees left

   Count how many employees are left during the chosen period, including resignations, retirements, layoffs, or dismissals. This total shows how many employees left the company during that time.

3. Step 3: Find the average number of employees

   To calculate annual turnover, first find the average number of employees during the period by adding the number of employees at the beginning and end, then dividing it by two. This accounts for changes in staffing and gives a more accurate picture of the workforce.

   For example, if you had 150 employees at the start and 170 at the end, the average is (150+170)/2 = 160

4. Step 4: Divide the number who left by the average number of employees

   Divide the number of employees who left by the average number of employees. This gives the percentage of the workforce that left during the period. So, if 12 employees left and the average number of employees was 160, turnover rate = 12/160 = 0.075

5. Step 5: Multiply by 100 to get the turnover rate as a percentage

   Multiply the result from Step 4 by 100 to get the turnover rate as a percentage. This shows what percentage of the workforce left during the period. In this example, with a result of 0.075, you calculate 0.075 x 100 = 7.5%. This means 7.5% of the workforce left during the period.

6. Step 6: Review the result

   The last step in calculating the turnover rate is to review it to see if it meets your organization's expectations. A high rate might cause problems like employee dissatisfaction, while a low rate suggests good retention. For the 7.5% turnover rate, check if it meets your industry standards or company goals.

   To simply review and measure turnover rate results isn't enough. You also need to continuously monitor pay in your organization. Continuous Pay Analysis lets you manage pay equity regularly and keep records for audits.

Example of employee turnover rate

A call center company begins the year with a workforce of 500 employees. Throughout the year, the company experiences 100 employee departures, including resignations, retirements, and terminations. By the end of the year, the company’s workforce decreases to 400 employees.

To understand the impact of these departures on the company's workforce stability, the company needs to calculate the average number of employees over the year and determine the turnover rate.

Number of employees who left: 100

Initial number of employees: 500

Final number of employees: 400

Formula needed:

Average number of employees = (initial number of employees + final number of employees)/2

Yearly turnover rate = (number of departures in a year / average number of employees for the year) x 100

Turnover calculation

Average number of employees = (500 + 400)/2 = 450

Yearly turnover rate = (100 / 450) x 100

Yearly turnover rate = 0.22 x 100 = 22.22%

Result

The call center company had a turnover rate of about 22.22% for the year, meaning that roughly 22.22% of the average workforce left due to resignations, retirements, or terminations.

Knowing how to calculate turnover rate in 2024 is important for understanding employee satisfaction and organizational health. Comparing turnover also helps spot trends, identify problem areas, and measure your company against industry standards. So be sure to do this too. Also, use tools like Salary.com's Pay Equity toolkit to prevent pay disparities that might increase turnover within your organization.