What Is a Turnover Rate?

Your turnover rate is a figure which indicates how many employees have left your company over a certain timeframe. The figure is worked out as a percentage and is usually calculated on an annual basis. 

The lower your employee turnover, the more people stay with your company as a percentage of your total workforce. Benefits of a low turnover include lower recruitment costs and a more tight-knit team culture. If your turnover rate is high, this may be a sign of employee dissatisfaction. Dissatisfied employees can harm productivity and morale. 

How to Calculate Your Turnover Rate

Here’s a formula you can use to calculate your turnover rate.

(No. of employees who left / [(No. of employees at the beginning of the year + No. of employees at the end of the year) / 2]) x 100 = Turnover Rate %

Now let’s go through it step by step.

To calculate your turnover rate, you must first identify the number of employees that left your company over one year. This number includes those that left voluntarily, involuntarily and those who retired.

In our examples, we’ll say the number of employees that left voluntarily, involuntarily, or retired in a year is 50

To find your average number of employees over one year, add how many employees you had at the beginning of the year to the number you had at the end of the year. Now divide this sum by two.

Let’s say the number of employees at the beginning of the year was 550 and the number of employees at the end of the year was 450. The average number of employees is 500.

(450 + 550) / 2 = 500

To calculate your turnover rate, you must divide the number of employees who left by the average number of employees in a year. Once you have done this, you multiply the result by 100 to get a percentage rate

In our example, the number of employees who left is 50. The average number of employees for the year was 500. The turnover rate is 10%.

50 / 500 X 100 = 10%

What Is a Good Turnover Rate?

A universally good turnover rate doesn’t exist. This is because industries use different operational models. In addition, macroeconomic factors and the competitiveness of your industry can also impact your company’s turnover rate.

For example, the hospitality sector has a high percentage of temporary and seasonal workers. It has higher average turnover rates than the financial sector, where there is a strong incentive to rise through the ranks.

In 2019, a Mercer survey found that the average turnover rate for US companies was 22%, with voluntary turnover accounting for 15%. A good turnover rate is one that’s below your industry average in your geographical area. Another way to evaluate your current turnover rate is by comparing it to previous years’ rates.

What a Turnover Rate Tells You

Your turnover rate is higher is a good indication of how your employee experience compares to your competitors. If it’s lower than your industry average, your organization may have a good employee experience. A lower-than-industry-average turnover rate may be a sign that your employee experience could use some improvement. Factors that matter to your workers include pay, progression opportunities, support from team members, and learning new skills.

If your turnover rate is lower than the industry average or is decreasing year-on-year, this could mean:

• Your employees have built valuable working relationships with colleagues
• The quality and variety of the work keep employees satisfied
• Your staff feels valued and appropriately compensated through pay and other benefits.

On the other hand, if it’s higher than the industry average or has had yearly increases, it could be because:

• Your competitors offer better work/life balance, compensation, or opportunities to progress and learn new skills
• There is a culture of allowing unpleasant work behavior to take place among coworkers
• Your company is going through big organizational changes which are not appropriately communicated to employees.

Ways to Lower Your Turnover Rate

To lower your turnover rate, first find out what is making employees leave. There are several ways you can achieve this.

• Hold exit interviews with all employees who leave—both voluntarily and involuntarily.
• Circulate a company survey where employees can anonymously share reasons they may consider leaving.
• Collect information from managers who have terminated the employment of their staff members.

Reasons for leaving voluntarily

The reasons why an employee may choose to leave voluntarily include:

• misalignment with the role or company
• lack of managerial support
• unhealthy work/life balance
• not getting enough recognition
• dissatisfaction with pay or progression opportunities.

Here are some examples of ways to lower your voluntary turnover rate.

• Provide management training on how to better engage team members
• Run an onboarding buddy scheme to facilitate strong workplace relationships
• Offer flexible working arrangements to suit modern lifestyles
• Have regular pay and progression reviews to provide feedback on performance
• Show recognition by offering awards, gift cards, and more
• Develop a supportive corporate culture where employees feel listened to.

To find out more about reaching a healthy turnover rate, read our glossary article on Employee Turnover. 

Conclusion

To sum up, your turnover rate is the percentage of workers that leave out of the average number of workers in a given period. A good turnover rate is one that’s below your industry average, but you can also compare your current rate to previous years’ rates.

A low turnover rate can suggest that your staff is satisfied with their employee experience. A high one may indicate issues with compensation, progression opportunities, or company culture. To lower your turnover rate, find out why your employees are leaving using exit interviews and company surveys.