Updated: July 27, 2022

How Do Companies Determine Their Turnover Rate?

Having an understanding of your turnover rate (also known as the employee retention rate) is an essential part of any HR function – monitoring the movement of employees out of your company will allow you to better minimize the causes of turnover and increase your employee retention. And increasing your employee retention has wide-spread benefits, which we’ll talk about later on.

There are multiple ways to determine your turnover rate, some much simpler than others, depending on how detailed you want to get. The most common equation for determining turnover is:

Turnover Rate = ( # of Terminations / Average # of Employees ) x 100

You can get more specific by calculating involuntary terminations separately from voluntary terminations, or by looking at different short- and long-term time frames. SHRM offers a detailed breakdown of the different components of this equation that’s worth checking out.

What does the turnover rate mean for my company?

Once you’ve determined your turnover rate, you need to use it to determine important factors that have the potential to impact all aspects of your business success. We recommend looking at both voluntary and involuntary terminations to better determine why your turnover is happening.

If your involuntary terminations are high, you should look into whether you’re recruiting the right people, assess your screening process, and review your hiring team and practices. If your voluntary terminations are high, are you conducting exit interviews to find a common denominator as to why people are leaving? It might be time to take a hard look at your training programs, compensation strategy, and company culture.

Do you have an idea of what turnover truly costs your company? If not, you should. Brandon Hall Group, a human research and analyst firm based in Florida, identified several variables that go into calculating the true cost of turnover that you need to consider:

• Recruiting, hiring, and on-boarding new employees
• Loss of productivity
• Training fees
• Negative impact on team performance
• Project disruption
• Lost customers/fewer sales
• Outplacement services
• Weakened company brand
• Litigation Fees

Why is employee retention so critical?

Our return to normalcy after the 2020 pandemic has become somewhat of a misnomer. Various political, social, and economic factors are now pushing businesses into unprecedented market uncertainty. Most employers struggle to recruit, hire and retain the employees they need. It’s not only less time-consuming and more cost-effective to retain your existing workforce, but is now critical to your ability to maintain normal operations during this period of economic uncertainty.