How to calculate and improve employee turnover rate
Keeping an eye on employee turnover is critical for effective workforce management. High turnover can indicate problems within an organisation, such as poor management, lack of career growth, or low employee satisfaction. On the other hand though, some level of turnover is natural and even necessary to maintain a healthy, evolving workforce.
Many struggle however, to fully understand how to calculate employee turnover correctly. Different organisations use different formulas, and even global HR standards provide varying definitions. Confusing, right?
Well, in this article we’ll explore the best practices for calculating turnover, discuss why it matters, and explain how you can use this data to improve your employee retention and workforce planning.
Why employee turnover matters so much
Employee turnover is more than just a percentage—it’s an indicator of a businesses overall health. If turnover is high, it can lead to increased recruitment costs, the loss of valuable know-how, and lower employee morale. Conversely, a well-managed turnover rate ensures that organisations retain top talent while allowing room for fresh ideas and innovation.
Key reasons to track employee turnover include:
- Cost management – Replacing an employee can cost up to twice their annual salary when factoring in recruitment, training, and lost productivity.
- Workplace morale – A high turnover rate can affect team stability, leading to disengagement among remaining employees.
- Recruitment strategy – Understanding turnover trends can help HR teams refine hiring practices to attract and retain better-fit employees.
- Business performance – Retaining skilled employees contributes to sustained business growth, productivity, and customer satisfaction.
With all this n mind, let’s explore how to actually calculate employee turnover using industry-standard formulas.
Defining employee turnover
Before diving into the formulas, it’s important to define key terms:
- Employee Turnover: The percentage of employees who leave an organisation within a specific period, whether voluntarily (e.g., resignation, retirement) or involuntarily (e.g., dismissal, layoffs).
- Leavers: Employees who have left the company during a given period.
- Hires: Employees who joined the company during the same period.
- Total employees: The average number of employees in the organisation over the period being measured.
How to calculate employee turnover rate
To calculate your employee turnover rate, follow these steps:
- Determine the time period – Choose whether you want to measure turnover monthly, quarterly, or annually.
- Count the number of employees who left – Include both voluntary and involuntary exits.
- Calculate the average number of employees – Add the number of employees at the start and end of the period, then divide by two.
- Apply the turnover formula – Divide the number of leavers by the average number of employees, then multiply by 100 to express it as a percentage.
Turnover rate formula (annual example):
- First, find the average number of employees:
(Number of employees at the beginning of the year + Number of employees at the end of the year) ÷ 2 - Then, calculate the turnover rate:
(Number of employees who left during the year ÷ Average number of employees) × 100
Lets take a look at this in practice….
A company started the year with 200 employees and ended the year with 220 employees. During this time, 25 employees left.
- The average number of employees is:
(200 + 220) ÷ 2 = 210 - The turnover rate is:
(25 ÷ 210) × 100 = 11.9%
So, the annual turnover rate for this company is 11.9%.
Alternative turnover calculation methods
Depending on your organisation’s needs, you might choose a more specific approach to tracking turnover:
- Voluntary vs. Involuntary Turnover
Instead of measuring overall turnover, you can break it down into voluntary (employees who resign or retire) and involuntary (those let go due to layoffs or dismissals). This helps identify whether employees are leaving by choice or if there are broader workforce challenges.
- Monthly Turnover Rate
For businesses with frequent staffing changes, tracking turnover on a monthly basis provides a clearer, real-time view of workforce stability. This is especially useful in industries with seasonal or high-churn roles.
- First-Year Turnover Rate
Measuring how many new employees leave within their first year can highlight issues in hiring, onboarding, or workplace culture. A high first-year turnover may suggest the need for better recruitment strategies or improved employee support during the onboarding process.
Focus on the type of turnover that matters most to your business. You can take targeted steps to improve employee retention
What Is a healthy turnover rate?
The ideal turnover rate varies by industry, company size, and job function. However, general benchmarks include:
- 10-15% per year – Considered healthy in most industries.
- Higher than 20% – May indicate workforce issues that need attention.
- Less than 5% – Could suggest a stagnant workforce with limited opportunities.
How to reduce high employee turnover
If your company has a high turnover rate, it’s important to identify the root causes and implement strategies to improve retention.
- Improve hiring practices
Hiring the right employees from the start reduces premature departures. Using behavioural assessments and data-driven recruitment tools (such as Thrive’s candidate assessments) ensures that new hires align with company culture and role expectations.
- Strengthen employee engagement
Engaged employees are less likely to leave. Regular employee engagement surveys help managers identify areas for improvement, such as work-life balance, recognition, or career development opportunities.
- Offer career development opportunities
Employees who see clear growth paths within an organisation are more likely to stay. Investing in training, mentorship, and promotions helps retain top talent.
- Foster a positive workplace culture
A toxic or unsupportive work environment can drive employees away. Companies should focus on open communication, leadership transparency, and work-life balance to create a healthier workplace.
- Do exit interviews
Understanding why employees leave provides valuable insights. Exit interviews can highlight patterns and issues that need addressing, such as salary concerns, lack of recognition, or poor management.
How turnover data can help your organisations bottom line
Tracking and analysing how to calculate employee turnover helps businesses make strategic workforce decisions. Rather than viewing turnover as a challenge, companies can use it as an opportunity to improve hiring, engagement, and retention strategies.
Platforms like Thrive help organisations go beyond simple turnover metrics by providing advanced people analytics, candidate assessments, and employee performance insights. With data-driven decision-making, companies can create a workplace where employees are engaged, motivated, and committed to long-term success.
By understanding and acting on turnover trends, businesses can reduce costs, retain top talent, and foster a stronger, more resilient workforce.
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