What is Employee Turnover and How to Calculate Employee Turnover Rate

Employee turnover is expensive and disruptive but a PEO can help. Here's how to calculate your employee turnover rate.

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Employee turnover is expensive and disruptive. That’s why businesses and organizations want to keep their employee turnover rate as low as possible. Employers who offer a positive company culture, competitive pay and benefits, workplace flexibility, and opportunities for advancement have the best chance of retaining employees. When small businesses partner with Professional Employer Organizations (PEOs), they are able to provide quality HR support and benefits normally only within reach for large organizations. That’s why PEO clients have an average of 10-14% lower employee turnover.

What is employee turnover?

In the context of human resources, employee turnover describes the act of replacing one employee with a new employee. Specifically, employee turnover is the total number of workers who leave a company over a certain period of time, whether the departure was by their own choice to quit, accept an interagency transfer, or retire or because they died or were involuntarily terminated or laid off.

The employee turnover rate represents the percentage of employees that exit the company within a certain period of time.

Average turnover rates by industry

While we know that high turnover rates are bad, it’s important to understand that there is no set number that represents a low or “good” employee turnover rate. Average rates vary by industry and some industries such as retail, leisure, and hospitality have traditionally had much higher turnover rates than others.

Data from shows the following on 2021 turnover rates:

The average turnover rate in 2021 was 47.2%.

Turnover rate by industry from highest to lowest:

  • Leisure and hospitality: 84.9%
  • Professional and business services: 64.2%
  • Construction: 56.9%
  • Trade, transportation, and utilities: 54.5%
  • Manufacturing: 39.9%
  • Information: 38.9%
  • Education and health services: 37.3%
  • Financial activities: 28.5%
  • Government: 18%

How to calculate employee turnover rate for a given period

Here is the simplest, most straightforward way to calculate the employee turnover rate:

A business’ turnover rate is the number of quits/terminations in a month, quarter, or prior year as a percent of total employment. The formula below can be used for both voluntary and involuntary turnover.

First, we need to identify existing employees, new hires, and employees who quit/leave within the period we are calculating for. New hires should not be included in this employee turnover calculation as they would be part of a separate hiring rate formula.

The simple formula is quits or terminations ÷ employees.

For example, if a company wishes to calculate their turnover rate for a given month and they had 50 employees at the beginning of the month and 3 employees left over the course of the month, the calculation would be 3 ÷ 50 = 0.06 for a turnover rate of 6%.

How to calculate year-to-date employee turnover rate

The year-to-date (YTD) employee turnover rate measures the percentage of a company’s workforce that has been replaced so far in the year. YTD turnover is used as a running total that will change over the course of the year. For this formula, new hires are included in the calculation.

To calculate the year-to-date (YTD) employee turnover rate, start by adding the number of employees at the start of the year to the number of new hires made so far in the year.

For example, if a company had 35 employees at the start of the year and has hired 5 employees since then, we would add 35 + 5 = 40.

Next, divide the number of employees who left so far this year by the total number of employees to date.

Continuing from the example above, if 2 employees have left so far this year, the company would divide 2 by 40 = 0.05 or 5%.

Partnering with Makai HR

Need help with employee retention strategies? We’ve got you covered through HR outsourcing! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions. 

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our three tiers of PEO service plans are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to run your business.

What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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