How to Calculate Employee Turnover

It’s not something business owners like to think about—but you will lose employees throughout the course of your business for various reasons. You need to understand how to properly calculate employee turnover now so you can be prepared when you lose employees in the future.

What is Employee Turnover?

Employee turnover means the number of employees you’ll need to replace for a given time period, such as one month [1]. This won’t necessarily be the same number as the number of employees who leave your company during that period of time. 

For example, if you had two employees retire, an employee resign, and one who was fired, you may only be replacing three of those employees because of budgetary constraints or because you’ve consolidated or eliminated redundant positions.

Note: you would not typically include temporary employees in your employee turnover numbers.

So, how do you determine how many employees you need to replace on a monthly or annual basis?

Calculating Turnover Rates

Thankfully, there’s a simple formula to use when calculating your employee turnover rates [2].

You take the number of employee separations for the month divided by the average number of employees. That result is then multiplied by 100 to get the percentage of employees who left the company and must be replaced.

Employee separations should capture all employees during that month who:

• Were fired
• Resigned
• Retired

For example, if you had one employee retire in May, two employees who resigned, and one employee who was fired, then you’d have four separations for May.

Next, you’ll need to figure out the average number of employees on your payroll for the month, which is calculated by adding the number of employees at the start of the month to the number of employees at the end of the month and dividing the number by two [3].

If you had 150 employees on May 1st and 146 on May 31st, your average number of employees for May would be (150+146) / 2, or 148.

Finally, divide the total number of May separations by the average number of May employees (4/148) to get an employee turnover rate of 0.027, and multiply that by 100 for a 2.7% employee turnover rate for May.

To calculate your annual employee turnover rate, add each of your monthly turnover rates together for the year. Simple, right?

But you probably want to know more than just how many employees are leaving.

Why Employees Leave

It can feel frustrating to lose your best employees, especially if you don’t understand why they left. Often, you may be given a vague answer, such as “personal reasons” or a “better opportunity,” but what does that even mean?

The most common reasons employees leave a company include [4]:

• Lack of growth opportunities
• Work isn’t challenging
• Salary is too low
• Lack of benefits/poor benefits
• Unhealthy company culture
• Lack of communication/unclear expectations
• Poor management
• Being asked to take on too much work
• Retirement

While some of the above may be beyond your control, you can train your managers and supervisors to communicate with employees and set and enforce expectations appropriately. All employees understand when they are and aren’t meeting company standards.

Maybe it’s time to conduct a wage or benefits survey to see what your competitors offer their employees and see how you stack up. Can you afford to increase salaries or provide enhanced benefits?

Take time to understand your employees' daily challenges and then mitigate those issues as much as possible, like repairing faulty equipment or providing additional training.

It can be tempting to guess why employees leave, but if you really want to understand why your employees are walking out the door, you’ll need to conduct exit interviews.

Exit Interview Dos and Don’ts

Employee exit interviews are critical to understanding why your employees choose to leave your business. You’ll want to do an exit interview for each employee—whether that’s in person or via anonymous surveys/questionnaires. 

The interview should be conducted so that employees feel free to be honest about their real reasons for leaving, without fear of retaliation from you or someone else at the company.

The best exit interviews will ask departing employees the following questions [6]:

• Would you want your friends or family to work for us? 
• Why did you choose to look for another position?
• What did you enjoy about your position or role within the company?
• What did you like the least about your position or role within the company?
• Do you have any suggestions for how to improve management?
• How is employee morale?  What could be done to improve morale?
• Did you receive the necessary training, tools, and support to perform your job?
• In what ways can our company improve?
• Do you have any additional ideas or suggestions?

All questions should be followed up on—don’t accept just a yes or no answer and move on. You want to know why employees gave the responses they did. Even if it’s hard to hear, employee feedback will give you the information you need to take targeted, specific steps to improve as an employer.

Employee Retention Strategies

High turnover rates cost you time and money and can ultimately hurt your business [7]. So how can you hold on to good employees? While you may not be able to implement all of the employee retention strategies below, try to include as many in your business as possible, such as [8]:

• Providing free training or specialized classes for employees
• Paying higher salaries than your competitors
• Providing growth opportunities (promotions, leadership opportunities, etc.)
• Offering work-from-home options where possible
• Upgrading your benefits (more paid time off, better insurance coverage, bonuses, etc. [9]) 
• Accepting and applying employee feedback
• Setting clear expectations and creating easy-to-follow processes
• Understanding employees’ talents and skills beyond just their work functions
• Knowing your employees (making them feel valued, heard, noticed)
• Provide regular feedback to employees, not just during performance reviews [10]

Although some of these options may seem costly, remember how much it costs you every time you lose a great employee to a competitor and how long it takes to train a new employee for the same position.

Don’t forget another employee retention factor: updated software and hardware systems, including your point of sale systems.

Upgrade Your POS System

Technical difficulties often add to employee frustrations. Don’t let an outdated or poorly conceived POS system be one reason your employees can cite for walking off the job.

Epos Now is a secure and robust system that can handle customer purchases via smartphones (using Apple or Google pay). It even allows you the flexibility to ring up sales via tablets or smartphones so you can meet customers where they’re at. 

Of course, Epos Now is also compatible with major credit cards like American Express, Visa, and MasterCard and lets you see reports and analyze data on everything from daily sales to inventory numbers to help you spot trends quickly and easily.

Now that you’ve learned how to determine your employee turnover rates and how to keep your good employees—including using up-to-date POS systems, you’re ready to grow your business into the future.