How to Calculate Employee Turnover

High employee turnover is a problem faced by many industries. It can affect the profitability of a firm in a negative way. Knowing the calculation of employee turnover is essential for HR managers to keep a tab on the growing expenses of an organization. However, before we discuss that, let us first know the importance of controlling the turnover.

Employee turnover should be controlled to make the working of an organization more efficient. A lot of money and time is invested in recruiting new staff. A lot of resources are invested in training processes, and if employees keep quitting the job at regular intervals, then the high costs of employee recruitment will eat into the profits earned by a firm.

Since profit maximization is the aim of business firms, they will have to keep a check on the employee turnover ratio. It is a simple ratio of the total number of employees who leave employment (either voluntarily or involuntarily), to the total number of employees working in a specific period.

The first step involves finding the average number of employees present in an organization during a given period. This can be calculated by adding the employees at the start of the year, to the number of employees at the end of the year, and then dividing the sum by two.

The mathematical formula for average number of employees for the period 1^st January to 1^st April is as follows.

Average number of employees = (Number of employees on Jan 1 + Number of employees on Jan 2)/2.

Once this is done, you can easily calculate the voluntary as well as involuntary separations during the specific period. There are three methods of calculating the ratio, presented in the form of the respective formulas.

Voluntary employee turnover = (Voluntary separations/Average number of employees) x 100

Involuntary employee turnover = (Involuntary separations/Average number of employees) x 100

Total employee turnover = (Total separations/Average number of employees) x 100

The calculation can be done on a monthly, quarterly, half-yearly, or an annual basis. If you perform the calculation on a monthly basis, the formulas used are as follows:

Monthly Turnover Ratio = (Separations in the month/Average number of employees in that month) x 100

Employee Turnover Ratio = (Separations in the month/Average number of employees in that month)

Employee turnover costs depend on the style of recruitment. You need to cut down expenses on the interview and selection process. However, the best solution to lower turnover costs is recruiting the right candidates by going through their resumes and studying their attitude perfectly. Intelligent decisions can help save millions of dollars in the long run.