Employee turnover is when employees leave a company and are replaced by others. This includes employees who have been fired, laid off or left voluntarily.
When the number of employees who have terminated their association with the company is expressed as a percentage of the total average employees in a company, then we have employee turnover rate. This percentage is usually calculated for yearly periods, but quarterly and bi-annual turnover rates can also be calculated.
Types of employee turnover and how to calculate their rates
Employee turnover is unavoidable as employees will always leave for better opportunities, studies, resignations, dismissals or retire. These factors, however, cause a small amount of employee turnover rate and may even be advantageous for a company. This is because it will lead to the injection of new personnel with new ideas and different perspectives. High employee turnover is however undesirable as it can destroy a company’s structure.
Turnover can either be voluntary or involuntary. Voluntary turnover is when employees leave on their own will such as resignations and retire. Involuntary turnover happens when the decision for the employee to leave is not in his/her hands. From these two types of employee turnover, we get three types of employee turnover rate:
Voluntary employee turnover rate – this is calculated by dividing the number of employees who have left the company on their own will over a certain time period by the average number of employees and expressing it as a percentage. The average number of employees is obtained by taking the sum of employees present at the beginning and those at the end of the said time period.
Involuntary employee turnover rate-calculated by taking the quotient of the number of involuntary separation over a time span to average number of employees, in percentage form
Total employee turnover rate-is a total of voluntary and involuntary employee turnover expressed as a percentage of the average number of employees.
If a company has 200 employees at the start of the year and then 4 are dismissed, 5 more resign and 5 are employed over the course of the year. The average number of employees will be (200+196)/2 = 198.
The voluntary employee turnover rate will be (5/198) X 100 =2.5%
The involuntary employee turnover will be (4/198) X 100 = 2%
The total employee turnover rate will be (4+5)/198 X 100 = 4.5%
Transfers and promotions are not usually included while calculating employee turnover rate.
New Hire turnover rate
This is a new form of turnover that is used to measure how quickly new employees are separated with the company. It is obtained by dividing the number of employees who have terminated their association with the company in less than a year of employment by the number of total separation in the same period.