startover

EmployeeTurnover:

DefinitionsandCalculations

Thisbriefguidelooksatthevariousdifferentwaysofdefiningand

idessuggestionsastothemost

appropriatedefinitiontouandhighlightsthebestmethodforcalculating

turnover.

KeyPoints:

•Thereareveralalternativedefinitionsofemployee

turnover.

•Themostcommonformulaudis:

Numberofexits/(dividedby)numberofemployees

•Ifyouareproducingfiguresforinternalu,itismore

nsibletocalculatevoluntaryturnover.

•Calculatingearlyturnoverisoftenwi.

•Benchmarkingyourfiguresagainstcompetitorsis

problematicgiventhedefinitionsudbymanyfirms.

CalculatingEmployeeTurnover

TheDefinitionOfEmployeeTurnover

erangeof

alternativedefinitionsofemployeeturnovercanproveproblematicfor

iatingthesubtledifferences

betweensimilarsoundingdefinitionshelpstoavoiderrorsofjudgement

andpotentiallyexpensivemistakes.

Mostfirmswillexperiencethedepartureofanumberofemployeesduring

indtherawfiguresliesavarietyof

explanations:someindividualsmayhaveretired,othersbeendismisd,

somemayhavemovedoutofthearea,othersoptedtochangecareer,

somepoorperformersmayhaveleft,sotoosomegoodperformers,some

departuresmayhavebeenregretted,othersnot.

EmployeeTurnoverRate

Thenumberofavoidableparationsdividedbytheaveragenumberof

employeesduringthatsametimeperiod.

ategoriesofdeparturesdoyou

includeandwhichonesdoyouleaveout?

Ifyouaredoingacalculationforyourowninternalpurpos,forexample

ifyouarelookingtoimproveemployeeretention,orreduceavoidable

turnover,itismorensibletoomitdeparturessuchasretirements,

dismissalsandredundancies.

However,ifyourmainaimistocompareyourfigurestoexternal

benchmarks,thentheywilloftenuarawfigurethatincludesall

rfigureswilloftenshowthetotalnumberofexits

dividedbythenumberofemployees.

Theproblemwithcomparisonsmadeusingthisdefinitionisthatyouhave

noideahowmanyoftheirdepartureswereretirements,dismissalsor

hecomparisonisoflimitedvalue.

CalculatingEmployeeTurnover

EmployeeAttrition(totalturnoverorwastagerate)

nlyud

figure,butwithsignificantriskofmisleading;retirees,dismissalsand

redundanciesincluded,makingcomparisonspracticallyworthless.

Theemployeeattritionrateisthenumberofexitsduringtheperiod

dividedbytheaveragenumberofemployees.

RetentionRate

Theretentionrateisthepercentageofemployeeswhowereemployedat

thebeginningofaperiod,andremainwiththecompanyattheendofthe

period.

Thisfigurecanbeufulbutithidesthedeparturesofemployeesthat

joinedandsubquentlyleftduringtheperiod.

VoluntaryTurnover(contrastinvoluntary)

Animprovementoverthetotalturnoverdefinition;retireesandemployees

finitionismore

re

consideringinvestingresourcesinretentionstrategiesthenusinga

definitionsuchasvoluntaryturnoverisnsible.

EarlyTurnoverRate(withininitial6months)

Earlyturnoverconcernsthoemployeesthatleaveduringthefirstsix

eparturesmayreflectproblemsintherecruitmentor

mple:candidatesmayhavejoinedunder

mistakenassumptions,orsimplybeeninappropriatelections.

CalculatingEmployeeTurnover

DysfunctionalTurnover(contrastfunctionalturnover)

Dysfunctionalturnoveristhohighperformingemployeesthatyouwould

havelikedtoretain,whereasfunctionalturnoveristhedepartureofpoor

performers.

Thedepartureofpoorperformersislikelytobebeneficialtothefirminthe

mediumterm,whereasthelossofhighperformingemployeescancau

significantdamagetothebusiness.

CohortAnalysis

asurecanhighlight

mple:atendencyforrecruitstoleaveafter2

yearsmightindicateaneedtofocusontheemployeevalueproposition

onofferatthatstage.

RegrettedTurnover(contrastnon-regretted)

teddeparturesarelikely

tobefarmorecostlytothefirm,yetitwouldbeamistaketoignorenon-

regrettedturnover.

Commentary

Withsomanysimilarsoundingdefinitionsforemployeeturnoveritcanbe

difficulttobesurethateveryoneisusingthesameformula.

Itisquitecommonformanagerstouquitedifferentformulasforarriving

kescomparisons,whetherexternalor

internal,oflimitedvalue.

Ifyouneedinformationfromdifferentunits,beclearaboutthepreci

iyoumayfindthatsomeinclude

categoriesofdeparturesthatothersomit.

CalculatingEmployeeTurnover

CalculatingTheEmployeeTurnoverRate

Inthefollowingcalculationwewilluourdatatoarriveat3different

figures:

1)Thetotalturnoverrate(includingretirements,dismissalsand

redundancies)–forexternalbenchmarkingpurpos

2)Voluntaryturnoverrate(excludingretirements,dismissalsand

redundancies)–forinternalpurpos

3)Earlyturnover(first6months)–todeterminetheeffectivenessofthe

recruitmentandorientationprocess.

Inthixampleourfiguresareasfollows:

Numberofemployeesatthestartoftheyear=1000

Numberofemployeesattheendoftheyear=1200

Totalnumberofexits=220

Thistotalfigurebreaksdownintothefollowingcomponents:

Retirements=40

Dismissals=30

Redundancies=40

Voluntarydepartures

Voluntarydepartures=220–(40+30+40)=110

(Ofwhichearlydepartures=55)

atetheaveragenumberofemployees

Thenumberofemployeesiscalculatedbyaddingthenumberatthestart

oftheperiod,vidingby2to

arriveattheaveragenumberofemployees.

Forexample:

ndofthe

veattheaverageweaddtogether

1000+1200=videby2togetouranswer2200/2=1100

CalculatingEmployeeTurnover

Thisfigureistheaveragenumberofpeopleemployedduringtheperiod.

atethenumberofdeparturesduringtheperiod

Thekeyhereistomakesurethatweonlyincludethodeparturesthat

ansthothatcomewithinthedefinitionwe

areusing.(Seeearlierctionondefinitions)

Soforthedefinitionsweareusinginthixampletherelevantfiguresare:

Totalnumberofexits=220

Voluntary=110

Early=55

departuresbynumberofemployees

Toarriveatourfinalfigures,wedividethenumberofrelevantdepartures

ltiplyby100togetthe

percentagerate.

Fortotalturnoverwehave:

220/1100(x100)=20%

Forvoluntaryturnoverwehave:

110/1100(x100)=10%

Forearlyturnoverwehave:

55/1100(x100)=5%

CalculatingEmployeeTurnover

Commentary

Whatshouldnowbeclearisthattheapparentlysimplematterof

calculatingtheemployeeturnoverrateisinfactnotatallstraightforward.

Insuchcircumstancesthebestapproachisoftentoplacemoreemphasis

oninternalcomparisons,thanattemptingtomakenofexternal

figuresthatmay,ormaynot,havebeencalculatedusingasimilar

definition.

Youmaywishtotrackanumberofdifferentdefinitions,forexample:total,

early,voluntaryanddysfunctionalturnover,inthehopethatthisprovides

additionalclarity.

Ihopethisbriefguidehasbeenofsomehelptoyou.

Thanks

ColinBrown

CalculatingEmployeeTurnover