How do I calculate the Labor Turnover Rate?
By James Bell
- Finance , Higher Level Management , Metrics and Ratios ,
- 01 Nov
The Turnover rate is the percentage of staff that leave a company over a specified period of time. Labor turnover costs vary with lower skilled jobs having lower cost of turnover. Here is how you calculate the formula.
Labor Turnover Rate
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where
Labor Turnover Rate
Employees who Left during period
Average Employees during period
Total Labor Turnover Rate
This is a way to measure the turnover rate using a ratio to compare period to period. We need this consistency because these variables are constantly changing throughout time.
Number of Employees who Left during period
Those included in this variable are terminations, retirees, and voluntary separations. FMLA leave, furlough, and temporary workers are not included.
Average number of Employees during period
Average is somewhat subjective in this ratio. As we discussed in the Return on Assets section of our Internal Growth Rate article, averages make assumptions that the number of employees increased at a pretty consistent rate the entire period. Any facts that change this assumption, adjust your denominator in a way that tells the story right.
For example, lets say you significantly increase your staff on day 2 of your reporting period and only average day 1 and day 31 of the same month. Your total labor turnover rate is probably higher than it actually is. Using a denominator that describes the number of employees in the period better improves the accuracy of your metric. Try it!
Other Considerations
Many articles I found were harsh about the costs that occur when turnover of staff is high. Some industries lend themselves to higher turnover rates. Make sure you are comparing similar companies or industries in your analysis.