How to Calculate Turnover Rates (Accurately)

Abstract

Turnover rates are foundational metrics of organizational health. Turnover rate calculations currently used by organizations and advocated by the largest associations of human resources professionals and management scholars are problematic for several reasons:

1. Calculations are approximations based on headcount snapshots taken at intervals (e.g., the end of each month) rather than captured continuously.

2. Organizations (and sometimes even functions within an organization) disagree regarding who is considered a separation and who is considered an employee (e.g., interns, employees on leaves of absence/furlough), which leads to difficulty in benchmarking between organizations.

3. Stakeholders’ turnover questions and metric interpretations are often not aligned with predominant formulae (e.g., the most frequently recommended and used turnover rate calculation does not answer the question, “What percent of employees left during a given period of time?”, even though that is how it is frequently interpreted).

I propose several solutions, including two reformulations of how turnover rates can be calculated:

1. Most accurate but radical: Switch to a turnover rate that measures the proportion of opportunities to separate that were realized (i.e., separations divided by the total number of opportunities to separate).

2. Less radical but still an improvement compared to the status quo: Switch to a turnover rate with finer-grained temporal resolution.

Most organizations could easily implement these changes with existing technology and personnel. Evolving to a more accurate turnover rate calculation would provide clearer and deeper insights about turnover trends within an organization and more comparable metrics across organizations.