Turnover can hurt a company. Each time an employee leaves a company, the company usually must replace the employee. To replace an employee costs the company, both in the time to train the new employee and in decreased production as the new employee gets up to date. To keep track of turnover, companies use attrition rate. Attrition rate is the rate at which employees leave a company. Normally, companies want a low attrition rate.
- Skill level:
- Moderately Easy
Determine the average number of employees the company hired through the year. Use a regular average or weighted average. To determine the regular average, add the number of employees at the beginning of the year to the number of employees at the end of the year, then divide this by two. Weighted average weighs the amount of time a company has a number of employees. For example, if Firm A had 40,000 employees for 6 months and 42,000 employees for the other six months, multiply 40,000 by 6 and multiply 42,000 by 6. Then add these two figures together -- 240,000 + 252,000 -- and divide this by the 12 months for the weighted average of 41,000. (492,000 divided by 12 = 41,000)
Determine the total number of employees who left during the year. For example, a Firm A that had 400 employees leave during the year.
Divide the employees who left during the year by the average amount of employees the company employed, using either the relative or weighted average. Use the average calculated in Step 1 as the average amount of employees the company employed. In our Firm A example, 400 divided by the weighted average of 41,000 equals 0.009756, or 0.9756 per cent.
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