Employee turnover rate
In one sentenceThe ratio of employees who left the business during a period to the average number of employees in it. It measures workforce stability and the cost of replacing people.
Simply put
Every employee who leaves means a cost: an advertisement, interviews, training a replacement and time until the replacement reaches the previous employee's level. So a high turnover rate is a financial warning, not only an administrative one.
Compare the rate across departments and across years, and look for the cause when it rises in a particular department: pay, management or workload.
Worked example
A restaurant chain started the year with 38 employees and ended it with 42 employees, and 6 employees left during the year.
Average number of employees: (38 + 42) ÷ 240
Number who left during the year6
Employee turnover rate: 6 ÷ 4015%
Formula: Number who left during the period ÷ average number of employees
Don't confuse it with
Inventory turnoverFor inventory turnover, higher is usually better, while for employee turnover, higher means a greater replacement cost.