Annualized Turnover: What It Is and How to Calculate It (with examples in R)
In a previous tutorial we focused on calculating monthly and annual turnover. Those measures tell us about turnover that has already happened over a given period. Annualized turnover answers the question “What would our annual rate of turnover be given the rate of turnover we observe in the current period?”
While some might consider this a form of projection, annualized turnover is really best used to compare turnover rates for period of different lengths. For example, if I have a turnover rate of 1% for just a single month, I can’t directly compare that number to the total annual turnover of, say 15%, from the entire preceding 12 months; they covered different lengths of time. If we use annualized turnover, however, it allows us to compare those two values using a common “annual” timeframe.
By the end of this tutorial you will:
- Understand intuitively what annualized turnover over measures.
- Know the steps required to calculate annualized turnover.
- Know how to calculate annualized turnover in R.
Note: To go beyond calculating annualized turnover, see our primer on predicting employee turnover here.
See this post for a different way to visualize employee turnover and movement using a network flow chart.
Developing the Intuition
Annualized turnover is essentially a projection of annual turnover.
As a simple example, let’s suppose that I obtain a 5% turnover rate for January. If I wanted to figure out what that would mean for an entire year, I would multiple that single month turnover rate by 12, giving me an annualized rate of 60%. That is, if I lost 5% in the first month, then I would lose 60% for the whole year if we continued to lose people at that same rate for the rest of the year.
Similarly, if my rate of turnover over the first 6 months was 20%, then my annualized turnover rate would be 40%. After all, if I lost 20% in half a year, then I might expect to lose 40% for the whole year.
Note: If you want know how your turnover rate can be over 100% see this post.
5 Steps for Calculating Annualized Turnover
Step 1: Get the average number of employees for each month that you have turnover data. This is typically calculated by averaging the number of employees at the beginning and end of each month. See this previous post for a refresher.
Step 2: Take the average of those monthly values to calculate your overall average number of employees for the period.
Step 3: Add up the total number of employees leaving over that same period.
Step 4: Divide the total number of employees leaving from Step 3 by the overall average number of employees obtained in Step 2. This will give you the turnover rate for that period.
Step 5: Multiply the result from Step 4 by (12 months/# months of data). So for example, if I have 6 months of data and calculated a 20% turnover over that time, I would multiple that 20% by 12/6 or 2 , giving me a 40% annualized turnover rate.
I have data for January, February, and March. In those months I lost 8, 7, and 4 employees. Let’s suppose we calculate the average number of employees for those months is the following: 102, 107, 104.
Applying the steps outlined above, we get the following:
Step 1: Taken from the given context above, the average number of employees for each of our first 3 months is the following: 102, 107, 104.
Step 2: I calculate the overall average from the values in Step 1 to be 104.3.
Step 3: I have lost a total of 19 employees in that same 3 month span (8+7+4 = 19)
Step 4: Dividing the number of lost employees by the overall average number of employees gives me 19/104.3, or .182. That is, my turnover rate for the first three months is 18.2%
Step 5: To annualize, we now take 18.2% and multiply by 12/3 = 4. This gives us 18.2% X 4 = 72.8% annualized turnover. In other words, if we lost 18.2% in the first 3 months of the year, then continuing at this pace for the rest of the year will give us a 72.8% turnover rate for the year.
Remember the basic idea: We are using the data we have so far to project our annual turnover.
How to Calculate Annualized Turnover in R:
leaving <- c(8,7,4) # number leaving months_avgemp <- c(102, 107, 104) #average employees in each month months <- length(months_avgemp) # Number of months observed overall_emp <- mean(months_avgemp) #overall average rate <- sum(leaving)/overall_emp # calculating rate annualized <- rate*(12/months) # making it a percent by rounding, multiplying by 100, adding % paste(round(annualized*100, 1), "%", sep = "")
##  "72.8%"
Annualized turnover is a key HR metric. It’s important to remember, however, that it is just about the simplest projection one can make and does not take into account even predictable changes in turnover such as yearly cycles. It is also subject to large shifts in the first few months simply because one month can have a large impact on an annualized estimate. The estimate will become more stable though as the year progresses.
Above all else, be clear about what you are measuring when reporting your results so everyone is on the same page. And, as with monthly and annual turnover, be sure to check with the established practice within your company. Consistency of method is critical especially when comparing results from one year to the next.
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