The calculation is very simple. The number of employees leaving in a year is calculated as a percentage of the total number of employees during the same period. It is also known as separation rate.
Employees in the beginning and closing of the year are averaged for this purpose. However, if the monthly beginning or closing figures for the twelve months are averaged, it would be better. Some times the companies calculate a retention rate, and alternative method of calculation. It is also called as Stability Index and worked out as below.
The figures in the calculation will be unduly inflated if the replacements are frequent during the year. For example 85% of the employees are retained. If the vacancies caused during the year are replaced twice, the labor turnover ratio works out to 30%, if replaced only once, it works out to 15%. Therefore retention ratio is preferred.
Another problem is in averaging. If there is huge variation during the year from beginning to end or average, the ratio will be vitiated. In a country like India, this may happen due to seasonal factors also. For examples, if rain gods play a trick on farmers, production, consequently the employment is affected in sugar industry.
Michael Hanni and Mark Knold pointed out, ’construction, retail trade, administrative services, and accommodation and food services. Together, these four industries make up 35 percent of all employment, yet constitute 52.2 percent of all job separations (separations were the minimum variable of the numerator for 2006). In other words, these four industries account for a disproportionate amount of job churning.’ Labor Turnover in Utah, Source: U.S. Bureau of Census, LED data.http://jobs.utah.gov/opencms/wi/pubs/specialreports/laborturnover08.pdf
We usually consider ‘Year’ as a basis for calculation. However, year