What is headcount?
Definition
Headcount is the number of employees on the payroll at a point in time. Average headcount is the average across a period, and it is the denominator in most turnover and retention formulas.
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Headcount counts people and average headcount smooths the period.
Headcount is a snapshot: the number of people employed on a given day, usually the first or last day of a month. Average headcount is the typical size of the workforce across a period, which is what you need whenever you divide by it.
Headcount counts people, not hours. A part-time employee counts as one person in headcount, while full-time equivalent, or FTE, counts them as a fraction based on their hours. Searches for headcount turnover usually mean the turnover rate: separations divided by average headcount.
Which headcount you divide by changes the result.
The denominator decides the answer. Using a start-of-year headcount in a fast-growing company overstates turnover, using an end-of-year headcount understates it, and the average is the fair middle.
There are two ways to calculate average headcount.
Add the starting and ending headcount for the period and divide by two. In a fast-growing company, average the monthly headcounts instead.
Formula
Average headcount = (headcount at the start + headcount at the end) ÷ 2
The monthly method adds the headcount at the end of each month and divides by the number of months. It follows the real shape of the year when hiring is uneven.
Here is a worked example with round numbers.
Take an invented startup that grew from 100 people on 1 January to 200 on 31 December, with 20 separations in the year.
Worked example
1 January
100
31 December
200
Separations
20
- Average headcount(100 + 200) ÷ 2 = 150
- Against the start20 ÷ 100 × 100 = 20%
- Against the end20 ÷ 200 × 100 = 10%
Turnover against the average
20 ÷ 150 × 100 ≈ 13.3%
Same year, three answers.
The simple average is (100 + 200) ÷ 2 = 150, which gives turnover of 20 ÷ 150 × 100, about 13.3%. Divide by the starting 100 and turnover reads 20%. Divide by the ending 200 and it reads 10%. Same year, three answers, which is why the denominator has to be stated.
If most of the hiring happened in December, the monthly method gives a lower average than 150, and a higher, more honest turnover rate.
Headcount and FTE answer different questions.
Use headcount for turnover and retention, because people leave, not hours. Use FTE for capacity and cost.
Take an invented team of 10 people where 4 work half-time. Headcount is 10. FTE is 6 + (4 × 0.5) = 8. If one of the half-time people leaves, headcount turnover counts one whole leaver, which is the right answer for a retention report.
These are the common mistakes with headcount.
- Dividing by the start or end headcount instead of the average.
- Mixing headcount and FTE in the same formula.
- Counting contractors in headcount for one report and not another.
- Taking the snapshot on a different day each month.
Work out your own turnover rate.
The free turnover rate calculator works out average headcount from your start and end figures, then runs the turnover formula and shows the annualized figure.
Calculate your turnover rateFree, no signup required.
These related terms are in the glossary too.
The turnover rate is the percentage of your workforce that left during a period.
A separation is any end of the employment relationship, voluntary or involuntary. It is the numerator in most turnover formulas.
The retention rate is the percentage of employees present at the start of a period who are still employed at the end of it.
Employee turnover is the movement of people out of a company over a set period, counted as the employees who leave and are replaced.
Span of control is the number of direct reports a manager has.
An HRIS (Human Resource Information System) is the system of record for employee data: contracts, roles, reporting lines, pay and leave.
Back to the HR glossary, where all 52 terms are defined.