Employee Growth Rate

What is employee growth rate?

Employee growth rate is a business metric that measures the percentage change in a company’s headcount (total number of employees) over a specific period of time. It is calculated by comparing the amount of employees at the beginning and end of the period. A positive growth rate indicates an increase in employees, while a negative growth rate reflects a decrease, such as downsizing, layoffs, or high turnover.

Depending on the needs of an organization, employee growth rate can be measured at the beginning and end of a quarter, a year, five years, or more.

Factors affecting your employee growth rate

Some of the most common factors that influence this metric include:

• Economic conditions: A positive economic outlook or high-performing economy can lead to business expansion, resulting in an increase in new hires. However, an uncertain or poor economic outlook may cause companies to reduce the number of employees.
• Industry trends: Certain industries may experience an increased need for employees to meet higher consumer demands. Conversely, industries can go through periods that require layoffs or hiring freezes.
• Business growth: Typically, company growth can result in an increase in new hires and the number of employees over time. For example, market expansion, increased product and service demand, and business acquisitions.
• Adoption of new technologies: The rise in the use of new technologies may require more employees with a specific skill set or expertise to implement them.
• Company brand and workplace culture: A strong employer brand and positive organizational culture can attract (and retain) more highly skilled talent, increasing the number of employees.

HR tip

Don’t look at employee growth rate in isolation. A high growth rate alongside high turnover can be an indication of an unstable work environment or poor retention strategies.

How to calculate employee growth rate

Calculating the employee growth rate provides insights into how a company’s workforce is expanding over time. Here’s a straightforward method:

• Step 1. Determine the time period
  • Choose the time period over which you want to measure growth (e.g., monthly, quarterly, annually)
• Step 2. Gather the employee counts
  • Beginning number of employees: The number of employees at the start of the period.
  • Ending number of employees: The number of employees at the end of the period.
• Step 3. Plug in the numbers
  • Subtract the beginning number of employees from the ending number of employees.
  • Divide the result by the beginning number of employees.
  • Multiply by 100 to convert it into a percentage.

Calculation example

Vida Nutrition is a scaling online retailer specializing in nutritional protein drinks. Before its five-year anniversary on January 15, 2024, it would like to calculate its employee growth rate to illustrate its business growth and celebrate its achievements.

During the Covid pandemic, the company experienced exponential growth in customer demand, which continued post-pandemic.

Here’s the step-by-step process used by Vida Nutrition’s HR team to calculate this rate:

1. Identify the time period: Vida Nutrition was founded on January 15, 2019. So, the period to calculate its five-year employee growth rate will be from January 15, 2019, to January 15, 2024.
2. Gather employee headcount data:
   • Number of employees at the start of the period (January 15, 2019): 30
   • Number of employees at the end of the period (January 15, 2024): 125
3. Use the employee growth rate formula:

[(125 employees – 30 employees)] / 30 employees] x 100

= [(95 employees) / 30 employees)] x 100 = 316.67%

This means that the employee growth rate for the five years is 316.67%.

Why HR should measure employee growth rate

Measuring this metric is a good HR practice as it comes with the following benefits:

• Indicator of business growth: An increasing workforce can be a good indication of overall business growth. A rise in new hires typically means that a company is scaling up its operations to meet higher demand or is entering new markets.
• Workforce planning: Understanding this rate helps HR plan future hiring needs based on the company’s expansion plans and current workforce capacity. It enables proactive identification of staffing needs to avoid shortages or overstaffing.
• Budgeting and resource allocation: Knowledge of the employee growth rate assists in more accurate budgeting for salaries, benefits, training, and development. Understanding growth patterns aids in allocating resources efficiently to support staff expansion.
• Investor and stakeholder confidence: Investors and stakeholders often view a positive employee growth rate as a sign of a thriving business with potential for future success. This metric can thus contribute to building confidence among external stakeholders.
• Cultural and organizational development: As companies grow, maintaining the organizational culture becomes challenging. Monitoring the growth rate allows HR to implement programs that help inculcate the company values and culture among new hires effectively.

HR tip

Tracking overall employee growth rate should also include analysis of growth areas by department or function. This type of monitoring can help HR identify areas where there is an increase in new hires due to increased workload or skills gaps that need to be addressed through targeted training and skills development.