Finding and hiring the right employees is crucial — but retaining them is just as important. The cost to replace a worker is notable, including losses in revenue, productivity and staff morale.
Employee retention metrics provide a granular view of why employees stay at organizations. Metrics can be used to monitor employee retention, identify at-risk employees and look at trends for what you might expect in the future. This analysis can help companies and their human resources departments improve their employee retention strategies and minimize attrition costs. Tracking employee retention metrics and key performance indicators (KPIs) can help keep employees satisfied and reduce attrition.
Providing competitive compensation, training opportunities and work-life balance are a few ways companies can improve their retention rates. Helping employees feel engaged, challenged and supported so they feel a sense of accomplishment and fulfillment can also boost employee morale and retention.
Why Does Employee Retention Matter?
Work is not just transactional for many employees. Engaged workers are more likely to stick around and be high performers. Helping employees understand their impact on the business and the world around them can give them a sense of participation and help improve their sense of fulfillment.
From a cost perspective, replacing an employee can be expensive, as much as one-half to two times an employee’s annual salary. When an employee leaves a position, the employer also loses the time, money and effort associated with recruiting, hiring and training that person.
In addition, an employee’s departure can hurt staff morale, particularly when a highly regarded, long-term employee leaves. This can also affect brand perception. With social media at their fingertips, current and former employees can be valuable brand ambassadors. The opposite is true if someone is disgruntled or dissatisfied.
How Do You Measure Employee Retention?
Employee retention is the percentage of employees who remain at a company for a fixed time period. Retention is usually calculated on an annual basis. Depending on the size of your business, you can also track retention for specific roles or teams if there are areas that need extra attention.
What’s a Good Employee Retention Rate?
Overall, a good employee retention rate is typically about 90%. However, a 100% retention rate is not necessarily desirable. Some of those who leave are your lowest performers and that can make room for more engaged, high-performing employees. Good employee retention rates vary by industry. As two sides of the same coin, retention (how many employees stay) and turnover (how many employees leave) are two of the most important HR KPIs. Turnover for food services, retail and high-tech is often higher than other industries.
10 Employee Retention Metrics to Track and Monitor
Executives are always looking for ways to motivate their teams to do their best work. By tracking and monitoring retention metrics, you can learn why employees remain loyal and uncover areas for improvement. Here are 10 key metrics to focus on.
Satisfaction is an important employee retention metric because satisfied employees are more likely to stay in their jobs than those who are unhappy. Generally speaking, satisfied employees feel challenged and excited by their work and contributions, are compensated fairly, receive good benefits, such as health care insurance, and work well with their peers and managers. They are also better brand ambassadors, provide better customer service and are more productive.
An employee survey can help measure employee satisfaction. Some organizations use an employee net promoter score (NPS) to gauge satisfaction. Based off the NPS used for customers, employees are asked such questions as “With 1 being not at all likely and 10 being extremely likely, on a scale of 1 to 10, how likely are you to recommend this company to a friend or colleague as a good place to work?” Those who score 9 or 10 are “promoters,” 7 or 8 are “passive” and 0 to 6 are “detractors.” For this metric we only take into account promoters and detractors.
Net promoter score = Percentage of promoters – percentage of detractors
Overall Retention Rate
A company’s overall retention rate refers to its ability to keep employees over a period of time. A good overall retention rate might hover around 90%. Some turnover can be healthy for your business and allow you to hire new employees with desirable and useful skillsets who can boost your business. The formula for retention rate is:
Employee retention = (Number of employees who stayed during time period / number of employees at the start of time period) x 100
For employee retention, you won’t consider new hires who came on during the year (or another period) you’re measuring. Subsequently missing from this calculation would also be people who are hired and leave all within the year of measurement. The turnover calculation is a good companion to this KPI.
Overall Turnover Rate
Turnover rate is the percentage of separations, or employees who leave a company either voluntarily or involuntarily. A high turnover rate is costly, affects productivity and makes it difficult to attract top talent. It also can indicate management or company culture problems. The calculation for turnover rate is:
Turnover rate = (Number of separations in a given period / average number of employees in the same period) x 100
For example, if 20 people leave a 200-person organization in a year, the overall turnover rate is 10%.
Voluntary Turnover Rate
Voluntary turnover rate is the percentage of employees who decide to leave a job, but what are the causes for high employee turnover? It’s typically a variety of reasons, such as switching to another job or retiring. Because these employees are generally more skilled — as opposed to those who leave involuntarily — they tend to cost more to replace. The formula for voluntary turnover rate is:
Voluntary turnover rate = (Number of employees who voluntarily leave in a given period / average number of employees in same period) x 100
For example, if 12 people decide to leave a 200-person organization in a given time period, the voluntary turnover rate is 6%.
Involuntary Turnover Rate
Involuntary turnover rate is the percentage of people who are fired or laid off in a given period. A high involuntary turnover rate suggests an evaluation of the hiring process may be necessary to avoid future mis-hires. The formula for involuntary turnover rate is:
Involuntary turnover rate = (Number of employees that involuntarily left in a given period / average number of employees in the same period) x 100
If eight people are laid off from a 200-person organization, the involuntary turnover rate is 4%.
The absence, or absenteeism, rate is the percentage of unplanned employee absences for sickness, personal emergencies or other unanticipated reasons. It does not include holiday or vacation time. Organizations can track absentee rates per employee, per team or the overall company. The formula for absence rate is:
Employee Absence Rate = (Number of unexpected absences in days in a given period / total number of work days in the same period) x 100
Calendar year 2020 had 251 workdays (factoring out weekends and holidays). An employee who calls out of work 12 times in one year would have a 5% absence rate.
Absence Rate per Manager
Companies can analyze where absence rates are particularly high by measuring these rates per manager or location. This helps companies focus on problems that may be affecting a particular team, including poor management. The formula for absence rate per manager is:
Employee absence rate per manager = (Number of unexpected absences by all employees on a given team in days in a given period / (total number of possible work days in the same period X average number of employees on the team)) x 100
Let’s practice with a department that has on average 50 employees who have amongst all employees on the team 300 unanticipated absences in a year with 251 workdays. In this case, employee absence rate for this manager = (300 / (50 X 251)) = 2%.
Retention Rate per Manager
Retention rate per manager is the percentage of employees who remain in their jobs under an individual manager or team. A high retention rate reflects well on a manager, who may be a good mentor for people new to leadership positions or those struggling with high rates of absence and employee dissatisfaction. The formula for retention rate per manager is:
Retention rate per manager = ((Total number of employees per manager – number of employees who have left per manager) / total number of employees per manager) x 100
For instance, if six people resign from a 50-person department during a defined period, the manager’s retention rate is 88%.
Retention Rate of Top/Low Performers
A company’s retention rate measures how many employees remain at an organization during a set period of time. However, it’s not indicative of the type of employee who is staying. Some may get a bit too comfortable, at the expense of productivity and motivation.
Employee performance metrics such as work output, quota attainment and absence rate can help separate top and low performers. Use this formula for both your top performers and your low performers to gauge the variation. The formula for the retention rate of top/low performers is:
Retention rate of top/low performers = (Number of top- or low-performing employees who stay during a defined time period / total number of employees at the start of time period) x 100
Employee surveys and performance reviews are fantastic tools at your disposal to dig into why works stay and how to retain those employees, and how to improve the retention rate for high performers. Ask them about intangible factors, like if they feel or felt engaged, respected and listened to, as well other factors about how they view their pay and if they have or had opportunities for career growth.
A better understanding of employee turnover statistics can help you reduce the tangible and intangible costs a company incurs when an employee leaves. While costs vary by company, they include severance, COBRA benefits, productivity lost while the position is unfilled and recruiting and hiring expenses. The formula for employee turnover cost is:
Employee turnover cost = Sum of variables associated with turnover x total number of employees who leave company
Tracking and Monitoring Employee Retention Metrics With HR Software
Human capital management (HCM) software that tracks and monitors retention metrics helps a company and HR department improve its hiring practices and cut down turnover costs. Not only does this software collect and share in simple-to-understand reports and dashboards information about your workforce, advanced HCM software also integrates with other key areas of your business to provide further insight into how your employee retention is impacting the financial health of your company. A powerful tool for employees, managers and leadership, HCM software can help you more easily collect, monitor and share the information you need for these and other insightful retention metrics.
Employee retention should be monitored regularly and should be a key component to inform retention programs, employee engagement initiatives and other programs such as upskilling and professional growth paths. Top professionals are drawn to companies that make retention a priority. Those companies also reap the bottom-line benefits of employing a productive and satisfied workforce.
HR and Payroll
Employee Retention Metrics FAQs
How do you measure employee retention?
Employee retention is the percentage of employees who remain at a company for a fixed time period. To calculate, divide the number of employees who stayed during a specific time period by the number of employees at the start of time period and then multiply by 100.
What are the five main drivers of retention?
Employees remain at their jobs for many reasons. They include competitive compensation and benefits, interesting work, opportunities to upskill, feelings of trust and empowerment and personal fulfillment.
How do you maintain employee retention?
Satisfied and engaged employees are more likely to stay in their jobs than those who aren’t. Generally speaking, they feel challenged and excited by their work and contributions, are paid competitive wages, receive good benefits, such as health care insurance, and work well with their peers and managers.
What is a good retention rate for employees?
A good employee retention rate is typically about 90%. However, this may vary by industry.