2 Important HR Metrics to Track – Turnover & Retention Rates

Posted by: Karen Booher on March 25th, 2021

In terms of HR metrics, it’s important for every company to track and know both the good news (retention) and the bad news (turnover) in your organization.

If you are not tracking these basic HR metrics (whether it be monthly, quarterly, or annually), then it would be good for you to start doing so. It’s not difficult to do, and there is tremendous value for management in the information.

Turnover:

Definition:  The number of employees who have left your company during a certain time period (voluntary or involuntary)

Turnover Rate Formula:  # of employees separated during a time period (monthly, quarterly, yearly) divided by the average # of employees during that same period. Then multiply by 100 to convert it to a percentage.

Example:  If 33 employees separated from the company during 2020 and you had an average of 205 employees on each payroll during that time, your Turnover Rate was 33/205 x 100 = 16.1%

According to the 2021 Bureau of Labor Statistics, the annual turnover rate in 2020 was 57.3%. But 2020 certainly was an off-year and an anomaly for many companies in both categories. In 2018, HR consulting firm Mercer found that the average rate for US companies was 22%.

Economic times can affect turnover rates and different industries can be notably different. For example, the retail and restaurant industries are notorious for poor turnover rates (65% for retail and 73% for restaurant). So, it’s important to do some research and learn what an acceptable turnover rate is for your company’s industry so that you have an appropriate benchmark.

For a deeper analysis, you would want to separately track your voluntary turnover (resignations, retirements) vs. involuntary turnover (layoffs, terminations). Together, these 2 rates equal your total company turnover, but provide very different insight into the important question of “why”.

Retention:

Definition:  The number of employees who have stayed at your company for a certain amount of time.

Retention Rate Formula:  # of employees who stayed for the whole time period divided by the # of employees you had at the start of the time period. Then multiply by 100 to convert it to a percentage.

Example:  You had 52 employees on Jan. 1. On Dec. 31 of the same year, 45 of these same 52 employees were still employed. 45/52 x 100 = your Retention Rate of 86.5%.

Generally speaking, an employee retention rate of 90% or higher is considered good.

You Have the Data – Now What?

The first step is to start tracking this data. But just capturing the data won’t help you improve retention and turnover within your organization unless you take action.

If your retention rates are on the low side and your turnover rates are on the high side, there’s a lot you can do to improve them, as long as management is willing to take an open and honest look at the information.

Not only will your efforts to improve these HR metrics drive short-term benefits like lower recruiting and onboarding costs, but will also allow your company to reap the rewards of a healthier company culture, including higher productivity and profitability. Focusing on company initiatives such as increased transparency, flexibility, and recognition can all help increase your retention rates and lower your turnover rates.

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Sources:

1. Glassdoor for Employers, “Here’s What Your Turnover and Retention Rates Should Look Like”. March 22, 2021.
2. Indeed for Employers, “How to Calculate Turnover Rates”