As they say, you can’t change what you’re not measuring! It’s imperative to measure indices that deal with your employees if you want to have a real chance at making a change. There are two basic formulas for employers to use. Both Employee Retention and employee turnover are valuable metrics.
Most might ask why both? Aren’t they the inverse of one another other? The simple answer is yes, most times. But……If you have multiple positions that turnover multiple times in the reporting period the Retention measurement would not pick that up where using the Turnover measurement will. I will explain in more detail as we go.
Here are the basic formulas:
(# of individual employees remaining employed for entire measurement period/#of employees at beginning of measurement period) x 100
When calculating retention include only those employees who were there on both the first and last day of the measurement period. Those workers hired during the measurement period should NOT be counted. We only want to track those who the company retains for the full period.
(# of separations during the measurement period/Average # of employees during the measurement period) x 100
Here are some examples for a 20 person company with 4 people that left
Employee Retention – (16/20) x 100 = 80%
Employee Turnover – (4/20) x 100 = 20% or 240%
An example of when these measurements are not the inverse of each other would occur when 2 positions become open during the period, were filled, and then became vacant and then were filled again.
Employee Retention – (16/20) x 100 = 80% – remains the same
Employee Turnover – (6/20) x 100 = 30% or 360%
The best time period periods to measure are monthly. It’s important to remember that the employee turnover measurement needs to be annualized. If you have a 10% turnover for one month, this translates into 120% annualized.
Both of these measurements use actual headcount rather than the full-time equivalent (FTE). This is due to the fact that even if you have staff working less than a full 40 hours per week, it still cover the same to replace them as it does to replace a 40+ hour per week employee.
While measuring employee turnover and employee retention are both a great start, eventually, we need to go deeper. We need to find exactly who, where, and what time we are losing employees. There is an old saying in employee turnover that “employees leave managers, no companies.” I tend to agree with this in most instances.
Companies should be looking at turnover by department. Is there a higher instance of turnover in one department versus others? Is it the department management? Could the hiring process be out of sync for that department? It’s hard to tell from just a number and will need further investigation. It is very helpful to try to conduct exit interviews for employees who leave if possible. I don’t put a lot of stock in exit interviews, but every now and then they do shed light on processes that need improving.
The timing of an employee leaving is also an important metric. Did they leave within 30 days, 90 days, 120 days, the first year? Are you losing long-term employees? Answering these questions will help you focus on things like the recruiting, hiring processes, onboarding if the employee turnover is short-term. It the turnover is longer-term employees you may want to think about career development, career advancement, engagement of projects and other things affecting longer-tenured employees.
A few more areas to focus on would be male vs female, educated vs. non-educated, ethnicity, and age. It is very important to look at as many categories as possible to really focus on potential problem areas. It would be empowering to the employees remaining at the company to form committees of employees in higher turnover groups to discuss problem areas. They develop and implement solutions. Again, it will be important to monitor results over time to see if the solutions have made a difference.
Please see the Society of Human Resources Management SHRM page on calculating Employee Retention and Employee Turnover