How to Calculate HR Employee Retention Rates

Losing productive employees, especially those with in-demand and specialized skills, is expensive as each loss costs a business time and money. Not just in recruiting and training, but also in lost production.

It’s best to fix the issues that cause employees to leave before they step out the door. Tracking your employee retention rates can help you see where potential trouble spots lie and take the right actions to remedy them. 

The thing is, your retention rate only gives you half the story; your turnover rate provides the second half. Read on to see how to use both rates to help keep top employees, or jump ahead to the retention rate calculator.

• Employee retention rate vs. employee turnover rate
• How to calculate employee turnover rate
• How to calculate employee retention rate
• What is a good retention rate?
• Why employees leave jobs
• What are the true costs of employee turnover?‍

Employee retention rate vs. employee turnover rate

Calculating employee retention goes hand in hand with calculating employee turnover. Although the two rates reflect opposite situations, they provide a more holistic picture of your employee management when viewed together. This enables you to set measurable goals and take the right actions to achieve them. 

Let’s start with a definition: 

• Employee retention rate is the percentage of people who stay during a specified time period.
• Employee turnover rate is the percentage of people who must be replaced during a specified time period.‍

How to calculate employee turnover rate

You need three numbers to calculate employee turnover:

• Number of separations
• Number of employees on start date
• Number of employees on end date
  

Turnover equals the number of separations during a specific period divided by the average number of employees during the same period. Multiply the result by 100 to get your turnover rate.

Example #1: Calculating quarterly employee turnover rate

At the beginning of Q1, a call center had 30 employees. One person left for another job and got replaced. They hired 3 additional people and fired 2. They had 31 employees by the end of the quarter.

Grab the numbers:

# of separations: 3

Average # of employees: (30+31)/2 = 30.5

Plug them in:

(3/30.5) x 100 = 9.8% quarterly turnover rate

Example #2: Calculating annual employee turnover rate

Over 12 months, a sales team of 36 employees had one manager promoted to another function and was not replaced. Two other sales members left. Over the year, 5 salespeople were hired to replace them and 4 were fired.

Grab the numbers:

# of separations: 7

Average # of employees: (36+34)/2 = 35

Plug them in:

(7/35) x 100 = 20% annual turnover rate‍

How to calculate employee retention rate

You need two numbers to calculate employee retention:

• Number of employees who stayed during a given period of time
• Number of employees at the start of a given period of time
  

Retention equals the number of employees who stayed for the whole time period divided by the number of employees you had at the start of the time period. Multiply the result by 100 to get your retention rate.

For comparison, let’s calculate retention rates using the same examples used above:

Example #1: Calculating quarterly employee retention rate

At the beginning of Q1, a call center had 30 employees. One person left for another job and got replaced. They hired 3 additional people and fired 2. They had 31 employees by the end of the quarter.

Grab the numbers:

# of employees who stayed: (30-1) = 29

# of employees at the start: 30

Plug them in:

(29/30) x 100 = 96.7% quarterly retention rate

Example #2: Calculating annual employee retention rate

Over 12 months, a sales team of 36 employees had one manager promoted to another function and was not replaced. Two other sales members left. Over the year, 5 salespeople were hired to replace them and 4 were fired.

Grab the numbers:

# of employees who stayed: (36-3) = 33

# of employees at the start: 36

Plug them in:

(33/36) x 100 = 91.7% annual retention rate

You probably noticed that retention rates don’t include employees who were hired and left within the specified time period. In example #2, the retention rate doesn’t account for the 5 people hired and 4 fired during the year, but it still cost the company money to recruit, hire, and offboard them. That’s why it’s important to look at both turnover and retention rates for a more accurate picture of a company’s trends.‍

What is a good retention rate?

The U.S. Bureau of Labor Statistics provides annual retention averages by industry. These aren’t goals to strive towards, but benchmarks to gauge where your company stands. You may have a lower turnover rate than the industry average, but if you’re predominantly losing top talent, it’ll strain your bottom line.

Get granular with your data. You could break down retention and turnover rates by specific departments, managers, and situations. For example, instead of lumping everyone into total turnover, consider calculating voluntary turnover vs. involuntary turnover so you’re taking action on people leaving that you can control. You can also analyze metrics like retention rates by department or turnover rates by a particular manager or situation.

The reality is, people will leave. Many assume it’s because of pay and benefits, but not always.‍

Why employees leave jobs

Employees leave for many reasons, which are categorized as either voluntary turnover or involuntary turnover:

• Involuntary turnover occurs when a person didn’t instigate leaving, such as when they’re laid off or fired. 
  

• Voluntary turnover occurs for a multitude of reasons. This includes leaving for a new job, going back to school, moving to follow a partner’s job change, retiring, and quitting from a negative experience.
  

High turnover in either category is a strong indicator that it’s time to dive deeper into identifying why people leave. Chances are, it’s something you can control and not related to the employee salary or benefits package or perks like free in-office lunches. A Work Institute report shows 20% of employees leave due to frustration over a lack of growth, job advancement, and development opportunities. Only 9% cite leaving due to pay and benefits.

Getting the real reasons why employees leave will help inform your employee retention strategies. What’s more, the changes you make may bubble up to creating a business that attracts the best employees and helps strengthen the company culture in the end.‍

What are the true costs of employee turnover?

It’s difficult to calculate the true cost of employee turnover because there are so many factors involved that include subjective impact to the employee's team members and time and resources spent by the hiring manager, recruiter, and human resources. These factors include:

• Conducting exit interviews
• Onboarding
• Recruiting costs
• Training new employees
• Hiring temporary help while looking for a full-time replacement 
• Paying other employees overtime while the role remains unfilled
• Lost productivity
• Decreases in morale, employee engagement, employee satisfaction
  

Even if they’re not your best employees, it’s estimated that each person who leaves costs a business about 33% of the employee’s annual earnings. Costs can reach many times an employee’s annual salary if they were a top performer, a senior-level manager, and had in-demand or niche skills that are difficult to find.

There are also hidden turnover costs that come over time. Employee morale and productivity may suffer as teams spend time training new hires and shouldering more work while new team members ramp up and vacancies remain unfilled. In time, the strain may lead to more employees quitting.

Keeping your top performers

Data will show you the way to keeping and attracting talent that will help the business grow. In addition to employee turnover and retention rates, use employee surveys, workforce trends, and other internal metrics to gain a holistic picture of how talent is managed, where potential issues are, and how to correct them. Then evolve current policies, practices, and programs accordingly.

For example, you can support their desire for work-life balance by enabling employees to work remotely. Several studies show that having such flexibility increases employee engagement, productivity, and job satisfaction.

You can foster self-development by dividing work into projects and getting them done with hybrid teams. When PGA of America adopted hybrid teams, projects turned around 3x faster, and employees increased their knowledge through exposure to external skill sets. Working with remote talent also aided employees in developing must-have soft skills including communicating in diverse teams, collaborating with a distributed workforce, and managing multiple projects.

There are many benefits to retaining employees, especially your top performers. But it’s difficult to know how to do it effectively without the right information. Putting a little more effort into tracking specifics rather than broad categories, setting goals, taking guided action, and measuring progress will help you create a work environment that encourages employees to stay.