Employee retention and turnover are critical concepts in HR and organizational management, as they both have profound impacts on a company’s overall health and performance. Understanding why employees stay or leave can help employers implement effective strategies to foster a stable, productive workforce.
Employee Retention
Employee retention refers to an organization’s ability to successfully retain its employees. Employee retention calculations provide a baseline and point of reference when determining how a company’s retention rate compares to others. These calculations can also be used to see how retention rates at an organization change over time (e.g., weekly, monthly, quarterly and annually) and continually measure against the company’s own performance.
Employee Retention Rate = (Total number of employees - Total number of employees who left / Total number of employees) x 100
Keep in mind that retention rates vary by industry. For example, an annual employee retention rate of 80% could be considered good in one industry but poor in another. Industries with the highest retention rates often include government, finance, insurance and education, whereas lower retention rates are more common in the manufacturing, hotel, retail and food industries. Organizations that observe positive or negative trends in their retention rates are better equipped to determine what factors contribute to their ability to retain employees.
Why Do Employees Stay?
When an organization understands why employees stay, they can alter their policies and procedures to reinforce the qualities employees like most about the workplace. Several factors play into employee retention. Satisfaction with the workplace, management and overall organization are general reasons employees may choose to stay with an employer; happy employees are less likely to quit. Success factors for employee retention include the following:
- Competitive total rewards, including compensation and benefits
- Employee engagement and motivation
- Meaningful work
- Flexible work arrangements
- Professional development opportunities
- Recognition and respect
- Trust in leadership and organization
- Workplace camaraderie
- Strong company culture
- Safe workplaces
Employee Turnover
Employee turnover is the loss of talent in the workforce over time, whether it’s monthly, quarterly or annually. Also referred to as attrition, turnover occurs on an individual level when an employee is separated from the organization. Employees leave for many reasons, but there are two main types of turnover: voluntary turnover, when an employee actively chooses to leave an organization, and involuntary turnover, when an employer terminates an employee. Turnover looks different for every organization, so a healthy turnover rate depends on the organization and industry.
Employee Turnover Rate = (Number of employees who left / Average number of employees) x 100
Turnover is expected and natural for any organization, and it isn’t necessarily a bad thing. For example, turnover from poor performers leaving the company is often expected. Conversely, if top performers frequently leave, it can be damaging for a company. Keep in mind that it’s entirely natural for employees to move or pursue a career change elsewhere. Furthermore, employees who leave on good terms can often advocate for a healthy work environment.
Why Do Employees Leave?
Certain factors may cause employees to feel uninspired or underappreciated in the workplace, and seeking a new job may be one way to feel passionate about work again. Understanding the primary causes of employee turnover can help organizations make the necessary changes to engage and maintain their workforce.