Employee Turnover and Retention: key differences and metrics

What are employee turnover and retention? If you have such a question, we’ll explain it to you in detail! This blog post will tell you what employee turnover and retention are, why they are essential, and how to calculate these fundamental metrics. So dive into the basics of HR management!

What is employee retention?

Employee retention is the ability of a company to retain its employees. Companies typically measure retention over a specific period, usually a year. 

Retention is formed from the first day of work due to the quality onboarding, comfortable trial period, effective one-to-one meetings, employee engagement surveys like Gallup's Q12, and regular performance reviews. That is why retention refers not only to the metric but also to the strategies to keep employees in the company. 

What is employee turnover?

Turnover is a measure of how many employees leave the company. Analysts typically express employee turnover as a percentage of the total number of resigned employees within a given period, usually a month or a year. Here are some types of employee turnover that a company may experience:

• Voluntary turnover is any case when an employee leaves the company by his own choice, either due to new opportunities or dissatisfaction with their job.
• Involuntary turnover is any instance when the employer fires an employee due to downsizing or performance issues.

For more insights into the role of professionals who manage and analyze such data, check out our article on the Human Resources Analyst Job Description.

Difference between turnover & retention

Employee retention and turnover are related metrics used to measure employees’ engagement and satisfaction with their company. In their differences, turnover and retention can be grouped by the following categories:

Purpose

‍Calculation of these metrics pursues different goals: turnover measures workforce movement (that is why it includes new hires), while retention estimates workforce stability (new hires aren’t taken into account).

Time frame

‍Employee retention is usually calculated once a year, while employee turnover is essential for shorter periods and is calculated monthly.

Components

‍Employee turnover involves cases of voluntary and involuntary employee leave.  Employee retention may exclude involuntary turnover. 

Rate

Employee retention and turnover rates are pivotal HR metrics reflecting employee stability. Turnover rate measures the percentage leaving, impacting recruitment costs and organizational continuity. In contrary to turnover, retention rate signifies the percentage of employees staying, indicating workplace satisfaction and effective management. Balancing in retention rate vs turnover rate is essential for talent management and organizational resilience.

As you can see, differences between turnover and retention are considerable. Read on to find out how to calculate them!

Why are they essential in HR management?

Employee retention and turnover management can assist businesses in understanding the atmosphere in the company and the employees’ attitude to the work process. If you calculate these indicators permanently, you can track the weaknesses within your organization and apply a correct employee turnover and retention strategy. For example, managing high voluntary turnover and low retention rates involves similar strategies, such as vast career opportunities, higher compensation, and benefits, management issues, or a better work environment. 

Also, you can modify your employer value proposition (EVP) that will allow you to attract new employees with high skills to the company, and retain existing employees. If the external EVP for candidates does not meet the needs of potential employees, the organization will have hiring problems. Likewise, if internal EVP for the staff does not resonate with them, the company observes an outflow of employees during the first months after employment. Thus, these terms are pretty interconnected.

Managing employee retention and turnover is also crucial for reducing costs. Low retention and high turnover rates mean that the company wastes funds to pay the costs of replacing a resigned worker. These costs are financial and administrative, and often include:

• Hiring costs, including advertising and the selection process
• Overrate for a team while the vacancy isn’t filled
• Onboarding and training for a new employee

Key metrics

Calculating retention and turnover is not as difficult as it seems. Here you can find the main formulas with the examples:

We pay attention that sometimes HRs use an average number of employees instead of the total number of employees. Such an option is a good option for companies with a high turnover or seasonal vacancies. For a comprehensive guide on the best metrics and KPIs for HR, check out our article.

Improve your turnover and retention with recruitment tools

How to decrease turnover and increase employee retention? Review your hiring skills and practices to improve employee retention. You can refocus your hiring practices to ensure your business hires suitable candidates. It is proper software that can help you.

We’re talking about Axterior - an online recruitment platform. The main benefit of such a platform is finding the best-fit candidate in a few clicks by managing an all-in-one talent pool. With such an online recruitment system, you’ll be able to hire employees 23% faster and use the saved time to improve the onboarding process, enhance the working environment, develop corporate culture, and so on.

Conclusion

People are the key to the success of any organization. In the long term, companies need profitability and success to thrive and stay relevant in an ever-evolving marketplace. So do not miss such essential indicators as retention and turnover because they will always help you see the big picture of your HR management and take action in time.