Employee retention vs turnover? How to know the difference

Every leader has a responsibility for business growth. That’s why it’s vital to find ways of retaining your best employees. Most of us already have at least one person on board that we consider to be an integral part of our organization’s success.

If you ask any HR leader what their main priority is, they will likely tell you that employee retention is top of the list. What if I told you that there is a simple trick to telling the difference between employee retention and turnover? It certainly would make your life easier, right?

What is employee turnover?

Employee turnover is the rate at which employees leave an organization and are replaced. Employee turnover can be expensive for a small business because of the costs associated with replacing workers. The cost of employee turnover can include:

Recruitment and hiring

Recruiting a new employee can take time and money.

Training and onboarding

New employees need to be trained, which can involve time spent by managers or other employees.

Productivity loss

New employees typically aren't as productive as experienced staff members.

The cost of employee turnover varies by industry and position.

One source estimates that replacing an employee can cost an organization about one-fifth of the person's annual salary (for example, $10,000 for a $50,000/year worker). However, some workers may cost more to replace than others. For example, highly specialized or high-level employees may be much more costly to replace than junior-level employees.

The median number of days it takes to fill positions in the U.S., according to a recent survey by job site Indeed, is about 23 days for all occupations and 24 days for management positions; but filling some positions can take 60 days or more.

Types of turnover: voluntary and involuntary

There are two types of turnover: voluntary and involuntary. Voluntary turnover is when an employee leaves their job on their own accord and is not fired or laid off. Involuntary turnover, on the other hand, is when an employee is fired or laid off.

Voluntary turnover encompasses all situations where an employee leaves their job of their own volition. This may include employees who quit because they're unhappy, can't take the stress, dislike their boss, or want a higher-paying position.

Involuntary turnover includes firings and layoffs. Firings occur when an employer terminates an employee for poor performance or behavior that doesn't meet company standards. Layoffs occur when an employer needs to eliminate jobs due to economic conditions that make it impossible to keep them staffed (such as decreased demand for products).

What is employee retention?

Employee retention refers to the ability of an organization to retain its employees. Employee retention can be represented by a simple statistic (for example, a retention rate of 80% usually indicates that an organization kept 80% of its employees in a given period).

It is important to note that employee retention is different from employee turnover; employee retention refers to keeping existing employees while turnover focuses on replacing departing ones.

Companies that have high employee retention typically experience lower hiring costs, less disruption and training costs, and higher morale among current employees.

On the other hand, companies with low employee retention may have to deal with higher recruitment and training costs, lower productivity due to inexperience, lower profitability due to insufficient experience of new hires, and a negative reputation which may discourage talented candidates from applying for open positions.

Calculating employee turnover & retention rates

Calculate employee turnover rate for the entire company. Divide the number of employees who left by total number of employees at the beginning of the period. Multiply that figure by 100 to express it as a percentage. For example, if 20 people left out of a starting staff of 200, divide 20 by 200 to get 0.10, multiply that by 100 to get 10 percent turnover, and you have your employee turnover rate for the year.

Measuring employee retention rates for each department in your business, and it also depends on the time period. Determine the number of people who left each department and divide that number by the total number of employees at the start of the period in that department. Multiply that figure by 100 to express it as a percentage.

For example, if two people left out of a starting staff of 15 in a certain department, divide 2 by 15 to get 0.1333, multiply that by 100 to get 13 percent retention, and you have your retention rate for that department for the year.

How to fight turnover and increase retention

When your best employees leave, it hurts. You lose time, money and productivity while you scramble to fill the position. But it's not all bad news. With a little retention strategies and effort, you can fight turnover and keep your top talent engaged at work.

Here are four ways to increase employee retention:

1. Keep them engaged

An engaged employee is a happy employee, right? Not necessarily. A 2016 Gallup study found that 51 percent of employees in the U.S. don't feel engaged at work — they're emotionally disconnected from their jobs and are less likely to be productive.

The direct impact of disengaged employees on a company's bottom line is hard to measure — productivity may drop, profits may shrink and turnover might increase. However, you can use engagement surveys to learn what's working for your employees and what isn't so you can make changes to keep them happy and productive at work.

For example, if your survey results show that most employees don't feel like they're making progress in their careers, provide more training or mentoring opportunities to help them grow professionally.

2. Perform Exit Interviews 

The point of exit interviews is to give your company a chance to find out what went wrong, but also to show your employees that you care about them and want to keep them around if possible.

Exit interviews are one of the most useful tools you can use if you're trying to fight turnover and increase retention. They aren't just for current employees; they should be used with all former employees as well.

Even if an employee has left your company to take another job, he or she will likely still be willing to give you some honest feedback. And even if that feedback is negative, it can be enormously helpful as you look for ways to improve your business.

Conclusion

Keep in mind that there’s nothing per se wrong with healthy turnover rates, as long as there is a positive correlation between turnover rates and other relevant business metrics. The key here is to take a step back and find the root cause of your employees’ tendency to leave, whether it be company-related or otherwise.

The best way to handle turnover is by reducing any associated risks, financial or otherwise, and minimizing your efforts on improving employee morale if that doesn’t show to be an issue (retention measure). If your turnover rate is too high though, you may need a better strategy.