Knowing how to calculate employee retention statistics is critical when putting an employee retention plan into place for the benefit of a company’s growth initiatives. Organizations often place too much emphasis on turnover rates instead of discovering how well they are retaining key employees. By learning how to accurately determine the rate at which employees are retained, a human resources department is able to find out how to better maintain employee numbers over time.
Learn what the retention rate means, how to calculate the retention rate and how to use employee retention statistics so that this information can be presented to corporate leaders in comprehensive reports.
What the Employee Retention Rate Means
The retention rate is most often referred to as the stability index. As its name implies, it is a way of measuring how stable a company is. When a stability index is high, the company is generally doing well in all other areas of business. If the stability index is low, it means there are employee morale issues that the company must fix before taking on more staff. In other words, the retention rate is a clear indicator of how well a company is operating and if there are issues that need attention.
The basic employee retention rate calculation, or the stability index, can be determined by following the steps below:
Determine the number of staff with one year or more of service.
Divide by the total number of staff on board one year ago.
Multiply the outcome by 100.
As the human resources officer, you should be tracking the actual number of employees on board. You also need to have a clear idea of how many of those employees have completed one year or more of service with the company. You can find this out by surveying your current departments one by one and getting a list of employees who have been on board for longer than a year vs. those who have just completed a year’s service.
Don’t be concerned with employees who have recently joined the company or those who are planning to retire or resign in the current period, as they won’t be factored into this calculation. Gather this information first to make sure all employee statistics are correct and then use the above formula to get the employee retention rate. Do this for each department and then for the company as a whole.
For example, your company currently has 172 employees. Six were recent hires and have served for less than a year, so we exclude them from the calculation, leaving us with 166. Divide this number by the total number of employees that were year one year ago. In our fictional scenerio, the company has had eight employees leave, so the number was 174. Dividing 166 by 174 leaves us with .95. Multiply by 100 for a Stability Index of 95.
How to Use the Statistics
Once the overall employee retention rate is calculated, it’s time to analyze the results so that the company can evaluate the current rate of turnover and retention. This information is valuable in designing an employee retention strategy and can be used to identify any trends in departments. Focus on the departments that seem to be showing a low employee retention rate first when designing a program to improve things for the company as a whole. Then look at the departments that have the best employee retention rate and find out what they are doing differently to keep quality employees happy.
From an HR standpoint, having documentation of employee retention rates is vital to being able to validate the implementation of an improved employee retention plan. Corporate leaders want to see this information in black and white to understand the fundamentals of why retention can help to curb costs associated with turnover problems. By knowing how to calculate employee retention rates, you can present these facts as evidence of a need to put a retention and incentive program into place.
- Taylor, Stephen. “CIPD - Employee turnover and retention.” CIPD - The HR and development website. http://www.cipd.co.uk/subjects/hrpract/turnover/empturnretent.htm (accessed January 11, 2011).