Many employers use the terms “retention rate” and “turnover rate” interchangeably, while others feel one is simply the inverse of the other. In fact, the retention rate, sometimes referred to as the “stability index,” measures the retention of particular employees over a specified period of time and complements the turnover rate metric, giving a more complete view of worker movement than calculating either metric alone.
The basic formula for calculating retention is:
# of individual employees who remained employed for entire measurement period /
# of employees at start of measurement period) x 100
When determining how many employees remained employed for the entire measurement period, be sure to only include those employees who were employed on both the first and last day of the period. Any workers hired within the measurement period are simply not counted, as the goal is only to track the retention of those working on day one of the measurement period.
Retention rate is often calculated on an annual basis, dividing the number of employees with one year or more of service by the number of staff in those positions one year ago. Positions added during the year would not be counted. Smaller measurement periods can be used, as when tracking more immediate results of retention initiatives, or larger periods, as when calculating the retention of those workers who stayed after a reduction in force some years ago.
This figure is quite useful to show the stability of the workforce, but the downside is that it does not track the departures of employees who joined and subsequently left during the period being tracked. Therefore, calculating the turnover rate will complement the retention rate by showing the percentage of separations in the same period. Turnover rate is often defined as the number of separations divided by the average number of employees during that same time period.
The basic formula for calculating turnover is:
(# of separations during the measurement period /
average # of employees during the measurement period) x 100
The example below illustrates how retention and turnover rates are not always the inverse of each other.
In a department of eight, two people left and were replaced during the measurement period.
R (retention) = (6/8) X 100 = 75 percent
T (turnover) = (2/8) X 100 = 25 percent
However, what if during the measurement period, two positions became vacant, were filled, became vacant again and were filled again?
R = (6/8) X 100 = 75 percent
T = (4/8) X 100 = 50 percent
Clearly, tracking both metrics gives the employer a more complete picture between retained and separated employees.
