Employee retention vs turnover? How to know the difference

Written by: Clarisa Mendoza | Illustrated by: Officevibe team
Published on: September 8, 2021 |  Reading time: 5m

If you’ve ever had to manage an incomplete work team, you know it’s hard. You need to put in extra work to support overworked employees, and might have to deal with low morale and low productivity. All this on top of the stress of finding a competent new hire to support the team. This is where you find yourself in the midst of the challenges of managing employee retention and turnover.

Although retention and turnover are terms that you’ve probably heard, they may be concepts that you don’t fully understand. Two calculations that seem relevant for HR but not so much for you as a manager. But managers have a big influence on employee retention rates. Not only that, but they’re the ones who suffer the most direct consequences when someone leaves their team. So, let’s get down to business and talk about the nuts and bolts of retention and turnover.

What is employee turnover?

The percentage of workers that leave an organization and are replaced by a new hire in a given time period is the company’s turnover rate. When one employee leaves and a new employee fills their position, this is a piece of the company’s turnover.

Terminology tip: When an employee leaves but not replaced, this is called employee attrition. Attrition happens when people retire, roles are abolished, or when the manager or company simply decides not to make a new hire in their place.

Types of turnover: voluntary and involuntary

Employee turnover can be involuntary or voluntary. Involuntary turnover happens when the organization decides to end the work relationship with the employee. It could happen due to poor performance, confrontational or inappropriate employee behavior, a breach in their contract, or some other valid reason.

Voluntary turnover, on the other hand, happens when employees decide to leave the organization of their own volition. This happen for many different reasons. Some causes of employee turnover include values misalignment, a more enticing career opportunity, or a lack of development opportunities.

Of course, some voluntary departures are unavoidable and not really related to the organization. For example, an employee whose spouse has been relocated or a colleague leaving to take care of an ailing family member. However, voluntary turnover is often avoidable, and it’s important to closely monitor it by calculating it quarterly or even monthly.

What is employee retention?

Employee retention, sometimes referred to as a company’s stability index, is the number of workers that stay in a company in a given time period. Retention also refers to all the strategies companies use to keep their employees happy and engaged, so they stay working for them. Working to understand and improve the employee experience within the organization is the first step.

A company where the employees feel valued and well treated is more likely to have higher retention. Think about your own job, have you been with the same employer for a while? If so, why? Growth opportunities, a good benefits package, a competitive annual salary, and a good work-life balance are some of the common reasons people decide to stay with an organization.

Employee retention vs turnover

Both turnover and retention are good indicators of an organization’s health. Each measures employee engagement and loyalty, which are ultimately linked to employee engagement and productivity. Put together, these measurements give a good idea of how stable a company’s workforce is.

Retention doesn’t bring new hires into the equation, but turnover does. Newly hired employees can’t indicate anything in regards to retention because they haven’t really ‘stayed’ with the company. However, if new hires decide to leave, that’s definitely worth investigating.

Venn diagram to show the differences and commonalities when comparing employee retention vs turnover.

Calculating employee turnover & retention rates

Tracking these numbers can help you understand and minimize turnover’s negative impact and consider investing in employee retention strategies. Although at first glance they may seem like exact opposite concepts, that’s not actually true. How you calculate turnover doesn’t line up with how you calculate retention. A good indicator of that is that the sum of both rates doesn’t necessarily add up to 100%.

  • Employee turnover is calculated by dividing the number of terminations by the average number of employees in a given timeframe, and multiplying this number by 100.
  • Employee retention is calculated by dividing the number of employees that worked a whole time period by the number of active employees at the start of that time period, and multiplying this number by 100.

For example: Be Happy Corporation has 80% retention and a 23% turnover, which totals 103%. Why is that? Let’s look at the calculations together…

Be Happy’s calculations show that in 2020 they had an 80% retention rate. They started the year with 100 employees, but only 80 of them worked all 12 months. They didn’t take into account new hires, only employees who worked the whole year. On the other hand, Be Happy had 24 not-so-happy employees, who left the company during this time. With a monthly average of 105 employees, Be Happy ended up with an annual turnover rate of 23%.

How to fight turnover and increase retention

It’s very important for managers to fight turnover and increase retention on their teams. Here are some strategies to help you out.

Perform exit interviews

These are interviews that take place once an employee has made the decision to leave the company. While you’re unlikely to change their mind, you can seize the opportunity to get honest feedback about their departure. After a successful exit interview, you should have a good insights on how you might improve job satisfaction and engagement for your remaining team members.

Intervention by direct managers

Managers can help decrease turnover rates by simply listening to their team members. Based on the feedback they get, they can make changes or implement solutions to improve the employee experience on their team. Employee engagement surveys and one-on-one meetings are great opportunities to check in with what’s going well and what’s challenging for your team members. Officevibe sends out regular pulse surveys with easy-to-read reports for managers, collects employee feedback directly, and helps you host better one-on-ones, all in one platform.

Measure your eNPS with Officevibe

An important part of the engagement metrics in Officevibe is the employee Net Promoter Score, a tool that helps to track employees’ loyalty and pride for the organization.

The eNPS is calculated by anonymously asking employees how likely they are to recommend working at your organization. On a scale of 1 to 10, those who answer 9 or 10 (i.e., are very likely to recommend working at your company) are considered promoters. Those who answer 7 or 8 are considered passive and those who answer 6 or less are considered detractors.

Although the eNPS doesn’t necessarily reflect retention and turnover rates, it can give us a rough idea of how happy employees are, and how inclined would they be to explore other opportunities.

Now that you have a good idea of what turnover and retention are, you can put into practice the given strategies to boost employee engagement and minimize avoidable turnover and its negative consequences.