Does Your Company Have a Healthy Employee Retention Rate?

January 3, 2019
By

How to calculate your employee retention rate

How much money are you losing due to attrition? Turnover is expensive for any employer. But in today’s tight labor market, the cost of losing your best employees is even higher. You have to invest in hiring and training a replacement. But you also lose the value that those former employees were producing for your company. Every organization that employs people will have at least some turnover. But how can you know if yours is high or low? Should you have a goal for your employee retention rate? And what should you do to keep more of your good workers?

Excellent questions. Let’s take a look.

What Is a Good Employee Retention Rate?

According to a 2016 Compensation Force study, the average total turnover for all industries is 17.8 percent. Rates varied by industry, however. They were relatively low in the utilities and insurance industries, 8.8 percent and 12.2 percent respectively. While in the hospitality industry, turnover soared at 28.6 percent.

Then there are those high-stress and fast-paced industries with turnover reaching or exceeding 100 percent. The Small Business Chronicle reports that supermarkets have 100 percent turnover. CHA International says that hotels can turnover between 60 and 300 percent of employees annually. And according to the American Staffing Association, their industry sees 352 percent of jobs turn over per year. (To be fair, that’s to be expected in an industry that hires for positions with “temp” in their title.)

But how can you know if your company has a “good” or “bad” turnover rate for your industry? At a basic level, you need to know two things. First, what is your company’s turnover rate? And second, what is the average turnover rate for your industry.

To calculate your company’s turnover rate for a given period, gather these numbers:

  • The number of people you employed at the start of the period (A)
  • The number of terminations you had during that period (B)

Then calculate your turnover rate using this formula:

B ÷ A × 100 = Turnover Rate

For example, let’s say you own a restaurant. At the start of the 3rd quarter, 2018, you employed 40 people. During that quarter, you had 4 terminations. Using our formula, your turnover rate for 3rd quarter, 2018 was 10 percent.

If you want to calculate your turnover rate over a longer period of time, and the number of positions in your company varied over that time period, just use the average number of positions in your company over that period.

For example, let’s say that same restaurant employed 36 people at the start of the year, but they decided to hire more servers, cooks, and dishwashers throughout the year as their business grew. By May, they had 40 employees, and by November, 42.

To find the restaurant’s average number of employees, you need the following information:

  • There were 4 months with 36 employees. 36 × 4 = 144.
  • There were 6 months with 40 employees. 40 × 6 = 240.
  • There were 2 months with 42 employees. 42 × 2 = 88.
  • There are 12 months in the year.

Then average the number of employees like this:

144 + 240 + 88 = 472

472 ÷ 12 = 39.33

So that restaurant’s average number of employees for the year was 39.33. Now suppose they had 15 terminations over the year. Their average employee turnover rate would be 15 ÷ 39.33 × 100, or 38 percent.

According to the Bureau of Labor Statistics, the average turnover in the accommodations and food services industry is 72.5 percent. So it appears that our example restaurant has a pretty low turnover rate compared to similar businesses. You can also check the BLS chart for your industry’s annual turnover rate.

Is Your Employee Retention Rate “Healthy”?

In our example above, we know the restaurant’s annual turnover rate is 38 percent. That means that their employee retention rate is 62 percent. But is that healthy?

That’s a bit subjective. If the bottom 38 percent of the staff is underperforming, and that’s where the separations are coming from, then you could call it healthy.

But what if your business is losing its top performers? Then it wouldn’t matter much if the rate were lower or higher than the industry average. Turnover is costing you good employees, and that is costing you money.

How to Improve Your Employee Retention Rate and Reduce Turnover

If you are losing too many of your star employees, you need a new retention plan. Here are five steps you can take to keep people on board longer.

1. Hire the right people.

During job interviews, look for qualities like commitment, diligence, and perseverance. Train your hiring managers to ask candidates why they want to work for you, and only hire people who sound like they’re excited about your company and the work you do. And it never hurts to infuse people analytics into your hiring process.

You should also be sure that new hires understand what they’re signing up for. If the job requires late nights, travel, and weekend work, be sure to let them know upfront. People quit jobs that turn out to be different from their expectations.

2. Pay competitive wages.

Do a little research, and make sure you are paying at least as much as your competitors. Look for software that offers compensation management and research tools.

3. Provide the best company culture.

A good workplace culture is important to retaining employees. You want your employees to view your company as a comfortable, positive place to work. They should enjoy being around their coworkers, and feel supported with all the training and resources they need to do their job properly.

4. Offer praise and recognition for a job well done.

Everyone wants to know when their work is appreciated, and your employees are no different. If you can afford it, you can offer financial incentives. But public praise or even a simple “thank you” will work pretty well too.

5. Help them advance their careers.

One of the primary reasons that people leave their jobs is to advance their careers. If you want to prevent this from happening at your company, there’s a simple solution to that. Give them opportunities to advance! This is especially important with your top performers. Ask them where they would like to see themselves in a year, two years, and so on. Then help them lay out a plan to get there within your company. When people feel like their boss is invested in their personal futures, they tend to want to stay where they are.

Every employer will have at least some turnover. But your goal should be to have the highest employee retention rate as possible. Follow these guidelines to give your employee retention rates a boost.

About

Nicole is a freelance writer specializing in health, mental health, and parenting issues. Her work has appeared in Today's Parent, Crixeo, Grok Nation, Chesapeake Family LIFE, and the Baltimore Sun, among others.

Category: HR Tips & Trends, Talent


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