Employee turnover and retention policies

How can your company reduce staff turnover and improve the retention rate of your employees and their crucial skills? We know!

First published on Thursday, Jun 04, 2020

Last updated on Monday, Nov 29, 2021

But it also costs you financially and in lost skills. Every time an employee leaves your company, you have to spend money to hire their replacement.

The knowledge and skills that the departing employee learned while working for you, which they may have gained through training or on the job, also go out the door. The time it takes to train a new hire up to the same standard will vary by role.

That’s why it’s so important to analyse and manage employee turnover and retention, with sound HR policies. You can start here.

The difference between turnover and retention

They’re almost opposite terms. Employee turnover is the proportion of your workforce who leave during a period of time (usually per year). Retention is the proportion of employees who stay.

Measuring turnover and retention

If you’re to manage turnover and retention effectively, a useful policy is to measure data for both. Measuring data can help you identify problems and set targets for improvement.

Measuring employee turnover

The simplest way to track turnover is to measure the overall rate on a yearly basis. You can calculate the percentage by dividing total leavers by total employees, and multiplying by 100. Lower scores are better.

A problem with overall turnover is that it includes leavers you cannot control — such as employees retiring through old age, or transferring to another branch. A more-focused turnover calculation for total dismissals, or total voluntary resignations, might prove more useful.

Calculating a retention ‘stability index’

You can measure retention by dividing total staff with 1+ years’ service by total staff 1 year ago, and multiplying by 100. This is known as a stability index. Higher scores are better.

Knowing the cost of employee turnover

Putting a cost on employee turnover can help you make a business case for better management, and can help you work towards reducing the costs.

The cost of turnover includes the full cost of replacing a worker who leaves. These costs are financial and administrative, and often include:

  • Hiring costs, including advertising and the selection process
  • Temp cover while the post is vacant
  • Training for the replacement employee

The annual cost of turnover is calculated by multiplying total leavers by the cost per leaver.

Costs are usually higher, and turnover more important to deal with, the more scarce a job’s skills are.

Understanding why employees leave

Knowing why employees leave your organisation is crucial if you plan to take action to reduce turnover.

Policies you can implement to measure reasons for leaving include:

  • Analysing HR administration data on resignations, reference requests, dismissals, retirements, redundancies, and so on.
  • Using exit interviews, in which you can directly ask departing employees why they’re leaving.
  • Conducting employee surveys that ask current staff about their job satisfaction and intentions to leave in future.

Be aware that employees may not always be honest about their own reasons for leaving!

Policies to improve employee retention

Once you’ve assessed your employee turnover situation and the reasons behind it, you can begin to implement policies to improve retention.

Examples might include offering employees better progression opportunities, consulting employees on how to make work more satisfying, and reviewing job roles to make them more fulfilling.

Share this article

Have a question?

Ask away, we’ve got lightning fast answers for UK business owners and employers powered by qualified experts.

More on staff retention

group of people holing lego models in their hands

Improving employee and staff retention

If you aren’t measuring employee turnover and retention, you may not be aware of it. But when a high proportion of your staff leave voluntarily each ...