10 of the top employee retention KPIs for HR

Why is employee retention important?

Employee retention is important for many reasons. Employee turnover costs money, as a company's hiring team must spend time filling the position. Cash outlays can also include fees to post the job on external sites and using a third-party agency to identify candidates.

In addition, one employee departing may encourage others to do so, which could increase the negative effects of employee departures, such as turnover cost and a decrease in morale.

Finding a replacement employee often takes time, and the remaining team members are forced to take on additional responsibilities. Overwork may result in employees missing important details, which could negatively affect customer service.

What is an ideal employee turnover rate?

An ideal turnover rate is hard to define for every company and industry, particularly since certain industries consistently have a higher turnover rate than others.

Companies can compare their current turnover rate to their own past measurements as well as the turnover rates for other companies in similar industries. Certain publicly available surveys measure turnover rates by industry.

10 metrics that give insight into employee retention

Employee retention KPIs can give insight into certain aspects of company operations that HR and other leaders must address. For example, a certain department may be experiencing a higher departure rate than others.

These 10 metrics are important ones to consider when evaluating employee retention and turnover.

1. Retention rate

The retention rate metric measures the number of employees who are still employed with the company after a given amount of time and expresses that number in a percentage.

For example, a company that employed 100 workers on Jan. 1 and is employing 90 workers by the end of the year has a 90% retention rate.

2. Retention rate by category

Retention rate by category is similar to the retention rate measurement. However, HR staff can use this metric to examine a subset of employees. Examples of employee categories include the following:

• Years of service.
• Gender.
• Department.
• Location.
• Country.
• Manager.

3. Turnover rate

This metric is a different way of expressing the data contained in the retention rate. Instead of expressing the number of employees who remain at a company, the turnover rate examines the number of employees who have left.

The best way to calculate a company's annual turnover rate is to add together the employee turnover for each quarter, then divide it by the number of employees. For example, if 10 employees left in Q1, 15 employees in Q2, 20 employees in Q3, and 10 employees in Q4, that adds up to 55 employees who left. A company with 100 employees divides that 55 by 100, which results in a calculation of a 55% turnover rate.

4. Turnover rate by category

As with retention rate by category, this metric looks at the turnover rate by category using employee data that is typically available in an HR system. Some of the categories that HR staff may use for the turnover rate by category metric include the following:

• Years of service.
• Gender.
• Department.
• Location.
• Country.
• Manager.
• Turnover in first 90 days of employment.

5. Turnover rate by custom category

For turnover rate by custom category, HR staff examines the turnover rate using data that is not customarily part of an employee's profile. These categories are often data types that are recorded during performance reviews.

Here are a few examples:

• Flight risk employee turnover.
• Turnover by top talent.
• Regrettable vs. non-regrettable turnover.
• Voluntary vs. involuntary turnover.

6. Cost of turnover

The cost of turnover metric gives organizational leaders insight into how much the company has had to pay for workers leaving.

HR staff calculating the cost of turnover should keep in mind considerations such as downtime caused by unfilled positions, hours that a hiring team works to fill a position, missed opportunities because other employees are taking on extra duties, and overtime costs for remaining employees. Arriving at an exact cost can be challenging, but measuring even some of these can give insight into the cost of turnover.

7. Tenure with the company

The tenure metric gives insight into employee experience. A low tenure KPI indicates that employees are dissatisfied with their experience at an organization and deciding to depart.

If overall employee tenure is low, HR should work with other leaders at the company to address the issue, including potentially examining exit interview data to discover common reasons for employee departures. For example, workers may be unhappy with employee recognition at their company.

8. Employee satisfaction

Satisfied employees are less likely to leave a company. To measure employee satisfaction, HR leaders can employ a third party to conduct employee surveys, then HR staff can compare their organization's results to other companies in their industry.

Surveys that can give insight into employee satisfaction include general employee surveys, new hire surveys and exit surveys.

These surveys can provide helpful metrics about employee satisfaction. For example, if a survey asks employees if they are happy with the overall direction of the company and 60% say no, HR staff can use that respondent data to plan for the future with other leaders.

9. Attendance

Tracking employee attendance can yield important information about employee performance and workers' attitudes about their company.

For example, a high rate of unexplained absences can indicate employee dissatisfaction or lack of motivation. HR staff can use this number to demonstrate an issue with low employee morale when discussing the problem with other leaders.

10. Promotions

The number of recent promotions can give insight into employee satisfaction. Employees often seek out growth opportunities, and a company with a history of promoting from within gives its employees hope that they may be promoted as well.

A large number of recent promotions likely indicates high employee satisfaction, since workers are probably happy about their new titles.

5 best practices for measuring employee retention

HR staff can encounter various pitfalls when measuring employee retention. Here are some best practices to keep in mind.

1. Define parameters

When measuring different aspects of employee retention, HR staff must define parameters such as what's being measured, who's included and what data is available within the company, then record those parameters for future reference.

For example, if HR staff includes contract employees in their turnover rate calculations one year but does not do so the next, the data will not be accurate.

2. Consider termination types and reasons

HR staff often break down, and report on, termination data using the termination types "voluntary" and "involuntary."

However, using only two termination categories can lead to misleading data. For example, how should HR staff categorize employees who leave at the end of a contract, such as students or temporary employees with a fixed term? HR staff should consider ways to better define unusual departure situations.

3. Remember headcount changes

HR staff should consider how to handle changes in employee headcount when calculating metrics, since headcount will not stay the same over the course of the year.

For example, if a company starts with 100 employees on Jan. 1 and ends the quarter with 110, HR staff may struggle with deciding which number to use. Averaging the headcount is often easiest and provides a slightly more accurate picture than simply using the headcount for the beginning of the year, since the company may have grown or shrunk significantly.

4. Learn how to annualize the data

Company leaders often want turnover data annualized so they can estimate the annual turnover.

If an HR department only possesses data from one quarter so far, HR staff can multiply the turnover by four to get an estimate of the turnover for the year.

5. Consider mergers and acquisitions

HR staff must decide how to integrate data if their company is acquired or merges with another. For example, one company may list various termination reasons when measuring employee data, while another company may only list "voluntary" or "involuntary."

HR staff must decide how to deal with the different types of data before making employee retention calculations.

Eric St-Jean is an independent consultant with a particular focus on HR technology, project management and Microsoft Excel training and automation. He writes about numerous business and technology areas.