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Employee retention shows how well a company keeps its workers. Statistics show that 4 million Americans quit their job each month and the average cost to offboard an employee is 33% of their annual salary. Knowing how to measure employee retention gives employers a clear picture on how well they keep their workers and what areas need improving.
“The numbers behind your retention rates don’t lie,” says Ruffy Galang , CEO and Co-Founder Remote Employee. “They tell the truth on how well your company supports its employees and whether your workplace provides an environment that encourages people to stay.”
Tracking and understanding your retention rate—and other key turnover metrics —shows where your company stands and if you have an issue with employee retention that needs attention.
In this article, we’ll explain the 9 essential retention metrics to track and show you how to calculate them, including:
- Employee retention
- Turnover rate
- Attrition
- Voluntary turnover
- Involuntary turnover
- New hire retention
- Employee satisfaction
- Employee tenure
- Cost of employee turnover
What is Employee Retention?
Employee retention is a metric that tracks the stability of a company’s workforce. It measures the percentage of employees who remain with the business during a set timeframe. For example, a school that keeps most of its teachers for several years has strong retention, while a restaurant with frequent staff turnover struggles with retention.
Measuring employee retention helps companies understand the consistency of their team and highlights patterns in employee tenure. High retention indicates a stable workforce, while low retention may point to underlying issues. Tracking this helps businesses understand how long workers stay at their company and to spot employment patterns.
9 Essential KPIs to Know for Employee Retention
1. Employee Retention
The employee retention rate is a straightforward way to measure how many employees stay at a company during a specific time. It’s a key metric for tracking workforce stability and spotting patterns. Companies use this number to understand if their efforts to keep employees are working or if they need to make changes.
How to Measure Employee Retention Rate
To calculate retention rate, use the following formula:
| Employee Retention Rate (%) = (number of employees remaining − number of employees that left)] Number of employees at the start of the period] ×100% |
For example, if a company starts the year with 200 employees, loses 20 during the year, and ends with 180, the calculation is:
[(180−200) 200)] ×100% = 90%
This means the company retained 90% of its workforce for that year. Regularly tracking this metric helps businesses understand their retention trends over time.
2. Overall Turnover Rate
Overall turnover rate measures the percentage of employees who leave a company during a specific period, whether voluntarily or involuntarily. While retention rate focuses on the employees who stay, employee turnover metrics highlight the employees who leave.
Together, these metrics provide a complete picture of workforce stability. A high turnover rate often signals issues like dissatisfaction, lack of growth opportunities, or poor workplace culture. Tracking this metric helps businesses identify patterns and address underlying causes of employee departures.
How to Measure Employee Turnover
To calculate overall turnover rate, use the following formula:
| Overall Turnover Rate (%) = (Number of employees who left during the period / Average number of employees during the period) × 100% |
The average number of employees is calculated by adding the starting and ending employee counts for the period and dividing by two.
For example, if a company starts the year with 200 employees, ends with 180, and 40 employees left during the year, to determine the overall turnover rate, you first find the average number of employees as follows:
Average number of employees = (200 + 180) / 2 = 190
Then, use the average number of employees value to determine overall turnover rate:
Overall Turnover Rate (%) = (40 / 190) × 100 = 21.1%
In this scenario, it means the company had a 21.1% turnover rate for the year.
3. Attrition Rate
Attrition rate measures the percentage of employees who leave a company and are not replaced. Unlike turnover, which often involves replacing workers, attrition reflects a reduction in workforce size due to retirements, resignations, or layoffs without backfilling the position.
Monitoring attrition helps businesses understand long-term workforce changes and their impact on operations.
How to Measure Attrition Rate
To calculate attrition rate, use the following formula:
| Attrition Rate (%) = (Number of employees who left and were not replaced / Average number of employees during the period) × 100% |
For example, if a company has an average of 150 employees and 15 leave without being replaced:
Attrition Rate (%) = (15 / 150) × 100 = 10%
This means the company’s workforce decreased by 10% during the period. Tracking this metric helps businesses plan for workforce adjustments and assess the impact of unfilled positions.
4. Voluntary Turnover Rate
Voluntary turnover rate measures the percentage of employees who leave a company by choice, such as resigning for a new job, retirement, or personal reasons.
Unlike overall turnover, this metric focuses specifically on employees who choose to leave, making it a key indicator of workplace satisfaction. A high voluntary turnover rate often signals issues like dissatisfaction with leadership, lack of growth opportunities, or poor work-life balance.
How to Measure Voluntary Turnover Rate
To calculate voluntary turnover rate, use the following formula:
| Voluntary Turnover Rate (%) = (Number of employees who left voluntarily during the period / Average number of employees during the period) × 100% |
For example, if a company has an average of 200 employees during the year and 30 leave voluntarily:
Voluntary Turnover Rate (%) = (30 / 200) × 100 = 15%
This means 15% of the workforce chose to leave during the year. Regularly tracking this metric helps businesses address issues that cause employees to resign and improve overall retention.
5. Involuntary Turnover Rate
Involuntary turnover rate measures the percentage of employees who leave a company because of termination, layoffs, or other employer-driven decisions.
This metric helps businesses understand how often employees are being let go and can highlight issues such as hiring mistakes, performance problems, or organizational restructuring. Unlike voluntary turnover, these departures are not the employee’s choice.
How to Measure Involuntary Turnover Rate
To calculate involuntary turnover rate, use the following formula:
| Involuntary Turnover Rate (%) = (Number of employees who left involuntarily during the period / Average number of employees during the period) × 100% |
For example, if a company has an average of 200 employees during the year and 10 are terminated or laid off:
Involuntary Turnover Rate (%) = (10 / 200) × 100 = 5%
This means 5% of the workforce was let go by the company during the year.
6. New Hire Retention Rate
New hire retention rate measures the percentage of newly hired employees who stay with a company for a specific period, such as 3, 6, or 12 months. This metric reflects the success of the hiring and onboarding process.
A low new hire retention rate can indicate issues with job expectations, onboarding, or company culture. Tracking this metric helps businesses improve their recruitment and onboarding processes to ensure new employees feel supported and engaged.
How to Measure New Hire Retention Rate
To calculate new hire retention rate, use the following formula:
| New Hire Retention Rate (%) = (Number of new hires who stay for the specified period / Total number of new hires during the period) × 100% |
For example, if a company hires 50 new employees in a year, and 40 stay for at least 6 months:
New Hire Retention Rate (%) = (40 / 50) × 100 = 80%
This means 80% of new hires remained with the company for at least 6 months. Tracking this metric helps businesses improve their recruitment and onboarding processes to ensure new employees feel supported and engaged.
7. Employee Satisfaction
Employee satisfaction rate measures how content employees are with their job, workplace, and overall experience at a company. High satisfaction rates often lead to better retention, increased productivity, and a positive work environment. A low satisfaction rate can signal issues such as poor management, lack of opportunities, or unhealthy workplace culture.
How to Measure Employee Satisfaction Rate
To calculate employee satisfaction rate, use data from surveys or feedback tools. One common method is to calculate the percentage of employees who respond positively to questions about their job satisfaction.
| Employee Satisfaction Rate (%) = (Number of employees who report being satisfied / Total number of survey respondents) × 100% |
For example, if 200 employees take a survey and 150 say they are satisfied with their job:
Employee Satisfaction Rate (%) = (150 / 200) × 100 = 75%
This means 75% of employees are satisfied with their job.
8. Average Employee Tenure
Average employee tenure measures how long employees typically stay at a company. In the US, the average time an employee stays at their job is 3.9 years, as of 2024.
This metric provides insights into workforce stability and loyalty. Longer tenure often indicates a positive work environment and opportunities for growth, while shorter tenure can suggest high turnover or dissatisfaction.
How to Measure Average Employee Tenure
To calculate average employee tenure, use the following formula:
| Average Employee Tenure (in years) = Total years of service for all employees / Total number of employees |
For example, if a company has 50 employees with a combined total of 250 years of service:
Average Employee Tenure = 250 / 50 = 5 years
This means employees stay at the company for an average of 5 years.
9. Cost of Employee Turnover
The cost of employee turnover measures the financial impact of losing and replacing employees. This metric includes direct costs, such as hiring and training, and indirect costs, like lost productivity or lower morale.
High turnover can significantly affect a company’s bottom line, making it essential to track and address, and according to Gallup’s research, it costs 50% to 200% of an employee’s annual salary to replace them.
How to Measure the Cost of Employee Turnover
To estimate the cost of employee turnover, calculate the total expenses related to replacing employees:
| Cost of Employee Turnover = (Hiring Costs + Training Costs + Lost Productivity + Other Related Costs) |
For example, if hiring a replacement costs $5,000, training costs $2,000, and lost productivity costs $3,000:
Cost of Employee Turnover = $5,000 + $2,000 + $3,000 = $10,000
This means the company spends $10,000 to replace one employee.
Why Tracking Employee Retention KPIs is Important
Simply put, tracking employee retention metrics helps business owners make smarter decisions about their workforce. They are tangible numbers that show what is working and what needs to change.
They help businesses improve employee programs, reduce costs, and create a more stable work environment. Knowing these metrics also supports better planning and leads to stronger business performance as well as:
- Identify weak spots: Metrics show areas where employees are unhappy, like poor management or lack of career growth.
- Save money: High retention lowers the costs of hiring, training, and lost productivity. The average cost per employee hire is currently $4,683, or $28,329 for executive roles.
- Improve planning: Tracking trends helps businesses predict workforce changes and plan for hiring or promotions.
- Boost productivity: A stable workforce with satisfied employees often performs better.
- Enhance programs: Data shows which programs are effective, allowing businesses to focus on what works.
- Build a stronger reputation: Retaining employees improves a company’s image, making it more attractive to top talent.
