Employee Turnover and Retention

Topics: Employment, Termination of employment, Costs Pages: 5 (1441 words) Published: March 2, 2013

4.1 Statement of research problem:


4.2 Statement of research objectives:

What are employee turnover and retention?
Measuring turnover and retention
Why do people leave organisations?
Improving employee retention

4.3 Research design and methodology:

What are employee turnover and retention?

Employee turnover

Employee turnover refers to the proportion of employees who leave an organisation over a set period (often on a year-on-year basis), expressed as a percentage of total workforce numbers. At its broadest, the term is used to encompass all leavers, both voluntary and involuntary, including those who resign, retire or are made redundant, in which case it may be described as ‘overall’ or ‘crude’ employee turnover. It is also possible to calculate more specific breakdowns of turnover data, such as redundancy-related turnover or resignation levels, with the latter particularly useful for employers in assessing the effectiveness of people management in their organisations.


Retention relates to the extent to which an employer retains its employees and may be measured as the proportion of employees with a specified length of service (typically one year or more) expressed as a percentage of overall workforce numbers.

Measuring turnover and retention

Measuring employee turnover

Organisations may track their ‘crude’ or ‘overall’ turnover rates on a month by month or year by year basis, expressed as a percentage of employees overall. The formula is simply: Total number of leavers over period x 100

Average total number employed over period
The total figure encompasses all leavers including those who leave involuntarily due to dismissal or redundancy (and as a result of retirement). It also makes no distinction between functional (that is, beneficial) turnover and that which is dysfunctional. Crude turnover figures are often used in published surveys of labour turnover as they tend to be more readily available and can be useful as a basis for benchmarking against other organisations. However, it is also useful to calculate a separate figure for voluntary turnover – specifically, resignations - as such departures are unplanned and often unpredictable (unlike, say, planned retirements or redundancies) and hence can have a particularly adverse impact on the business. It may also be helpful to consider some of the more complex employee turnover indices which take account of characteristics such as seniority and experience.

Measuring employee retention

A stability index indicates the retention rate of experienced employees. Like turnover rates, this can be used across an organisation as a whole or for a particular part of it. The usual calculation for the stability index is:

Number of staff with service of one year or more x 100
Total number of staff in post one year ago

Costing employee turnover

The costs associated with employee turnover (related to resignations rather than, say, redundancy) may be estimated by calculating the average cost of replacing each leaver with a new starter in each major employment category. This figure can then be multiplied by the relevant turnover rate for that staff group to calculate the total annual cost of turnover. The major categories of costs are:

administration of the resignation
recruitment and selection costs, including administration •covering the post during the period in which there is a vacancy •induction training for the new employee.
Many of these costs consist of indirect management or administrative staff time (opportunity costs), but direct costs can also be substantial where advertisements, agencies or assessment centres are used in the recruitment process. More complex approaches to turnover costing give a more accurate and invariably higher estimate of...
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