How to calculate your employee retention rate

An employee retention rate measures how many employees stay with a company over a period of time. It’s a valuable metric that gives insight into important business areas, such as productivity and stability.

Calculating your company’s employee retention rate can help you understand how satisfied your employees are with their jobs and inform decisions about where to invest your resources. But how, exactly, do you determine your retention rate?

To help you, we explain how to calculate employee retention rate step by step, suggest strategies for improving retention in your company, and more.

What is an employee retention rate?

Employee retention rate is the percentage of workers who have stayed at their jobs within a company for a certain period, such as a quarter, six months, or a calendar year.

 A high retention rate is desirable because it indicates employees are happy with their jobs and less likely to leave. Conversely, a low retention rate means several employees are departing their jobs.

When calculating a retention rate, you determine how many employees you had at the beginning of your chosen period and compare it to how many you had at the end. The difference between the two numbers will show you how many employees left during the period, either voluntarily or involuntarily.

In your calculations, you won’t account for any employees who join the company after the start of your chosen time period.

Calculating your employee retention rate gives you insight into various aspects of your business, including:

• The effectiveness of recruitment strategies

• Upcoming hiring needs

• Management

• Employee morale

• Job satisfaction

• Company culture

• Workplace environment

• Future performance

Employee retention rate vs. employee turnover rate

Employee retention and employee turnover both track employee movement, but they measure different things. The retention rate looks at workers who stay with a company over a certain time, while the turnover rate tracks employees who leave and are replaced by new hires.

The connection is easy to see when you put them together. A low retention rate means there's a high number of departing employees, so the turnover rate is high. Companies able to maintain high retention rates have much lower turnover.

Why calculate employee retention rate?

Understand areas for improvement

The biggest – and most obvious – reason to calculate your retention rate is so that you can determine how well your company holds on to its employees and identify trends in employee exits. Understanding this makes it easier for you to work toward either improving retention (if your rate is low) or optimizing your current strategies (if your rate is high). 

For instance, you might investigate the reason behind your low retention rate and discover that many employees feel burned out. You could then consider offering flexible working arrangements or paid mental health days to combat this and improve retention going forward. 

On the other hand, you might focus on other aspects of your business – creating new products or services – if retention isn’t a current problem. (Still, you should keep employees engaged, motivated, and feeling valued so they don’t become discouraged and leave in the future.)

Measure and boost employee satisfaction 

Calculating the retention rate at your business can also help you measure and enhance employee satisfaction. High retention rates usually signal satisfied employees. But low rates can reflect widespread issues, such as an unhealthy company culture. A sudden drop in retention can also be due to a recent change that employees are unhappy with, such as a new but ineffective manager. 

Tracking retention can alert you to these issues, enabling you to take active measures to boost satisfaction and improve the employee experience at your business. 

Improve resource allocation

Determining your employee retention can provide insights that help you better use resources. For example, if you determine you have a high retention rate, you can allocate resources to training or rewards programs for your existing employees instead of using them for recruitment. 

Conversely, you might re-allocate resources to recruitment or engagement initiatives if you determine your retention rate is low. This enables you to focus on fixing important issues before they impact your business’s success. 

Boost your bottom line

In the long run, knowing your employee retention rate can save your business a ton of money. It enables you to see where your company is falling short and take steps to improve retention if your current rate is high. 

With a boosted retention rate, you’ll spend far less money recruiting and hiring new employees to replace old ones since you won’t have to do it as often. Additionally, you’ll save money on training costs, as a more stable workforce requires less frequent training. 

How to calculate your employee retention rate

Calculating employee retention is easy once you know how. Follow these steps to calculate it manually:

1. Decide the period to examine

You can calculate retention for any period. However, because this measurement looks at the length of time people stay in employment, longer lengths of time – such as a year – are usually best.

2. Gather starting data

Identify the number of employees working on the first day of the period. For example, if you’re calculating retention for a calendar year, this would be the number of employees on January 1. Don’t count anyone who joins the company after that date, even if it’s the next day.

3. Count those still in employment

Count the number of original employees still working for your company at the end of the chosen period. 

For instance, if you had 78 employees on January 1, you would count how many of those 78 people remained employed at your business on December 31.

4. Calculate the retention rate

To calculate the retention rate, divide the number of remaining employees by the number of starting employees. Then, multiply the answer by 100 to get the retention rate as a percentage.

So, if you began with 78 employees at the start of the calendar year and 71 remained with your company by December 31, your calculations would be:

71 ÷ 78 = 0.91

0.91 x 100 = 91

The retention rate for this example is 91%. 

Employee retention rate formula and examples

The calculation for employee retention is:

Employee retention rate = (Number of remaining employees / Number of employees at the start of the period) x 100

Below are some examples that show how to calculate employee retention rate.

Example 1

Your organization started the last tax year with 134 employees. Twenty-seven left before the end of the tax year, leaving you with 107 remaining employees. During the same period, your business hired 30 new employees.

You would calculate (107 ÷ 134) x 100 to get a retention rate of 79.8%. The 30 new employees aren’t relevant.

Example 2

You want to compare the employee retention rates of your company’s two locations over the past two years. Location A began the two-year period with 39 employees and retained 33 of them. Location B started with 25 employees and kept 19 of them.

For Location A, you’d calculate (31 ÷ 39) x 100 to get a retention rate of 79.4%. Location B’s calculation would be (19 ÷ 25) x 100, which gives a retention rate of 76%.

Calculating the retention rates informs you that Location A retained a higher percentage of its employees than Location B. Armed with this insight, you can analyze Location A’s operations, management practices, and more to determine why its employees are more likely to stay.

Strategies to improve your employee retention rate

When your goal is to increase your employee retention rate, having a clearly defined plan is highly recommended. Here are some retention strategies you can implement:

Enhance your hiring processes

Improving your hiring process helps you prioritize retention from the get-go. While reviewing resumes and interviewing are important, these methods provide you with only a partial understanding of your candidates. You can enhance these methods by combining them with scientifically backed pre-employment assessments, like the ones TestGorilla offers.

Pre-employment assessments evaluate factors essential to retention, such as personality and cultural fit. Testing candidates this way helps you see how well they’ll fit in at your company. This deeper understanding raises your chances of successfully retaining new employees before you even hire them.

Improve your work culture

A company's culture is arguably more important now than ever before. According to Forbes, employees in organizations with strong cultures are up to 72% more engaged than those in companies with weaker cultures.

Taking steps to cultivate a positive work culture creates an environment that employees value, want to contribute to, and want to stay working within. If you notice employee retention falling, analyze your organizational culture and identify what your workforce values in an employer. Then, use this insight to make necessary improvements.

Provide effective training and development

Employees are more likely to be committed to employers offering clear pathways for advancement. A Pew Research Center study found that "no opportunities for advancement" was the second-most common reason US workers gave for leaving their jobs. 

Providing high-quality training and opportunities for professional growth improves employee loyalty and reduces turnover. Consider offering workshops, mentoring opportunities, group training, one-on-one training, and more. 

Also, remember that training starts with onboarding. Ensure workers are equipped with everything they need to perform their roles effectively from day one. You can take things a step further by personalizing onboarding tasks and materials to specific roles or even your new hires’ individual strengths. 

Listen to your employees

Workers who believe their employers listen to and value them are typically more satisfied with their work and committed to their company. By encouraging open communication, you build a more positive environment, which can lead to higher retention.

Popular ways to get employee feedback include:

• Anonymous surveys

• Focus groups

• Digital suggestion boxes

• Regular check-ins with team members

Offer competitive packages and benefits 

Compensation and benefits are vital to employee retention. No matter how satisfied someone is with all other aspects of their work, a better pay package for a similar role can be hard to turn down. 

Ensuring the pay you offer is fair and on par with your competitors helps you avoid this scenario. You can do this by researching what other companies offer for similar positions or by consulting industry reports.

In addition, non-monetary benefits such as flexible hours, gym memberships, and wellness programs contribute to better retention. These benefits – which tend to focus on improving physical and mental health – make employees feel like their companies care for them as individuals rather than just workers. When employees feel valued, they’re less likely to leave their company.

Boost your employee retention rate with TestGorilla

While calculating your retention rate helps, improving the early stages of your hiring process is the best way to improve employee retention. Ensure your new hires can succeed within your company by adopting a multi-measure approach to your selection process. This means assessing all skills and qualities candidates need to excel at your organization. 

Skills-based hiring is a proven way to help you hang on to your talent, ensuring you can retain employees before you even hire them. (Plus, it can enhance internal mobility by making it easier to identify top talent for promotions, thus reducing the chances of employees leaving to take a more senior position elsewhere.)

TestGorilla simplifies skills-based hiring. Our platform offers more than 300 expert-created pre-employment tests – including role-specific skills, cognitive ability, and cultural fit tests – designed to ensure thorough, unbiased assessments. By testing candidates – in addition to reviewing their resumes and interviewing them – you can accurately identify those fit for long-term success.

To learn more about how TestGorilla can enhance your hiring, request a free live demo, watch our product tour, or sign up for a free plan and start exploring yourself.