How to calculate and improve your employee retention rate

It pays to prioritize employee retention. Replacing an employee can cost anywhere from half to two times that employee’s salary – and that’s just a conservative estimate.[1]

Don’t wait until you notice a spike in resignations to act. 

One-off incentives like retention bonuses can help you slow a downward spiral, but they aren’t enough to fix a falling retention rate by themselves.

You need a solid strategy for keeping employees motivated and fulfilled throughout their tenure with you.But which employee retention strategies have the greatest effect on your overall staff retention rate? 

In this article, we show you how to calculate your employee retention rate and how to increase your employee retention rate with 37 proven tactics.

What is employee retention rate?

Employee retention rate measures the percentage of employees who remain in their roles over a given period. 

A high retention rate is good because it shows that employees are happy in their roles and suggests that they are unlikely to leave. A low retention rate, on the other hand, suggests issues with the employee experience in your organization.

When you calculate employee retention rate, you gain insight into many aspects of your business, including:

• Quality of hires

• Upcoming hiring needs

• Management

• Employee morale

• Job satisfaction

• Company culture

• Workplace environment

• Future performance

Employee retention rate vs. employee turnover rate

The other side of employee retention is, of course, employee loss. There are a few ways to track this.

The first one is your employee turnover rate. 

Your employee turnover rate tracks the percentage of employees who leave your company, whether that be voluntary turnover or involuntary turnover. Specifically, it refers to employees whose roles you intend to fill after they leave. 

Employee retention rate vs. employee attrition rate

Employee attrition rate, on the other hand, tracks the percentage of employees who leave whose roles you do not intend to fill immediately. This covers many scenarios in which you’re willingly trying to reduce your total number of employees, such as redundancy or obsolescence.

Why should you calculate your employee retention rate?

Calculating your employee retention rate is important because it helps you gauge the current success of your HR initiatives. 

Analyzing your employee retention rate can also help you make decisions about which employee retention trends to try in your workforce and track their success.

This is essential because turnover costs can be hefty, losing you time and money through: 

• Employee productivity loss 

• Recruitment marketing 

• Hiring technology costs

• Screening and interviewing candidates

• Salaries and sign-on bonuses for new employees

One study suggests retaining a salesperson for three years instead of two makes a difference of $1.3M in net value to the organization over three years.[2]

How to calculate employee retention rate

The employee retention rate formula is as follows:

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

There are employee retention rate calculators online, or you can calculate it manually using the following steps:

1. Decide the period to examine

You can use any set period of time to calculate employee retention rate. However, it’s usually best to look at longer time frames to understand how long employees stay with your company.

You should incorporate employee retention rate into your regular HR reporting for multiple given time periods, such as calculating your staff retention rate monthly, quarterly, and annually.

2. Gather starting data

Identify the number of employees working on the first day of your chosen period. 

If you’re calculating the employee retention rate for one calendar year, do a headcount of the number of employees on the payroll on January 1. Do not count anyone who joins the company after that date, even if they’re filling the role of your lost employees. 

3. Count remaining employees

Count the number of the original employees who are still on the payroll at the end of the chosen period. 

For instance, let’s say you have 78 employees on January 1 and 71 remain on December 31.

4. Calculate retention rate

To calculate the employee retention rate, divide the number of remaining employees (71) by the number of starting employees (78.) Then, multiply the result by 100 to get the employee retention rate as a percentage. 

In this example, your calculations would be: 

71 ÷ 78 = 0.91

0.91 x 100 = 91

That makes the employee retention rate 91%.

How to calculate employee retention rate: Examples

Below are two more examples of how to calculate employee retention rates.

Example 1

You started the last tax year with 134 employees on your payroll. By the end of the tax year, 27 were gone, leaving you with 107 of your original employees remaining. In that time, you hired 30 new recruits.

In this example, the employee retention rate formula is (107 ÷ 134) x 100. This makes the retention rate 79.8%. 

The 30 new employees aren’t relevant to the employee retention rate calculation.

Example 2

Your company has two locations, and you want to compare their retention rates over two years.

Location A began this period with 39 employees. In the end, 33 original employees remained. 

Location B started with 25 employees; 19 remained after two years.

The employee retention rate calculation for Location A is (31 ÷ 39) x 100, yielding a retention rate of 79.4%. 

Location B’s calculation is (19 ÷ 25) x 100, giving you a retention rate of 76%.

Location A retained a higher proportion of its employees than its counterpart. You can now perform an analysis of why its employees are more likely to stay, looking at its: 

• Operations

• Working environment

• Management practices

What is a good employee retention rate?

Employees leaving is a fact of life. You can’t and shouldn’t aim for a 100% retention rate forever. So, how do you know when fluctuations in retention indicate a problem?

Monitoring your employee retention rate over time is one way to understand what a healthy retention rate looks like for you. Unexplained or sustained reductions in retention could indicate issues. To do this, calculate the rate of the average number of employees lost year over year, then compare it to that of your current year.

It’s also important to contextualize alongside your location and industry average retention rates. Employers in the US can consult the US Bureau of Labor Statistics. You can also find specific reports from companies such as Workhuman.

For example, one survey found that the average employee retention rate among US businesses from 2022 to 2023 was 82.7%.[3]

The same survey examined the average employee retention rate by industry. The retail and wholesale industry had the lowest average employee retention rate at 67.1%; the chemicals and energy sectors had the highest employee retention rates at more than 87%.

You should also contextualize staff member retention statistics by position. Some functions have good retention rates, such as: 

• Executives (94.9%)

• Information Technology (93.5%)

• Sales, Marketing, and Product Management (90%)

By contrast, the HR function has a lower average employee retention rate at circa 85%.[4]

How to analyze your employee retention rate

Once you have calculated your overall employee retention rate, you now need to analyze it to make decisions. 

To do that, you must consider four questions.

Who are you retaining?

Where are retention rates at their highest? Look at various factors, such as: 

• Location 

• Department 

• Function 

• Compensation band

You might even analyze your workforce by their mode of working. One study by Remote found that flexible and remote roles had higher retention rates compared to in-person jobs.[5]

Why are they staying?

Now you know who’s staying, try to find out what’s keeping them in their role, for instance, a great manager or a cohesive team. 

Take the flexible work example. Almost 40% of people who work flexibly feel a benefit for their mental health – this employee satisfaction could be why your flexible workers stick around.

Where is your retention rate highest and lowest?

Combine the insights from the first two steps to create a game plan for tackling high turnover.

One advanced industrial company found that the plants with the highest retention rates among frontline workers were the ones with high leadership scores. Sure enough, focus groups in low-retention plants revealed strained relations between managers and peers.[6]

What is the trend in your employee retention rate?

Finally, examine how these trends have changed over time. For example, a spike in turnover may coincide with a change in management and then a return to normal, suggesting a one-off incident.

You can even use HR tools like Leapsome to project past trends forward into the future, such as predicting overall turnover (and therefore retention) rates:

How to improve your retention rate: 37 tactics to implement

Now that you know how to measure employee retention rate and what a good staff retention rate looks like, you can start looking at tactics to improve yours.

Here are 37 ideas for how to increase employee retention rate at your company.

37 tactics to improve your employee retention rate: Summary table

Want the headlines so you can skip straight to the right tactic for you? Here’s a summary of our tips.

1. Train leaders to clearly communicate your mission and values

When employees identify with their company’s vision and values, they are: 

• More likely to recommend their employer (by 45%)

• More likely to gain a sense of accomplishment from work (by 43%) 

• Less likely to consider leaving (by 11%)[7]

Encourage executives to use leadership communication and role model key values in their interactions with employees.

For instance, if your company values a learning mindset, leaders should discuss what actions they take to learn new skills in meetings with employees.

2. Be mindful of your corporate reputation 

The next way to increase employee retention rate is by making this integrity part of your corporate reputation.

Your corporate reputation is the perception of your company among stakeholders, including:

• Employees

• Customers

• Shareholders 

• Suppliers

Broadcast your value-driven decision-making so that employees feel proud to work for you and want their name attached to your brand.

3. Hire the right people using skills-based hiring

Prove your commitment to values like fairness and data-driven decision-making by using skills-based hiring tools like skills tests. This shows employees you are working to eliminate bias in your workplace, fostering a sense of loyalty.

Skills tests also enable you to directly observe candidates’ skills and hire the right people in the first place. This means they’re less likely to burn out or quit.

4. Build a culture of one-on-one meetings 

It’s important to build trusting relationships between managers and the team members they’re responsible for, and the best way to do this is by building a culture of one-on-one meetings. 

This tactic fosters connections between colleagues, which 75% of office workers say makes them more likely to stay in a role.

5. Add a chief experience officer to your leadership team

Hiring a chief experience officer shows employees you prioritize their wellbeing. It’s similar to the classic head of HR roles at many organizations but with a specific focus on employee experience.

The chief experience officer would allocate budgets for employee benefits, design strategies for improving employee retention, and advocate for other positive changes.

6. Publicize your efforts to eliminate hiring bias and promote diversity in the workplace 

Diversity in the workplace is strongly linked with higher employee retention rates. 

Research shows that increased levels of gender diversity and the presence of HR policies around diversity are linked to higher retention.[8]

Adopting skills-based hiring is the first step. Next, ensure your employees know about the policy and that it’s part of larger initiatives to boost diversity.

7. Offer all HR reps diversity training

To follow through on these diversity initiatives, you should also give all HR reps and hiring managers diversity training. 

This limits bias in internal processes like promotion. Did you know that studies show women are less likely to be promoted than their male colleagues despite outperforming them and being less likely to quit?

8. Don’t neglect generational diversity 

Team members of different ages bring diverse skills and perspectives to the table, which can improve innovation by as much as 20%.[9]

However, generational diversity can also cause friction if teams don’t share common ground.

Use Culture Add tests to ensure that all employees share the same values, and keep generational diversity at the front of your mind when designing inclusive initiatives. 

9. Build an inclusive workplace culture 

Companies with inclusive cultures are likely to have high retention rates. Team members who report feeling “very included” are nearly three times more likely to pursue career development with their employer than those who don’t.[10]

You can build an inclusive culture in many ways, for instance, by setting up affinity groups for marginalized employees.

10. Create a comprehensive plan for collecting employee feedback

Many organizations rely on a reactive approach to employee feedback, only asking for it when something’s gone wrong.

Creating a proactive plan for tackling employee feedback instead provides opportunities for:

1. Short-term, solicited feedback about a specific subject 

2. Medium-term feedback, perhaps reflecting on the last quarter or the probation period of a new manager

3. Long-term feedback: yearly reflections on the organization and bigger-picture ideas for its improvement 

4. Spontaneous feedback on any topic initiated by the employee 

11. Use employee listening tools

Employee listening is the practice of collecting regular feedback to better understand your employees, for example, using “always-on” feedback tools where employees can log comments spontaneously.

Employee listening tools are helpful because they prevent employees’ gripes from festering into resentment and ensure good ideas are noted by management.

12. Set up mechanisms for upward feedback 

Upward feedback refers to the opportunity for employees to express their opinions to management.

It shows employees that their opinions are valued and can stop leaders from losing touch with the average employee’s experience at their organization. 

To implement upward feedback, try reverse mentoring: pairing senior executives with junior employees to hear their perspectives.

13. Conduct regular stay interviews with employees 

We’ve all heard of exit interviews – and we discuss them below – but employers shouldn’t wait for employees to leave to find out about their employee experience.

Stay interviews are directly targeted at understanding why employees choose to stay with you and can give you insight into your employee retention rate. Combine them with salary or performance reviews to cover multiple bases at once.

14. Create an airtight employee compensation policy 

Studies show that the biggest motivator for employees to stay with their employer is their salary and potential bonuses.

Employers must, therefore, prioritize creating a strong employee compensation policy.

This doesn’t just mean “offer more money.” Although competitive compensation is important, it’s crucial to have a clear policy around raises, bonuses, and commissions, all while balancing this with a well-rounded benefits package. 

It’s also possible for an employee to quit while oblivious that their next raise is right around the corner. An employee is more likely to stick around when they know if and when their next raise is coming.

15. Set up employee recognition programs 

Retention isn’t all about money. Interpersonal connection is also important, and fostering a culture of appreciation can also increase your employee retention rate.

Start by setting up an employee recognition program that offers multiple avenues for praise, such as a peer-to-peer shoutout channel in Slack and a company-wide employee of the month scheme.

16. Use incentive programs to manage employee engagement 

Low employee engagement can be a sign an employee is unfulfilled and considering employment elsewhere. 

Poorly engaged teams have 18% to 43% lower retention rates than engaged ones.

Employee incentive programs re-engage employees by promising perks in exchange for high performance. A balanced approach is best, for example, complementing recognition programs with spot and yearly bonuses.

17. Create a comprehensive employee benefits plan

Employee recognition and incentives are both related to individual or team performance. Employee benefits are perks that all employees receive and that provide a baseline level of comfort or value for workers.

Popular employee benefits include: 

1. Comprehensive healthcare 

2. Extended parental leave 

3. Flexible working

18. Include specific provisions for employee mental health 

Many employers provide physical healthcare, however, you should also include specific provisions to improve mental health in the workplace.

Don’t limit these to crisis resources like mental health first aiders or free counseling sessions. Include initiatives like mental health days and “summer hours” for employees to spend time outdoors in good weather.

19. Align employee wellbeing initiatives with your corporate purpose

Employee wellbeing initiatives are a powerful tool to demonstrate your priorities as an employer while also tailoring your benefits package to the needs and desires of your workforce. 

An example is a company with sustainability commitments offering employee wellbeing initiatives that benefit the environment, like a cycle-to-work scheme.

20. Test different types of flexible work 

Flexible working gives employees more control over their schedule, helping them make healthier lifestyle choices and manage challenging circumstances like long-term illness or caring responsibilities. 

There are many ways to implement this: 

• A compressed work week – for example, four days 

• Employees choosing their own schedule 

• “Flextime” within certain parameters, such as a set number of required daily hours 

21. Outline a strong remote work policy

Most flexible teams incorporate some measure of remote working. To keep a smooth-running team when employees work asynchronously, set out a remote work policy outlining:

1. What hours they should work 

2. Where they can work – for instance, time limits on how long they can work from abroad 

3. How they should communicate with their teams and managers 

22. Ask leaders to role model work-life balance 

To prove to your workforce that you care about employee work-life balance – and aren’t just saying it to sound good – ask your leaders to role-model ideal behavior of building separations between work and their personal lives.

Yvon Chouinard, the founder of Patagonia, did this. 

He encouraged employees to use their flexible schedules to surf when the weather was good. He then role-modeled his commitment to work-life balance by taking months off each year to go fishing, instructing staff not to contact him in his time off.[11]

23. Use HR analytics to track the uptake of HR programs

One study suggests there is an 83% gap between the health and wellbeing benefits employees have and the ones they want.

To avoid wasting time and money on initiatives that don’t benefit your employee retention rate, use HR analytics to track which benefits your employees use. Use this data to inform – and, if necessary, reform – your benefits package.

24. Create a plan to boost internal mobility 

If an employee is promoted within three years of hiring, they are 70% likely to stay with their employer. By contrast, those who don’t get promoted have only a 45% chance of staying long-term.[12]

Internal mobility should, therefore, be a top priority when improving your employee retention rate.

Start by assembling an internal mobility task force of professionals from each department to spot talented candidates for internal promotion when roles open up.

25. Provide employees with professional development plans 

Another way to boost internal mobility and employee experience is by creating professional development plans for employees.

Draw insights from their initial skills tests and conversations about their goals for their career paths to craft a progression plan.

These plans show employees that you’re invested in their careers and turn promotion from an “if” to a “when.”

26. Compile employee skill data in an internal talent marketplace 

To maximize the usefulness of skills tests, plug employees’ skills data into an internal talent marketplace. This is a software or database that shows you the skills available in your organization.

At its most basic, it can show you candidates for collaboration and promotion; at its most sophisticated, it is a portal for employees to shop for internal opportunities.

This facilitates internal mobility, which is proven to increase retention and enables you to match employees with teams and projects that suit their skills, boosting engagement.

27. Broadcast your investment in employees’ career growth 

These investments in employees’ career growth can only improve your employee retention rate if employees know about them.

Regularly remind employees, both individually and collectively, of the opportunities and support available to ensure they are engaged with your programs. Do this through: 

• Employee newsletters

• Slack channels 

• One on one meetings 

28. Consider job rotation programs for entry-level employees 

Prime employees for internal mobility right from the start with job rotation programs. 

These are programs that allow usually entry-level employees to try out different roles across different areas of the business, growing their skills in each one and gaining a broader understanding of what you do.

29. Start addressing skills gaps during onboarding 

Conserving the skills you already have in-house is important, but you should also build on employees’ skills to facilitate their growth and progression through your business.

This should start in the onboarding process. Using your understanding of their skills and personality from their skills test results, tailor your training to ensure a smooth transition.

30. Give employees a budget for training 

One effective way to empower employees to grow their skills is to give them each their own budget to spend on employee training programs.

At TestGorilla, we give employees a budget equal to 3% of their annual salary to spend on learning and development programs of their choice; they just need sign-off from their supervisor.

31. Use employee coaching to nurture future leaders 

One of the most valuable forms of training is employee coaching. This is similar to mentorship but places less emphasis on learning lessons from the mentor’s own career.

It also provides many of the benefits of reverse mentoring by fostering closer connections between team members and team leaders.

32. Be proactive about upskilling employees 

Over half of hiring managers anticipate technology like workplace automation to change the skills they need from employees.

Don’t wait for a skills gap to upgrade your employees’ skills. Instead, proactively invest in upskilling initiatives – for example, by sending employees to “future of the industry” events or giving them additional learning budgets for digital skills.

33. Turn to reskilling before restructuring 

Restructuring and downsizing impact employee retention rates because of their many negative consequences for remaining employees, including increased supervisor aggression and decreased promotion opportunities.

Avoid it where possible by using reskilling programs to redeploy existing employees into higher-impact teams. This saves jobs, conserves morale, and stops your staff retention rate from spiraling.

34. Begin offboarding at the point of hiring 

Few employees stay with you until the end of their careers. Promote a healthier and more honest working relationship by addressing this fact early, as soon as employees are hired.

This shows employees they can be honest about their career goals and needs, opening a channel of communication that could prevent them from quitting prematurely.

35. Use combined metrics to identify employee flight risks 

With the multitude of communication channels we discuss in this article, you have ample opportunity to identify potential employee flight risks before they leave. For example, you might notice: 

• A lack of engagement in skills development

• Low scores or negative comments in employee feedback

• Notes from managers in one-on-one sessions 

36. Institute phased retirement plans for older workers 

Another way to manage employees’ transition out of your workforce without damaging morale is to implement a phased retirement plan for older workers.

This helps to preserve employees’ mental health as they manage a more gradual transition into retirement. It also gives the company time to prepare their team for their exit and find a suitable replacement.

37. Conduct exit surveys with all workers 

Ultimately, the experts on why people are leaving your company and driving down your employee retention rate are the exiting employees themselves.

You should conduct exit surveys with all departing employees, even ones whom you don’t expect to return as “boomerang employees” later in their careers. Although not as valuable as stay interviews, exit surveys give valuable insights into the motivations of departing employees.

Improve your employee retention rate by understanding employees’ needs and skills 

In this article, we covered all aspects of managing your employee retention rate, including: 

• How to calculate employee retention rate

• What is a good employee retention rate, and how to recognize it in your industry

• Tips for how to increase employee retention rate in your workforce 

The key to conserving key skills in your organization is understanding what those skills are so that you can recognize and reward key employees and help them grow in their careers. 

Talent assessments can help you do this. To find out how a skills-based approach can help you break the cycle of a low retention rate, read our employer’s guide to fixing a “churn and burn” workplace.

To learn more about creating a welcoming environment for all employees, read our blog about why you should prioritize inclusiveness in the workplace.

Or, if you’re ready to start testing employees’ skills, browse our test library for inspiration.

Sources

1. McFeely, Shane; Wigert, Ben. (March 13, 2019). “This Fixable Problem Costs U.S. Businesses $1 Trillion”. Gallup. Retrieved November 20, 2023. https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx

2. Josebachvili, Maia. (August 29, 2016). “How to understand the ROI of investing in People”. LinkedIn. Retrieved November 20, 2023. https://www.linkedin.com/pulse/how-understand-roi-investing-people-maia-josebachvili/

3. “Results of the 2023 US and Canada Turnover Surveys”. (September 21, 2023). Mercer. Retrieved November 20, 2023. https://www.imercer.com/articleinsights/workforce-turnover-trends

4. Lewis, Greg; Soroñgon, Joseph. (June 30, 2022). “The Jobs with the Highest Turnover Rates, According to LinkedIn Data”. LinkedIn Talent Blog. Retrieved November 20, 2023. https://www.linkedin.com/business/talent/blog/talent-analytics/types-of-jobs-with-most-turnover

5. Day, Amanda. (2022). “How to reduce employee turnover with a strong talent retention strategy”. Remote. Retrieved November 20, 2023. https://remote.com/blog/employee-turnover

6. Fenton, Matt; Gandhi, Neel; Lauricella, Taylor. (January 31, 2022). “When the grass is truly greener: How companies are retaining frontline talent”. McKinsey & Company. Retrieved November 20, 2023. https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-organization-blog/when-the-grass-is-truly-greener-how-companies-are-retaining-frontline-talent

7. “Employees who feel aligned with company values are more likely to stay”. (April 25, 2022). Qualtrics. Retrieved November 20, 2023. https://www.qualtrics.com/blog/company-values-employee-retention/

8. “Why Diversity and Inclusion Matter (Quick Take)”. (June 24, 2020). Catalyst Research. Retrieved November 20, 2023. https://www.catalyst.org/research/why-diversity-and-inclusion-matter/

9. Bourke, Juliet. (January 22, 2018). “The diversity and inclusion revolution: Eight powerful truths”. Deloitte. Retrieved November 20, 2023. https://www2.deloitte.com/us/en/insights/deloitte-review/issue-22/diversity-and-inclusion-at-work-eight-powerful-truths.html

10. “Understanding organizational barriers to a more inclusive workplace”. (June 2020). McKinsey & Company. Retrieved November 20, 2023. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Organization/Our%20Insights/Understanding%20organizational%20barriers%20to%20a%20more%20inclusive%20workplace/Understanding-organizational-barriers-to-a-more-inclusive-workplace.pdf

11. Clifford, Catherine. (December 23, 2016). “The founder of Patagonia fishes half the year and tells his employees to go surfing”. CNBC. Retrieved November 20, 2023. https://www.cnbc.com/2016/12/23/founder-of-patagonia-fishes-half-the-year-tells-his-employees-to-surf.html

12. Maurer, Roy. (March 15, 2020). “Study: Internal Mobility Boosts Retention”. Society for Human Resource Management. Retrieved November 20, 2023. https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/internal-mobility-boosts-retention.aspx