A company’s most valuable asset is its people. As such, HR leaders must know how to measure and improve workforce stability. One key metric that provides insight into this stability is employee retention rate. Read on to learn more about what an employee retention rate is, why it matters, and how to calculate it.
What is Employee Retention Rate?
Employee retention rate measures the percentage of employees who remain with an organization over a specific period. A high retention rate often signals a healthy and positive work environment, while a low rate can be a sign of underlying issues that need to be addressed.
Why is Employee Retention Rate Important?
High turnover disrupts project, hurts morale, and costs companies a lot. According to Gallup data, replacing an employee could cost up to 200% of their salary. And the loss of institutional knowledge and reduced morale among remaining staff can create ripple effects throughout an organization.
Companies that measure their employee retention rate can better understand workforce trends and identify turnover causes in order to develop retention strategies to improve employee satisfaction.
>>See more employee retention statistics.
How to Calculate Employee Retention Rate
To calculate employee retention rate, you must first determine the time period you’re reviewing. For example, consider whether you wish to calculate retention rate for the month, quarter, year, etc.
Then, you’ll need two data points: the number of employees at the start of the determined time period and the number of employees at the end of the period.
Employee Retention Rate Caclulation
Employee retention rate calculation is straightforward. For example, you divide the total number of employees at the end of a period by the total number of employees at the start of that same period, then multiply by 100. Here are a few retention rate calculation examples:
Example 1
Let’s say a company had 500 employees on January 1 and 450 employees on December 31 of the same year. The retention rate for that time period would be: (450 / 500) × 100 = 90%.
Example 2
A small business started the quarter with 25 employees and ended with 22 employees. Their quarterly retention rate would be: (22 ÷ 25) × 100 = 88%.
Example 3
A tech startup began the month with 120 employees and ended with 117. Their monthly retention rate would be: (117 ÷ 120) × 100 = 97.5%.
What is a Good Employee Retention Rate?
A good employee retention rate typically ranges from 80% to 90%, though this benchmark varies based on location, industry, and economic conditions. For example, the retail and hospitality industries experience lower retention rates due to the prevalence of seasonal and entry-level positions.
Rather than fixating on industry averages, organizations should focus on their retention trends over time. What matters most is retaining high-performing employees and understanding the nature of your turnover. The most effective approach is to establish your own baseline, identify improvement targets that make sense for your business context, and regularly monitor not just the numbers but the qualitative reasons behind employee departures.
How to Improve Employee Retention Rate
By implementing thoughtful, strategic approaches to retention, companies can create environments where employees feel valued, engaged, and motivated to build their careers for the long term. Consider doing the following to improve employee retention:
Provide Professional Development Opportunities
Employees who see a future with your organization are more likely to stay. Create clear career advancement paths and make them visible to all employees. Invest in ongoing training programs that help staff build new skills relevant to their roles and future aspirations.
Measure Additional Employee Retention Metrics
Evaluate additional retention metrics beyond the standard retention rate to uncover causes of turnover and remedy them. For example, a low retention rate among new hires signals you need to overhaul your onboarding process to better support greener employees. Evaluate retention rate by gender and ethnicity to pinpoint any potential disparities in the employee experience for different groups.
Foster Work-Life Balance
Employees increasingly value employers who respect boundaries and promote sustainable work patterns. Encourage managers to model healthy work-life balance by taking vacation time and avoiding after-hours communications. Creating a culture that values results over face time helps prevent burnout and shows employees that their personal lives matter.
Employee Retention Rate FAQs
Still have questions about retention rate? Here are the answers to frequent queries.
What is a High Employee Retention Rate?
A high employee retention rate is typically 90% or above, indicating strong employee satisfaction and engagement.
What is a Low Employee Retention Rate?
A rate below 70% is generally considered a low employee retention rate and may signal issues with workplace culture, leadership, or compensation.
What is the Average Employee Retention Rate?
The average employee retention rate across industries is around 85%, though this can vary by sector.
How Can HR Leaders Use Employee Retention Rates Effectively?
HR leaders can use retention rates to identify workforce trends, measure the success of engagement strategies, and address turnover risks proactively.
When Should You Calculate Employee Retention Rates?
Retention rates should be calculated quarterly or annually to track trends over time and assess the impact of HR initiatives.
Enhance Employee Retention Rates with Paycor
Paycor’s end-to-end human capital management platform offers tools to measure and analyze turnover data and employee retention rates, in addition to an AI-powered predictive resignation feature that identifies employees at risk of leaving.
To increase engagement and prevent turnover, Paycor Talent Management software includes:
- Career Management software: to help employees see a future in their organization
- Talent Development solution: to improve coaching, performance reviews, and employee recognition
- Learning Management System: to empower workforce members to develop new skills
- Pulse Surveys: for real-time insight into employee engagement
Take a guided software tour to learn more about how Paycor streamlines HR functions and improves employee engagement.