Calculating employee retention rates is about more than numbers. These rates are vital for understanding employee satisfaction, identifying trends, and addressing workplace challenges.
Here’s how to calculate employee retention rates and reduce turnover.
Understanding retention rates in the workplace
The employee retention rate is what percentage of employees stay with a company over a set time period. It shows how well the company has retained its workforce and is often used to assess job satisfaction, workplace culture, and the effectiveness of compensation and benefits.
It's also important to understand the difference between retention rate and
turnover rate. Retention rates measure stability by showing how many employees stay (excluding new hires), showing how well a retention strategy is working. The employee turnover rate shows how many leave (including new hires). While these metrics are inherently related, focusing on both helps employers build better strategies to keep talent.
Assessing employee retention percentages across different time periods provides a granular view of how well a company retains talent across seasons and departments. This helps employers and HR teams pinpoint exactly where problems show up, which is the first step toward fixing them. Additionally, it helps identify what is working well — which provides insights employers can apply across the company.
Importance of calculating retention rate
Retained employees bring valuable expertise, maintain client relationships, and help train newcomers. Calculating employee retention rates helps employers:
Monitor workforce stability. High retention rates usually mean employees feel valued and engaged. When people stay longer, they develop deeper expertise and stronger working relationships.
Reduce costs. Calculating retention allows employers to invest in strategies proven to keep employees longer, leading to less turnover and lower hiring costs.
Build a better culture. Identifying areas of improvement is important. However, focusing on what works enhances motivation, improving employee performance and retention.
Plan smarter. Understanding employee retention patterns helps predict hiring needs and lets managers budget for talent development. This data drives better decision-making about everything from training programs to
compensation and benefits.
How to measure retention: 3 steps
Let's break down the employee retention rate formula into a few simple steps:
Take the number of employees retained during a chosen time period.
Divide by the starting headcount at the beginning of that period.
Multiply by 100 to get a percentage.
Don’t include new hires during the chosen time period in the employee retention rate formula. It measures how well employers keep an existing team, not how well they grow it.
Let's walk through a concrete example. An employer started January with 50 employees. By the end of the year, 45 of those original employees are still there. To calculate its annual employee retention rate:
Take the number of employees retained during the chosen time period: 45
Divide by the starting headcount: 45 / 50 = 0.9
Multiply by 100 to get a percentage: 0.9 × 100 = 90% employee retention rate
A 90% employee retention rate means the employer kept most of its team intact. Depending on the respective industry (which we'll look at later), this may be above or below average.
After you know the retention rate, here’s how to calculate turnover rate: Just subtract the retention percentage from 100. For the example above, the turnover rate would be 100 – 90 = 10%.
Try calculating retention for different time periods. Monthly or quarterly numbers help spot quick changes, while annual figures show broader trends in talent development and employee satisfaction.
5 best practices to improve employee retention rate
Here are five
practical tips to invest in employees' growth and encourage them to stay with the company:
1. Offer financial wellness programs
To improve retention, businesses can offer financial wellness benefits to provide employees with more control and flexibility. Tools like EarnIn provide
access to their earned wages – up to $150/day, with a max of $750 per pay period
– helping them cover everyday necessities or unexpected expenses. Best of all, there’s no cost to employers and no integration with payroll, time and attendance, or HRIS systems required.
2. Offer professional development opportunities
Employees want to work somewhere they can grow. Offer professional development opportunities and comprehensive training to encourage employees to build a future.
3. Create a positive culture
Checking in regularly, showing appreciation, and celebrating wins together make a big difference to employees’ workplace well-being. Teams that feel valued stick together, and that diminishes churn.
4. Be flexible
Flexible schedules and remote work options show employees their employes trust them to manage their time. This trust translates into greater loyalty.
5. Offer competitive pay
A company should stay on top of market rates for its industry. Employees who feel fairly compensated are more likely to stay.
What is a good retention rate?
A common target annual employee retention rate is 90% or higher. However, healthy retention rates vary by industry. For example, government agencies and manufacturing firms often see higher percentages of retained employees. Hotels and restaurants tend to have lower retention rates due to seasonal staffing and industry norms.
It might sound counterintuitive, but a 100% employee retention rate isn't always ideal. While an
employee retention strategy should focus on keeping valuable team members, some natural turnover makes room for fresh ideas and career growth.
To find a specific company’s target, start by calculating its current employee retention rate. Then look at:
This provides a realistic goal that balances stability with healthy change.
Strengthen employee retention with EarnIn
Comprehensive benefits encourage employees to stay. Consider prioritizing employee financial well-being to support your workforce and reduce turnover caused by financial stress.
EarnIn’s on-demand pay solution provides employees with the financial flexibility to help cover everyday essentials like gas and groceries or unexpected expenses. Employees can access their earned wages the same day they work, starting at just $2.99 per transfer
, with the ability to withdraw up to $150 per day, with a max of $750 per pay period.
Beyond on-demand pay, EarnIn offers a suite of financial wellness tools to support employees' long-term financial health.
Credit Monitoring helps them track their credit score, while
Tip Yourselfsimplifies saving by allowing them to easily set aside money from each paycheck.
With no cost to employers and no integration required, EarnIn is a valuable addition to any total rewards package, helping companies foster financial stability and employee satisfaction.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
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