The Personio People Manual
Over a decade of expertise on HR analytics and critical KPIs.Download It Today
Calculating Employee Retention Rates
Healthy employee retention rates are what keeps the wheels of a business greased. The longer an employee stays with a company, the deeper their knowledge, the higher their productivity, and the more successful the company.
When employees start leaving, though, it's time to take a look at the data, explore the patterns, and see what can be done to increase your retention rate and keep employees happier for longer.Over half a decade of insights on HR analytics. Download our free Personio People Manual today.
- 1What Is Employee Retention And Why Is It Important?
- 2The Cost Of Low Employee Retention
- 3What Is An Employee Retention Rate?
- 4How Do You Calculate Employee Retention Rates?
- 5How Can You Boost Your Company’s Retention Rate?
- 6Proactive Steps to Improving Employee Retention Rates
- 7Employee Retention Rate Improvement Strategies
- 8Boost Employee Experience, Boost Your Retention Rate
What Is Employee Retention And Why Is It Important?
Simply put, employee retention refers to how long an employee stays with a company.
When you have good employee retention — AKA employees stay with the company for a long period of time — it benefits the individual employee, their team, and the business as a whole.
Long-time employees hold a lot of knowledge that can’t be taught during training or onboarding, such as nuanced details of clients or processes that are only gleaned from years of experience with the company.
The more engaged employees there are at a company, the stronger the team, the more comfortable the environment, the better the culture, and the more successful the company is overall. According to Gallup, organisations with highly-engaged employees have 21% greater profitability.
The Cost Of Low Employee Retention
According to LinkedIn’s most recent Workforce Confidence Index, a third of the UK’s active workforce is looking for a new job. In addition, 26% are casually looking for a new job while 30% are open to an offer. What’s not working in their current workplace, and what effect will their leaving have on the company and team?
Mostly, it costs companies time and money. In fact, it costs the average UK employer £3,000 and takes 27.5 days to hire a new employee. That’s a lot of wasted money (and time) that could be going towards improving training, employee offerings, or workplace culture.
By improving your employee retention rate, you can sidestep those wasted funds and time, and keep top talent on your team for longer, while hopefully improving their overall performance at the same time.
Low employee retention has an emotional cost, too. Working in an environment with a dwindling workforce can decrease motivation and morale, creating a poor company culture, decreasing productivity, and leading to (you guessed it) more employees leaving.
It’s a vicious cycle — but it’s one that can be fixed when you know your employee retention rate, uncover common issues, and create strategies to improve them.
What Is An Employee Retention Rate?
An employee retention rate is the percentage of employees who stayed on-staff from the beginning of a specific time period to the end of that same time period. This does not include new employees who were hired during that time.Your retention rate can be measured annually or quarterly, depending on the data you want to collect.
Just like how your attrition rate can tell you a lot about your company’s HR, your retention rate can tell you how long employees are staying on board and at what point in their career they’re leaving.
How Do You Calculate Employee Retention Rates?
Retention rates are typically measured by a percentage. To calculate your employee retention rate, divide the total number of employees at the end of a period by the total number of employees at the beginning of that same period, and multiple the result by one hundred.
The higher your retention rate, the better.
Let’s look at a working example:
You had 150 employees at the beginning of January 2020.
By the end of December 2020, you had 125 employees.
125 / 150 = 0.83
0.83 x 100 = A retention rate of 83%
In the United States, the average employee retention rate sits at about 90%, but your benchmark employee retention rate will differ depending on your industry. Retail, service, and restaurant industries typically have a lower retention rate because of their high turnovers and holiday-dependent employment.
What Can Your Retention Rate Tell You About Your Business?
Measuring your retention rate based on voluntary turnover can tell you a lot about your company culture, while including non-voluntary and voluntary turnover will give you a big-picture look at your employee retention efforts.
By calculating your retention rates annually, you can set a benchmark and start to see patterns emerging in the who, why, and when of your retention rate.
Are employees leaving voluntarily? If so, exit interviews can give your HR professionals insight into employee dissatisfaction and use that information to improve those pain points for current and future employees. Read more about them here.
How many of your former employees were terminated? Look back at their onboarding and training process, and overall success as an employee, to see where issues began. Here’s how to start approaching onboarding
Which positions are experiencing the lowest employee retention rates? How long are employees, managers, and supervisors staying on? Consider that high manager turnover often has a direct impact on the success and motivation of an employee. When leadership is unstable, it can affect the entire team.
When are employees leaving? In the UK, the average employee tenure is 4.6 years — for those in high-retention jobs, that’s not a lot of time. After a few years, employees may not see room for growth or advancement, or they may become uninterested in their work. The ‘why’ behind retention is as important as the figure itself.
No matter the cause, with enough data, you’ll be able to see when employees typically decide to leave the company and create a strategy around those findings to retain them.
How Can You Boost Your Company’s Retention Rate?
Retaining top talent and boosting your retention rate often comes down to creating an environment where employees feel empowered, valued, and have room for growth.
For 80% of employees who are considering leaving their role, poor work culture or management styles were their main stressor. For 77%, it was the lack of career development or progression available to them.
Sixty-six percent attributed their desire to leaving to dissatisfaction in their salary or rewards package. Although still a high percentage, this goes to show it’s not always about the paycheque for most employees.
A certain financial amount isn’t enough to make them stay; they need:
Better work culture
Chances for career development
A part of that development comes from internal recruiting and hiring up. In fact, companies who hire internally have a 41% longer employee tenure compared to those with lower internal hiring rates.
No one wants to go through the learning curves and stresses that come from finding a new job at a new company, simply for a raise. Look at your current talent pool, identify opportunities for growth, and hire from within.
Proactive Steps to Improving Employee Retention Rates
Start With New Hires: Improving your employee retention rate starts in the hiring process. Finding talent whose experience, values, and expectations align with the company and position leads to a better long-term working experience and increases the chances of keeping them aboard long-term.
Create Open Communication: Work environments where there are opportunities for open, honest discussions can open the door for employees and HR professionals to discuss issues before they become a reason to leave.
Request Feedback: Soliciting feedback anonymously can provide employees with the comfort they may need to address larger issues. This can also be done by scheduling casual one-on-ones with employees, over coffee or lunch, and opening up the floor to more detailed, in-person conversations about an issue.
This is your chance to not only reach out to long-time employees and see what has kept them at the company, and make sure those principles are applied throughout the company but to speak to newer employees and see what can be improved to keep them on for as long as possible.
Creating an environment where feedback is not only welcome but applied to improve the workplace minimises issues and can encourage employee retention.
Employee Retention Rate Improvement Strategies
Finding the right strategies to improve employee retention rates will depend on your company’s goals and struggles with employee retention, as well as your capabilities in improving them.
Three of the main reasons for low employee retention rates are poor work culture, development and growth, and salary and rewards packages. Strategies for improving these issues can include:
Offering more flexible work hours
Offering the option to work remotely
Coordinating casual team outings and events
Providing complimentary snacks and drinks
An environment with quality amenities, such as a gym, patio, or cafe
Development and Growth
Offer promotional opportunities
Provide training programs and training coverage for learning and development
Implement internal hiring systems
Salary and Rewards Package
Offer customisable rewards packages
Be open to salary negotiations
Cover travel costs for employees
Include holiday bonuses
Boost Employee Experience, Boost Your Retention Rate
When it comes down to it, a positive employee experience — even more than pay, in some cases — is what makes an employee stay. Talent professionals see it, and 77% are now focusing on improving employee experiences to increase retention rates.
Knowing your retention rate not only provides insight into your past employee experiences, but a good average can attract top talent as well. Prospective employees want to see that those who are working at a potential company are happy there, and that tends to show itself in your retention rate.
Get Exclusive Insights, Invites and More With Our Weekly HR Newsletter
© 2023 Personio SE & Co. KG