How to Calculate (and Improve) Your Employee Retention Rate

It can seem soulless to attach numbers and statistics to people initiatives. But tracking key metrics is one of the most logical and effective ways to support your workforce. By measuring important metrics like your employee retention rate, employers can understand how many people want to remain or depart your organization and dig into “why” they feel that way. 

From here, leaders can develop retention and engagement initiatives that improve the employee experience and inject soul back into your company culture. 

This guide explores the employee retention rate metric in more detail. We’ll show you how to calculate your employee retention score, why you should, and how to improve your scores for next time. 

What is an employee retention rate?

Your employee retention rate measures the percentage of workers who remain employed by your organization over a certain period, for example, quarterly, annually, or similar. By understanding how many people have stayed or departed, this metric signals how effective your HR initiatives are. 

High employee retention rates suggest that your employees are satisfied in their roles. They collaborate well with their team, connect with the company mission, and can visualize their professional future with you. They want to stay. 

Low employee retention rates are a sign something isn’t working. If your employees are exposed to toxic working conditions, work under bad managers, or simply aren’t paid enough compared to market rates, it’s a no-brainer that they’ll leave in large numbers. 

Retention rate benchmarks

So, how do you know if you have a good employee retention rate? Ideally, you’ll track retention over time to produce meaningful data relevant to your organization. 

You might also compare your data with the broader average for your industry. For example, iMercer provides details of the sectors most vulnerable to voluntary departures. Note the following are examples of voluntary turnover data in 2023, which are closely related to retention metrics:

• Executives: 5.1%
• Communications and corporate affairs: 4.8%
• Creative, design, and media: 3.1%
• Customer service: 8.9%
• Data analytics: 4%
• Finance: 8.3%
• HR: 8.4%
• IT: 6.5%
• Sales, marketing, and product management: 10%
• Supply chain and transportation services: 8.4%

How to calculate employee retention rate

To use our simple employee retention metric, you’ll need:

• To decide the period you’re measuring, for example, monthly, quarterly, annually, or a custom date range 
• To collect employee headcount data from this period

Then apply the following formula:

• Number of employees working for your company at the end of the period 

minus

• The number of new hires during this period 

divided by 

• Number of employees working for your company at the start of the period 

x 100

• = Your employee retention rate percentage 

‍Example: An organization with 500 employees at the start of Q1 and 450 at the end, including 10 new hires, has an employee retention rate of 88%. (450-10)/500 x 100 = 88%

Why is your employee retention rate important?

There are multiple metrics organizations can track to understand the health of their workforce, such as employee satisfaction surveys, performance reviews, and turnover rates. Here are the key reasons to include your employee retention rate in your list of key metrics. 

Promoting your business to customers and investors

Employee retention forms part of your employer's brand and reputation. Put simply, if you're known for treating employees badly, your customers will boycott you, and investors won't be interested in offering their financial support. 

Attracting top talent to your ranks 

Similarly, potential job candidates may check out sites like Glassdoor or Blind before applying for a role at your company or accepting a job offer. While they won’t see your specific retention data, they may read a swath of negative reviews from people who have recently departed your organization. 

On the other hand, if they notice employees remaining with the company for several years, progressing from role to role and developing in their careers, this is a sign of positive retention that will likely attract the best candidates in your field. 

Identifying organizational problems 

Your employee retention rate also has important internal applications. Use it as a clue about what is working well or not so well in your organization. 

‍Example: Imagine a popular manager leaves the company. Over the following six months, retention rates fall 10% below the benchmark in the manager’s former department. This data signals you need to boost employee morale in this department and ensure the new manager has everything they need to succeed in their new position. 

Maintaining employee satisfaction and morale 

Departing employees tend to have a domino effect. As more people leave the business, those remaining feel less satisfied in their roles, causing them to rethink their position in the company. Some will become overworked, others dissatisfied with how their leaders have treated their peers, recognizing that they’re all just faceless cogs in the system. 

Founder and CEO Faryl Morse illustrates this perfectly in the following example: 

• “HR: Sofie just quit. 
• CEO: What do you want me to do? 
• HR: Are we going to replace her? That project management role was crucial to the company. 
• CEO: We are not hiring new employees for the foreseeable future. Instead, delegate her tasks to others.
• HR: Are we offering a promotion for employees who take on additional tasks by picking up their workload?
• CEO: Of course not. 

2 weeks after…

• HR: The individuals to whom we assigned Sofie's tasks have submitted their two-week notice.
• CEO: They’re just not committed enough, that’s ridiculous. Delegate their work to Tanya. She has been here for 8 years. She will do it. 

‍4 weeks after…

• HR: Everyone on our project management team has quit, including Tanya. We need to rebuild the entire department. 
• CEO: I never thought Tanya and Sofie would quit after 8 years. I thought this work meant a lot to them.”

Employers can avoid this scenario by closely monitoring their worker retention rates and taking proactive measures to ensure employee satisfaction and morale. By doing so, highly skilled workers like Tanya and Sofie will remain happy and loyal to the organization. 

Boosting productivity and revenue 

The ultimate aim of monitoring retention rates is to keep your employee turnover low. Carefully balanced teams made up of familiar faces and complementary skills will collaborate well and be more efficient for your organization. When retention is high: 

• Institutional knowledge remains in the organization
• Productivity skyrockets
• Revenue soars

6 ways to improve employee retention rate

Completing your employee retention rate calculation is one thing, but improving it is another ball game. Follow these six employee retention strategies to keep your employees engaged and committed to your organization. 

Be transparent 

Employees want to feel in the loop about what’s happening in your company. This means: 

• Providing regular company announcements 
• Being transparent about salary and promotion decisions 
• Keeping employees updated on the company strategy and goals 
• Being honest about any potential challenges or setbacks 
• Offering feedback channels where employees can voice their concerns or suggestions

Maintaining an open dialogue with your workers removes any feeling of “smoke and mirrors” from your organization. Keep the information coming, invite feedback, and be honest about what’s happening at the lofty heights of your boardroom meetings. 

Enhance your company culture 

It’s challenging to define a company’s culture, which typically encompasses everything from the physical environment and work arrangements to management style and company vision. 

When company culture works well, employees feel like they belong, their values align with the company’s objectives, and they trust their leaders. Of course, the opposite is also true. Negative company culture is filled with office gossip, quarreling peers, toxic managers and is generally a workplace that employees seek to leave behind. 

Offer a positive company culture by: 

• Recognizing and rewarding employees for their contributions to the company, using a variety of appreciation methods such as public and private praise, formal or informal recognition, etc. 
• Investing in team building, which doesn’t have to mean hosting cheesy bonding activities or inappropriate happy hour drinks. It can be as simple as a team lunch, volunteering together at a local charity, or joining the office fantasy football league. 
• Offering flexible work arrangements, which may vary depending on the industry you operate in. For example, you may allow employees to work in remote or hybrid roles, choose their own hours, work compressed work weeks, or take unlimited vacation, etc. 
• Creating employee resource groups (ERGs) for underrepresented minorities offers a safe space for employees to connect with others who share their experiences and build a sense of community within the company. 

Offer development opportunities 

With constant talk about AI stealing jobs, it’s no surprise that employees want and need to keep progressing in their careers. They must broaden their skill sets, pick up new qualifications, work alongside seasoned professionals, and try a variety of roles. And if they don’t receive these opportunities in your company, they’ll look elsewhere. 

LinkedIn’s Workplace Learning Report supports what we’re seeing on the ground. 90% of employers are worried about employee retention in 2024, and choose learning and development opportunities as their number one retention tactic to keep their talent progressing within the organization. 

Host stay interviews 

Stay interviews are structured conversations that take place between employees and their managers. Rather than waiting until someone has handed in their notice before having an honest discussion, stay interviews are a chance to take your employees’ temperature before they make any rash decisions. You’ll learn: 

• What motivated your employees to join the company
• Why they remain in their current role 
• Any concerns or challenges they may be facing 
• What they need from you to continue contributing 

While you may not be able to address everything raised in these discussions, it's important to act on the feedback, including being transparent about anything you can't change. 

Review your compensation package 

The phrase “money talks” has never been more accurate than in the current economic climate. 65% of Americans live paycheck to paycheck, including more than half of those earning over $100,000.  

Reviewing your compensation data is essential if you don't want to lose your best workers to competitors willing to pay them more. If your compensation budget is tight, weigh up the cost of recruiting new employees to fill vacant positions—a cost reported by SHRM to be worth an average of $4,700 per hire. 

Provide enriching employee benefits 

Alongside your employees’ base salary, your benefits will make up around one-third of their total compensation. While health insurance and paid time off are the most obvious benefits to offer, consider enhancing your package with the following employee retention benefits: 

• Wellness benefits, such as discounted gym memberships, mental health support, nutrition programs, etc. 
• Remote working benefits to support the cost of setting up a productive home office space. 
• Commuter benefits to offset the cost of employees attending your physical office space.   
• Professional development opportunities, such as tuition reimbursement or conferences and workshops related to their field.
• Family-friendly benefits, including parental leave, flexible schedules for caregivers, and on-site childcare services. 

One way to simplify the administration of these broad perks and benefits is to set up a lifestyle spending account using employee retention software. With Benepass, employees receive a pre-funded Visa card, which they can spend on the benefits that make the most sense to them. 

Ensure high employee retention rates with Benepass

Benepass offers a people-first benefits platform to manage and administer your company’s benefits and perks. We offer a wide range of pre-tax and post-tax benefits designed to retain your best employees for the long term. Here’s how it works: 

1. You’ll create your bespoke benefit program. For example, if you’re building an LSA, you might choose eligible spending categories like commuting, wellness, mental health, family, professional development, etc.) 
2. Benepass will code your unique policy template and issue your Visa card to distribute to your employees. 
3. We’ll connect Benepass to your payroll system to automate employee enrollment. 
4. Your employees will elect their contributions (for pre-tax programs only). 
5. You’ll join the Benepass platform and communicate your benefits program to your employees. 

Ready to measure and improve your employee retention rate? Arrange a free Benepass demo today, or contact sales@getbenepass.com with any questions.