What is employee retention rate?

Employee retention rate is a metric that measures the percentage of people who remain employed over a specific period. 

This vital measurement allows organizations to gauge the success of their human resource practices. This includes aspects such as employee development and engagement initiatives. 

A high employee retention rate indicates that your organization is effectively managing the needs of its workforce—leading to greater loyalty and productivity, and a better overall working performance. 

A low employee retention rate could signal potential issues within your team. This could include a lack of effective communication, inadequate compensation, or a work environment that doesn’t nurture team members’ development.

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Key insights

• Employee retention rate measures the percentage of people who stay with your organization over a specified period, serving as a critical metric for HR professionals
• High retention rates suggest effective HR practices and a positive workplace culture, while low rates may indicate issues such as poor communication or inadequate development opportunities
• Calculating the retention rate involves dividing the number of people who stayed throughout the period by the initial number of team members and multiplying by 100
• Leveraging HR tech can provide deeper insights into retention trends, allowing for data-driven decisions to improve team satisfaction and retention

What is employee retention? 

Employee retention, or the percentage of team members who stay with a company, is more than just a number—it’s a key measure of how well organizations keep their people engaged and committed. As workforce trends shift, retaining top talent has become a priority for HR leaders aiming to build stability and drive long-term success. 

At its core, employee retention is about keeping your team members with your company over time. Retention rates act as a compass for HR leaders, pointing them in the right direction to assess the effectiveness of their employee retention strategy.

What is employee retention vs turnover rate?

Employee retention rate and turnover rate are two sides of the same coin, as they each represent different aspects of the ability to nurture and maintain a workforce. 

Retention rate measures the percentage of team members who remain employed over a specific period. This indicates the success of the organization’s HR practices and the work culture and environment. 

Turnover rate measures the percentage of people who leave your organization within a specific period, whether through voluntary or involuntary leaves of absence. 

How to calculate employee retention rate

The formula to calculate your employee retention rate is as follows:

This formula shouldn’t include those who were hired during the middle of the period. 

Here are some examples of how to calculate your employee retention rate:

Example 1

A research and development company had 100 team members at the start of the year. Within the last year, five people have left. 

Employee retention rate = ((100 – 5)/100) x 100 = 95 percent

Example 2 

A large manufacturing company had 10,000 team members at the start of the fiscal year, but 1,500 people left by the end of the year.

Employee retention rate = ((10,000 – 1,500)/10,000) x 100 = 85 percent

Example 3

A multi-national chain has 500 stores in one country, each having 30 team members. They decide to close down all 500 stores. In this situation, 15,000 team members (500 stores x 30 team members) would be affected.

Before the closures, let’s assume the chain had 50,000 people worldwide. After closing down the 500 stores, the company would have 35,000 team members remaining (50,000 – 15,000).

Employee retention rate = ((50,000 – 15,000)/50,000) x 100 = 70 percent

What is considered a good employee retention rate?

A good employee retention rate varies depending on what industry you’re in and the size of your company. For example, industries such as retail or entertainment commonly see high levels of employee turnover, or the percentage of people who leave the organization. 

As a rule of thumb, a retention rate of around 85-90 percent or higher is considered good for most industries. 

Turnover is another helpful metric for monitoring employee retention—here are some average turnover rates by sector to demonstrate what is a reasonable percentage of team members who leave.

Sources: https://www.awardco.com/blog/employee-turnover-rates, https://www.bls.gov/news.release/jolts.t20.htm 

Measure employee retention rate with HR tech

Modern software solutions and analytics tools can be used to track and analyze a wide range of team member data. By leveraging HR tech such as human resource information systems (HRIS) and employee management software, HR leaders can store and manage team member data, monitor performance, and generate reports on various HR metrics—including retention and turnover rates. 

Collecting and analyzing this data helps you identify trends and patterns that may affect your team’s satisfaction. Integrating this HR tech into your decision-making process allows you to make educated, data-driven decisions that can enhance your workforce management and improve your employee retention rates. 

Why is it important to maintain high employee retention?

High retention rates don’t happen by accident. They’re a result of intentional culture, strong leadership, and smart strategy. Understanding why they matter helps people teams build healthier, more resilient organizations.

Reduced company costs

When you keep your team members around, you’re not spending on constant recruitment and onboarding costs like job ads, interviews, and lengthy training sessions. The cost of replacing an individual team member can range from one-half to two times their annual salary—once you factor in hiring, training, and lost productivity—so improving retention is a powerful way to protect your bottom line. 

High retention also boosts morale and strengthens team dynamics. When people stay, teams build deeper relationships and collaborate more effectively, fueling a positive, energized workplace. Consistent teams experience less stress, greater trust, and higher productivity—which creates a win-win for everyone.

Increased employee productivity

People who stay longer know the ins and outs of their roles. This familiarity leads to increased efficiency and quicker problem-solving, making your team more productive. When experienced people don’t have to pause to learn the basics, the entire team moves more efficiently.

Long-term team members can also spot opportunities for improvement that others might miss, helping drive continuous innovation. Plus, they often become informal mentors, sharing their expertise and guiding newer colleagues. This culture of growth pays off, since 94 percent of people are more likely to stay with their employer if they provide learning and development opportunities.

Improved engagement and satisfaction

High retention rates signal a work environment where people feel respected and supported. When team members know they’re valued, they’re more likely to show up with energy and dedication as engagement levels soar. A stable team also tends to build stronger connections, which can foster a culture of trust and mutual support.

Strategic workforce tactics

Retention metrics show how well your retention strategies work. This allows you to:

• Identify what’s working (and what’s not): Understand who stays—and why—so you can tailor your workforce planning to double down on strengths and fix weak spots before they grow
• Spot patterns across the company: Uncover trends tied to specific departments, roles, or managers, making it easier to deliver targeted support
• Plan ahead with confidence: Anticipate future talent gaps and build proactive pipelines to keep your most critical functions covered
• Align people strategy with business goals: Use retention data to shape a workforce plan that’s not only resilient but also drives long-term growth

Ultimately, these insights help you create a work environment where people want to stay—fueling stability, innovation, and success.

Stronger recruiting 

A healthy retention rate doesn’t just benefit current team dynamics—it boosts your reputation in the job market. Prospective candidates pay attention to how long people typically stick around. 

Existing team members then become your biggest advocates, sharing positive experiences that organically strengthen your employer brand. Over time, this builds a steady pipeline of skilled candidates eager to join a team where they know they’ll be valued and supported.

How to use retention metrics to improve HR processes 

Retention rate data is the key to unlocking strategic retention methods. HR leaders can apply the following practices to use employee retention rates effectively:

• Choose specific areas of measurement. HR leaders should determine the specific time span and jobs they plan to analyze. Additionally, calculating the retention rate for each department, as well as for the company as a whole, enables HR leaders to discover weak areas in need of adjustment. 
• Analyze turnover rates. Calculating the turnover rates and analyzing this data in combination with retention rate data can provide a comprehensive picture of the overall employee retention status. Examining when and why team members choose to leave their jobs helps HR leaders understand what changes they should make to enhance motivation, engagement, and retention. 
• Interpret the data. Retention data can provide valuable insight for HR leaders. Analyzing retention and turnover rate figures can shed light on important trends, inefficient practices, strategies that need adjustment, or successful methods that they can further develop.  
• Implement the changes. HR leaders can collaborate with supervisors to craft and implement an improvement plan that addresses the root causes of low retention rates. For instance, the plan may aim to revamp company onboarding methods or the interview process, or improve upon a sparse employee development program.

How to increase employee retention rate

Boosting your employee retention rate is key to maintaining a stable and motivated workforce. Enhancing certain areas of your HR practices helps create an environment where team members feel valued and committed to staying with your organization.

1. Improve your recruiting and onboarding processes

A streamlined recruiting process sets the stage for success. Ensure that the onboarding experience is welcoming and comprehensive, providing new hires with the tools, information, and support they need to feel confident in their roles. When new hires feel supported from the start, they’re more likely to integrate smoothly and stay longer. 

Here are some other tips that will help improve recruiting and onboarding: 

• Start early: Successful companies are 35 percent more likely to start onboarding before an employee’s first day, setting expectations early and building excitement.
• Keep managers actively involved: Make sure managers remain closely involved—Gallup found new hires are 3.4 times more likely to describe their onboarding as exceptional when their managers actively participate. This personal investment makes people feel seen and supported right away.
• Extend the process: Continue structured onboarding beyond the first week or month; the most effective organizations continue structured onboarding throughout the first year. This approach helps new hires ramp up gradually and integrate fully into the culture. 
• Boost engagement and productivity: Organizations with strong onboarding see productivity rise by over 70 percent, and almost 90 percent of team members report being engaged after a positive onboarding experience.
• Avoid costly missteps: It’s critical to get it right when it comes to onboarding since people who’ve had a negative onboarding experience are more than 50 percent likely to look for another job. By contrast, nearly 70 percent are likely to stay for three years if their onboarding was a good one. 

Investing in a thoughtful, well-paced onboarding program doesn’t just help people do their jobs better—it helps keep them around for the long haul.

2. Provide competitive compensation and benefits 

Regularly assess your compensation packages to ensure they align with industry standards, reinforcing your commitment to your team’s wellbeing. 

Consider offering perks like wellness programs, flexible scheduling, or retirement planning to further differentiate your offerings and attract top talent.

3. Create a positive work environment

Cultivate a positive workplace by encouraging open communication and supporting work-life balance. Establish clear, accessible communication channels where team members can comfortably share ideas and concerns—whether that’s through regular one-on-one meetings, employee satisfaction surveys, or open-door policies.

You can also:

• Host engagement events like team lunches, volunteer days, or off-sites to strengthen connections and foster a sense of belonging
• Schedule town halls to keep everyone in the loop on big-picture goals and invite questions 
• Encourage people to connect by linking affinity groups based on interests and identity
• Celebrate wins, big or small, and make space for people to spotlight their peers’ contributions

These actions build a culture of trust and collaboration that people genuinely want to be part of—and that they’re more likely to stay committed to over the long run.

4. Offer career growth and development opportunities 

Invest in your team’s future by offering career development opportunities. Encourage skill-building through learning and development sessions, workshops, and mentorship programs. 

When team members see a clear path for growth within your organization, they’re 63 percent more likely to stay motivated and committed for the long term.

5. Implement reward and recognition programs 

Celebrate your team’s achievements through formal and informal recognition programs. Highlighting accomplishments boosts morale and reinforces the value each person brings to the company. 

Employee recognition can come in many forms—peer-to-peer shoutouts, manager praise, or even tangible rewards—and when done consistently, it helps nurture a culture of appreciation.

6. Ask for employee feedback

Regularly seek feedback from your team to understand their experiences and identify areas for improvement. Use surveys and exit interviews to gather honest insights that inform your retention strategy. 

Most importantly, act on the feedback—showing team members that their voices matter. 

Calculate and manage employee retention rates to improve company culture

Calculating and analyzing your retention rate helps HR professionals pinpoint, address, and reinforce weak areas. Applying this metric can help improve each person’s experience and build a workforce of engaged and motivated team members, and positively contribute to a healthy company culture.

<< Download and print this template to build an effective retention plan >>

Employee retention rate FAQs

What is the meaning of employee retention?

Employee retention is about keeping your people with the company over time. It shows how successful your organization is in creating a workplace where team members feel valued and want to stay. High retention rates are a clear indicator of how well your organization creates a positive, engaging work environment.

Why do employees leave companies?

People leave roles for a variety of positive and practical reasons—often a blend of personal aspirations and professional ambitions:

• Career growth: Many professionals seek new challenges, greater opportunities, or a clear path to advancement
• Compensation and benefits: Competitive pay and comprehensive benefits help team members feel valued and supported
• Work-life balance: Flexible schedules and manageable workloads enable people to thrive at work and at home
• Company culture: An inclusive, engaging, and supportive environment inspires team members to stay and do their best work
• Personal factors: Evolving family needs, health considerations, or shifting life priorities can also influence career decisions

Is 20 percent a high turnover rate? 

A 20 percent turnover rate can be high, but it depends on your industry and company context. In industries with typically lower turnover, hitting 20 percent might signal some underlying issues with satisfaction or engagement. It’s helpful to look at this rate alongside other data to decide if you need to adjust your strategies.