What Is Employee Retention Rate?
Employee retention rate is the percentage of employees who remain at a company over a given period of time. It tells you how well your organization is retaining talent — and how often employees choose to stay versus leave.
It’s one of the simplest and most useful HR metrics. High retention often signals a strong culture, effective management, and competitive compensation. Low retention may reveal deeper issues in leadership, workload, or employee experience.
Why Retention Rate Matters
Retention rate is more than just a number — it reflects the health and stability of your workforce. Here’s why it matters:
- Predictability: High retention allows for consistent planning and knowledge continuity
- Cost savings: Fewer exits mean lower recruiting and onboarding expenses
- Culture stability: Teams with low turnover tend to build stronger trust and performance
- Board-level visibility: Retention trends are often discussed in quarterly or annual reporting
Tracking this metric helps HR professionals identify trends, troubleshoot issues early, and demonstrate the value of people initiatives.
How Retention Rate Differs from Turnover Rate
While they’re related, retention rate and turnover rate measure opposite things:
- Retention rate tells you how many people stayed
- Turnover rate tells you how many people left
If you had 100 employees at the start of the year and 90 of them stayed, your retention rate is 90% and your turnover rate is 10%. Both metrics are useful, but retention often provides a more positive, proactive lens.
How to Calculate Employee Retention Rate
The standard formula for retention rate is:
Retention Rate = (Number of employees who stayed ÷ Number of employees at the start of the period) × 100
This tells you the percentage of employees who remained with the company from the beginning to the end of a time period.
Example Calculation
Let’s say you started Q1 with 150 employees. By the end of Q1, 140 of those same employees are still with you.
Retention Rate = (140 ÷ 150) × 100 = 93.3%
That means your quarterly retention rate is 93.3%.
Note: New hires don’t count toward the numerator — retention rate focuses only on employees who were present at the beginning of the period.
What Time Frame Should You Use?
You can calculate retention rate over different time periods depending on your goals:
- Monthly retention is good for high-churn environments or short-term trend monitoring
- Quarterly retention is common for mid-size companies or reporting cycles
- Annual retention gives the clearest view of long-term talent health
Choose a time frame that aligns with your reporting rhythm, seasonality, and team size.
What Data You Need
To calculate employee retention rate, you need:
- The number of employees at the start of the period
- A list of those same employees who are still employed at the end
- (Optional) Filters for department, location, manager, tenure, or role type
More advanced teams may also want to:
- Exclude temporary, part-time, or seasonal workers
- Segment by new hires, regrettable turnover, or internal transfers
- Track retention within critical roles or leadership tiers
What’s a Good Employee Retention Rate?
There’s no single benchmark that applies to every company. But here are some general reference points:
- 80%–90% annually is considered healthy in most industries
- Above 90% indicates strong cultural and operational performance
- Below 75% may signal systemic issues or burnout
Industry, geography, and job type all impact what’s realistic. For example:
- Retail and hospitality typically have lower retention
- Healthcare, tech, and finance often target higher retention
- Private equity–backed companies may experience flux during transitions
Use retention rate as a relative benchmark — both internally (year-over-year) and across similar companies.
How Employee Retention Impacts the Business
Retention rate isn’t just an HR metric — it has ripple effects across the business:
Financial
- Reduces recruitment and training costs
- Preserves margin by limiting turnover-related disruptions
- Protects the ROI of employee development investments
Operational
- Ensures smoother project continuity
- Retains institutional knowledge and specialized skill sets
- Avoids disruptions to leadership and performance
Strategic
- Strengthens workforce planning and succession readiness
- Supports higher customer satisfaction (especially in customer-facing roles)
- Enables faster execution of transformation initiatives
Common Causes of Low Retention
If retention is falling, here are common areas to investigate:
- Compensation: Below-market pay or unclear bonus structures
- Leadership: Poor management, lack of feedback, micromanagement
- Career pathing: No opportunities for promotion or skill growth
- Culture: Burnout, low trust, or misalignment with values
- Workload: Chronic overwork or unrealistic expectations
- Recognition: Lack of appreciation or acknowledgment
Regular engagement surveys, stay interviews, and exit feedback can help pinpoint the drivers of low retention.
How to Improve Retention Rate
Once you understand the root causes, here are some high-leverage ways to increase retention:
1. Invest in Manager Effectiveness
Train managers on how to give feedback, coach performance, and lead with empathy.
2. Create Clear Career Paths
Define internal mobility opportunities and show employees how to grow within the company.
3. Recognize and Reward Often
Use both formal and informal recognition to celebrate milestones and progress.
4. Monitor Engagement in Real Time
Use pulse surveys and feedback loops to detect dissatisfaction early.
5. Ensure Competitive Compensation
Regularly benchmark your salary and benefits to retain top performers.
6. Conduct Stay Interviews
Don’t wait for exit interviews. Talk to employees who are staying and ask why.
7. Track Retention by Segment
Identify patterns by department, tenure, or manager to find where issues start.
FAQs About Employee Retention Rate
Is retention rate the opposite of turnover rate?
Yes — retention measures who stays, while turnover measures who leaves. They’re inversely related.
Do I include new hires in the retention rate?
No. Retention rate only measures employees who were on staff at the beginning of the period.
Should we track retention by department?
Absolutely. Retention insights become much more useful when segmented by function, location, or manager.
How often should we calculate it?
Quarterly is a good rhythm for most HR teams, with annual retention as the primary benchmark.
Final Thoughts
Employee retention rate is one of the most powerful — and accessible — metrics in HR. It reflects the strength of your leadership, culture, and employee experience in a single number. More importantly, it allows HR teams to speak the language of the business and lead from a position of data, not anecdote.
When tracked consistently and paired with real-world insights, retention rate becomes more than a metric — it becomes a strategic signal.