Measuring Retention in the Modern Workforce: A Step-by-Step Guide to Calculating Employee Retention Rate

Employee retention is one of the key areas of concern for businesses. A low retention rate causes your company to hire more frequently, wasting time and money.

This also has several long-term disadvantages. For instance, your company won’t be able to take on major projects because there are not enough experienced employees, and so on.

Thus, calculating the employee retention rate is essential to monitoring how employees feel about your company. It helps you find ways to improve the employee experience and even identify and reward loyal employees.

So, let’s learn all the steps for calculating the retention rate and the key strategies for improving it!

Understanding Employee Retention Rate

Employee retention rate reflects the percentage of employees who remain loyal to a company over a specific tenure and stick to it compared to the total number of employees present initially.

This percentage might be calculated once a year, once every four months, or even every month, depending on the business’s concerns. It is a standard indicator of employee satisfaction, organizational health, and workplace culture.

Significance of Employee Retention Rate for Businesses

The employee retention rate is important for businesses for a range of reasons that stand out as essential factors of success. Let’s know some of them here.

1. Workforce Stability

A higher retention rate symbolizes that the workforce feels secure and stable enough to stay with the company for a long time. Thus, they have great expertise and skills that can help the business choose bigger projects.

2. Cost Savings

Job posting, recruitment, and training processes require time and money. With a higher retention, your company won’t need to perform these expensive processes multiple times. Thus, the company can save money and invest in better areas, including employee growth.

3. Productivity

When your company retains more employees over a long time, you build skilled employees. With experience, they can perform way more compared to new recruits if you have to hire more talents again.

4. Knowledge Retention

When more employees stick with you over a long period, they pick significant knowledge, such as specific clients’ tastes and preferences and best practices for certain troubles.

Such knowledge offers your organization a competitive edge over others. With special attention, it also boosts customer retention.

How to Calculate Employee Retention Rate?

Calculating the employee retention rate is quite easy once you understand the concept. Follow the following steps to calculate it:

Step 1: Pick the Time Frame

The first step in calculating the employee retention rate is to decide on a specified time frame. Calculate the rate over the chosen time frame to get steady data.

Several organizations prefer to calculate employee retention rates on an annual basis. This offers a better representation of employee movement throughout the year. Since most industry benchmarks use annual data, the annual calculation makes the overall comparison.

However, this is not a strict rule. Some also follow half-yearly or quarterly calculations.

Alternatively, consider monthly calculations if you want to track sudden employee changes and make faster adjustments to relevant policies.

Step 2: Count the Total Number of Employees at the Beginning

At the start (first day) of the chosen time frame, calculate the number of employees in your company. You can access this data from human resources data or payroll records.

Calculate all existing employees, whether they work full-time, part-time, temporarily, joined a week ago, or will leave soon.

Don’t count anyone else, even if they are supposed to join the company the day after.

Step 3: Count the Retained Employees

This step in calculating the employee retention rate requires you to count the employees present at the end of the chosen period.

While doing this, only include the workers who were employed on the first day and are still present on the last day.

Don’t consider any new employee hired after the time frame. If you consider them, you won’t get the true retention rate. The final rate will be affected by it.

Step 4: Apply the Formula

This is the main step of how to calculate retention rate. Apply the following Employee Retention Rate (ERR) formula:

Let’s take the following example. 

Your company had 400 employees on November 1, 2023.

By the end of the period, i.e., 1st November 2024, you notice only 375 remain. The rest have either quit or got fired.

In this case, ERR = [375 ÷ 400] × 100 = 93.75%

Meaning: Your company has retained 93.75% of your hired workforce in the said time frame.

Step 5: Compare and Evaluate the Meaning

While all the steps to calculating employee retention rate are over, there is more to this journey. Your next step is to compare it with the latest average retention and turnover rates for the respective industry.

If the value is similar to respective industry standards, you can rest assured. Your business is on track, and employee satisfaction and workplace culture are on point. However, if it’s too low, you must take steps to overcome it for good.

Strategies to Boost Employee Retention Rate

If the employee retention rate is extremely low, there are certain causes behind it. So, we’ve curated well-rounded strategies to overcome all the possible issues:

1. Pay Competitive Wages

One of the greatest reasons behind high employee turnover is poor wages. Statistics show that 38% of workers are more likely to switch jobs due to insufficient salary and benefits.

So, frequently perform wage surveys and compare your company’s compensation for every role against the industry standard. Don’t forget to consider your employees’ skills and performance during this comparison.

In addition to pay, you must offer adequate benefits, including paid time off, a pension plan, and medical coverage. This can make your organization more attractive and increase retention rates.

2. Invest in employee growth

According to a survey, 58% of employees cited they’d leave an employer if there weren’t opportunities for professional development or training.

So, enroll your employees in continuous training programs. Help them upskill and target their dream positions. This will also keep your employees engaged and make them feel that they’re valuable assets.

You can also reimburse them for any course they want to take beyond the ones you offer. Guide them with clear career paths to highlight possible promotion opportunities based on their skills.

3. Implement employee engagement software

Embrace a reliable employee engagement tool, like The EMPLOYEE App that keeps all employees connected, whether they work in-office, deskless, or remotely.

Everyone gets urgent messages instantly, reducing communication gaps and misunderstandings. Smoother communication minimizes frustration and helps retain employees more.

4. Build a Positive Work Culture

A toxic work culture makes around 34% of new recruits quit within the first 90 days. So, try to build a positive work environment. Build trust by encouraging open communication among employees.

Offer flexible work hours and remote and hybrid work options. This boosts work-life balance and ensures job satisfaction.

Moreover, you must seek feedback from employees through anonymous surveys to assess their engagement and mitigate their concerns.

5. Recognize and Reward Top Performers

Another great tip to improve the employee retention rate is to recognize deserving employees.

Reward employees with paid time off, bonuses, or even a public verbal appreciation. Offer them ongoing constructive feedback when they don’t perform well with improvement tips.

6. Tailor the Onboarding Process

A robust onboarding process is said to increase employee retention by 82%. Despite such incredible statistics, 9 out of 10 employees say that their employers don’t take enough advantage of this.

To boost employee retention rates, impress your recruits from the first day. Offer them a welcome kit with a t-shirt personalized with the company logo and their name, a laptop (if necessary for the job), and personalized stationery.

Plan a buddy program where new recruits are paired with an experienced employee as a mentor. The mentor will guide them in learning about the company culture and how everyone collaborates. Recruits will also have a go-to individual for queries, making their onboarding experience smoother.

7. Enhance Employee Wellness

To ensure adequate employee well-being, build wellness programs, such as mental health counseling and gym memberships. Share access to paid online mental programs.

Build a dedicated employee wellness pod where they can take breaks in solitary whenever they feel overwhelmed.

8. Improve Hiring Processes

Incorporate detailed hiring screening steps to ensure you recruit only the most suitable candidates. Pay special attention to background and reference check steps. If possible, conduct practical assessments to cross-check capabilities.

Wrapping Up

With the knowledge of how to calculate employee retention rate, you can track any unusual patterns in your workplace sooner. Whenever you notice a drop in this rate, you can try tracking the root causes and fix it.

Embrace all the mentioned strategies for improving employee retention rate and building a bustling workplace culture.

You can also consider using The EMPLOYEE App to ensure smooth communication among all teams and throughout the company, reducing misunderstandings and frustration. This keeps everyone engaged and updated, creating a well-connected, unified workplace that boosts employee retention.

FAQs

1. How is employee retention rate connected to turnover rate?

The employee turnover rate complements the employee retention rate. Together, they make 100%. The total number of employees remaining + the total number of employees left = 100%.

In simpler words, your business’s employee retention rate subtracted from 100% is the turnover rate. For instance, if your business has a 90% retention rate, the turnover rate is 100% minus 90% = 10%.

2. How do I evaluate the turnover rate?

As shown above, you can calculate turnover rates by subtracting employee retention rates from 100.

You can also use this formula:

[(The number of employees who left voluntarily and through termination over a specific period) ÷ (The total number of employees present during the beginning of the period)] ×100

So, if eight employees leave out of 50 during a specific time frame, the turnover rate is:

[8 ÷ 50] × 100 = 16%

3. How often should I calculate the employee retention rate?

Generally, businesses calculate employee retention rates once every calendar or fiscal year. Some businesses with extremely low retention rates and trying to improve the situation also calculate it quarterly, i.e., four times a year.

4. What is a favorable employee retention rate?

Favorable employee retention rates have different levels. For instance, an acceptable rate is 85%, while a good rate is 90% and above. However, the definition changes depending on the industry.