Employee Retention Rate (ERR)
Last updated: Sep 17, 2025
What is Employee Retention Rate?
Employee Retention Rate measures the percentage of employees who remain with an organization over a specified period, typically a year. It is a key metric for evaluating the effectiveness of a company's human resources strategies, management practices, and overall workplace culture. Unlike employee turnover, which focuses on departures, retention rate measures the company's ability to keep its talent. A high retention rate generally indicates a positive work environment, strong employee engagement, and effective talent management, while a low rate may signal underlying issues such as poor management, inadequate compensation, or lack of growth opportunities.
Employee Retention Rate Formula
How to calculate Employee Retention Rate
Let's calculate the annual Employee Retention Rate for a company. - On January 1st, the company had 200 employees. - At the end of the year, 180 of the original 200 employees were still with the company. - Employee Retention Rate = (180 / 200) x 100 Employee Retention Rate = 0.90 x 100 = 90% In this example, the company’s Employee Retention Rate for the year is 90%. This means that 10% of the employees who started the year did not stay with the company until the end.
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What is a good Employee Retention Rate benchmark?
While a high Employee Retention Rate is generally positive, there is no one-size-fits-all benchmark. A "good" rate varies significantly by industry, job role, and economic conditions. For example, industries with high turnover, such as retail and hospitality, will have a naturally lower retention rate than sectors like professional services or technology. The Society for Human Resource Management (SHRM) reported a general retention rate of 81.3% across all industries in the U.S. and Canada. However, a more valuable benchmark is to compare your company's retention rate against its own historical data and against direct competitors within your specific industry.
More about Employee Retention Rate
Employee Retention Rate is a proactive metric that provides valuable insight into the overall health and stability of an organization. For business leaders and HR professionals, a high retention rate is a strong indicator of a successful and appealing workplace. A low retention rate, on the other hand, can be a symptom of deeper problems, often leading to increased costs associated with recruitment, hiring, and training new employees. In contrast to the reactive nature of turnover, retention is a direct measure of an organization’s success in fostering a positive and sustainable work environment.
Calculating the overall Employee Retention Rate is a good starting point, but a more detailed analysis requires segmenting the data. Companies should consider analysing retention by:
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Department or team: This can reveal specific areas that are struggling to retain employees, indicating potential issues with leadership, workload, or team culture.
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Job role or level: Retention rates can vary significantly between entry-level, mid-level, and senior positions. A high turnover among entry-level staff might suggest a problem with initial training or career pathing.
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Demographics: Analysing retention by age, gender, or other demographic factors can help identify potential inequities and inform diversity and inclusion initiatives.
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New hires vs. tenured employees: A low retention rate for new hires could point to a flawed onboarding process or a mismatch between job descriptions and reality. Conversely, a high rate of departures among tenured employees may suggest a lack of career advancement opportunities or professional stagnation.
Key Factors Influencing Employee Retention
A company's retention rate is a direct reflection of its ability to meet the needs and expectations of its employees. Key drivers of high retention include:
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Positive Company Culture: A workplace that fosters trust, respect, and psychological safety encourages employees to stay. A strong culture is one where employees feel valued and their contributions are recognised.
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Competitive Compensation and Benefits: Fair pay and comprehensive benefits packages are foundational to retaining talent. Regular market analysis is essential to ensure a company's offerings remain competitive.
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Professional Development Opportunities: Employees want to grow their skills and advance their careers. Providing access to training, mentorship programmes, and clear career paths significantly improves retention.
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Effective Leadership and Management: Managers play a critical role in employee satisfaction and retention. Supportive and empathetic leaders who provide clear direction and regular feedback can build strong, lasting relationships with their teams.
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Employee Recognition: Acknowledging and rewarding employees for their hard work and achievements boosts morale and reinforces a sense of value. This can range from formal awards to simple, verbal recognition.
Challenges and Best Practices
A common challenge in measuring ERR is deciding what time period to use for the calculation. While an annual rate is standard, using a rolling 12-month period can provide a more dynamic view of retention trends. It is also important to note that an overly high retention rate, particularly at a time of significant organizational change, could indicate stagnation or an unwillingness to manage out underperformers. The goal is not necessarily to achieve 100% retention but to maintain a healthy rate that reflects a balance of stability and renewal.
Best practices for improving Employee Retention Rate often involve a continuous feedback loop and data-driven decisions:
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Conduct Stay Interviews: Instead of waiting for an employee to leave, stay interviews are conversations with current employees to understand what makes them want to stay. This proactive approach allows leaders to address potential issues before they lead to a departure.
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Implement an Employee Feedback System: Regular surveys, polls, and feedback sessions can help a company gauge employee sentiment and identify areas for improvement.
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Strengthen Onboarding: A structured and welcoming onboarding process can significantly improve the retention of new hires by making them feel connected and valued from day one.
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Offer Flexible Work Arrangements: Providing flexibility in work schedules and location can help employees better manage their work-life balance, reducing burnout and increasing job satisfaction.
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Align with Business Goals: Retention efforts should be linked to broader business objectives. Understanding how retention impacts productivity, customer satisfaction, and innovation makes a stronger case for investing in people.
Employee Retention Rate Frequently Asked Questions
How is Employee Retention Rate different from Employee Turnover Rate?
Employee Retention Rate measures the percentage of employees who stay with a company, while Employee Turnover Rate measures the percentage of employees who leave. They are inverse metrics, but they do not always add up to 100% because turnover calculations can include employees hired during the period.
Can a company have a retention rate of 100%?
While possible for a short period, a 100% retention rate is not a realistic long-term goal and could indicate stagnation. A healthy organization experiences some level of turnover, which allows for new talent and fresh perspectives to be introduced.
Is it better to have a high or low retention rate?
Generally, a higher retention rate is better as it indicates stability and employee satisfaction. However, an unusually high rate could signal that the company is not managing out low performers or that employees are afraid to leave due to a lack of other opportunities.