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What is employee retention?

Small Business • April 25, 2023 at 7:44 AM • Written by: Holly Bengfort

As an employer, is implementing an employee retention strategy one of those things you know you need to get to eventually, but somehow always ends up on the back burner?

With sales to drive forward, products to launch, and clients to satisfy, it's easy to forget that the most valuable investment of your organization's time and resources isn't your products, investors, or even your customers—it's your talented employees who help you get the job done.

In this article, we'll go over what employee retention is and why the effort you put into employee retention is truly worth it. We'll also give you five simple ways you can get started right away.

Download our guide to learn 11 strategies for employee retention

What is employee retention?

Employee retention is your organization's ability to reduce or prevent employee turnover. Turnover is when your employees leave for any reason, though typically in search of better opportunities (also called voluntary turnover).

Employee retention is the percentage of employees who stay at your company for a set period of time, such as a quarter or a year. Employee turnover rates are based on the number of employees who've left your organization divided by the total average number of employees. The retention rate is the inverse of that number.

Improving employee retention means more of your current employees are choosing to stay at your organization instead of leaving for your competitors.

Why does employee retention matter?

As a leader in your organization, you may be thinking, “Sure, losing an employee is tough—but I can always hire a replacement. Is all the time and energy that goes into employee retention really worth the trouble?”

The short answer? Absolutely. Every effort you make to increase employee retention and decrease your employee turnover rate is 100% worth it for your finances, productivity, and staying ahead of the competition.

Here are a few reasons why employee retention matters.

Employee turnover is costly

Employee turnover comes at a considerable cost. Although there's no industry standard for calculating the cost of employee turnover, it's pricer than you may expect. A study1 conducted by the Society for Human Resource Management (SHRM) predicts that every time you replace a salaried employee, it costs the organization 6 to 9 months of their salary, on average.

To put that in perspective, an experienced employee making $60,000 could cost your organization between $30,000 and $45,000 in recruiting and training expenses to replace them.

However, that prediction is on the low end—others predict2 turnover costs can be up to 400% of an employee's annual salary, especially for executive-level employees. That's a whopping $400,000 an organization loses when a $100,000 earner decides to quit.

The expensive costs surrounding the recruitment process, hiring, onboarding, lost productivity, and long-term training of a new employee take a big chunk out of an organization's overall budget—all because employee retention wasn't a priority.

Engaged employees are productive employees

If the financial perspective isn't enough to convince you that employee retention is worthwhile, consider the investment in productivity you're making with your employees by supporting their long-term employee satisfaction.

A Gallup survey3found a well-established connection between employee engagement and performance. In other words, the more engaged employees are at work, the more likely they are to perform well in several key performance indicators.

More specifically, among the more engaged workers, the survey found a 21% increase in employee productivity, a 22% increase in profitability, a 37% decrease in absenteeism, and a 48% decrease in safety incidents.

Improving employee morale can also lead to increased job satisfaction and a more positive company culture.

When you invest your time and energy to cultivate a more positive employee experience, it's likely your employees will be excited about the work they're doing every day. A motivated employee is a key component in your organization’s overall productivity and profitability.

Your competitors benefit from your loss

If you don't invest in employee satisfaction, your competition just might. With heightened competition for talent in today's job market, your current employees could be swayed to go elsewhere.

Without an incentive to stay (and if there's no non-compete policy in your employees' contracts), your employees' specialized experience and insider knowledge are ripe for the picking by other organizations in your industry.

Then starts the time-consuming process of replacing them. Glassdoor4 estimates the hiring process can take as long as 53 days, depending on the position you're looking to fill. This continues while your competitor already has the perfect candidate they've been looking for.

While a non-compete agreement can legally keep your employees from going to your competitors, they aren’t the solution. In early 2023, the Federal Trade Commission (FTC) proposed new rules that could ban non-compete agreements for certain workers nationwide. With this in mind, the tips we outline below provide much better incentives to get employees to want to stay on their own terms.

How to improve employee retention at your organization

Now that we've covered why employee retention is so critical, let's go over what steps you need to take to keep your best and brightest people around. Each of these steps is an essential part of ensuring your employees are here to stay.

Track your current retention rate before setting goals

While it's not an exact science, you can calculate an employee retention rate to give you a better idea of how you're currently performing before making any changes.

Here's how you calculate your employee retention rate:

Divide the number of employees you have on the last day of a given period (like in a month or quarter) by the number of employees on the first day of that time period. Then, multiply that number by 100 to convert it into a percentage.

For example, let's say at the end of the quarter you retained 50 out of the 55 employees you had at the beginning of that quarter. To calculate your retention rate, you'd divide 50 by 55, then multiply your answer by 100 to get a percentage—roughly 91%.

So, is that number good or bad? Generally speaking, if you have a percentage of 90% or above, you're doing pretty well. However, your average will look different depending on your industry.

Industries like government, finance, insurance, and education have higher retention rates, while hotel, retail, and food industries have lower rates. SHRM5 shows the average employee retention rate for each industry, so you can compare your rate to what's normal for your line of work.

Use tailored employee retention strategies

When putting together an employee retention strategy, you've got to do your homework to figure out what kind of things your employees are interested in.

For example, if you have a lot of younger employees who just started along their career path, offering benefits like mentorship programs, professional development, and discounted training courses are attractive options. However, offering career development benefits to a group of executive-level employees who have been in the industry for decades won't have the same appeal.

Offer flexible work options

Remote work opportunities continue to grow in popularity due to the flexibility that comes with them. How does your organization compare?

Work-life balance is important to your employees. You can give them more freedom by offering remote work options or flexible hours.

When your employees spend more time with their families and less time stuck at a desk or in rush-hour traffic, you'll notice the positive impact it has on your organization.

A 2021 survey from Gartner6 found that 43% of people said a flexible work schedule helped them achieve greater productivity. On top of increased productivity, your happy employees won't be tempted to look for job openings elsewhere.

Get frequent feedback from employees and managers

Don't be afraid to talk directly with your managers and employees about what's working and what's not around the office. Being open to feedback helps keep your employees happy. It also gives you valuable insight into how you can run your organization more effectively.

Here are a few ways you can get quality employee feedback:

  • Anonymous employee engagement surveys
  • Regular employee performance reviews
  • One-on-one meetings with management
  • Suggestion boxes
  • Exit interviews

Evaluate your benefits package

Finally, look at what benefits you're offering compared to the competition. While offering a competitive salary is important, 4 out of 5 employees7 say that they'd actually take better benefits over a pay raise.

Additionally, our 2022 Employee Benefits survey found that 82% of employees say that the benefits package an employer offers is an important factor in whether or not applicants accept a job. Health and wellness perks are at the top of many employees’ lists.

While managing the cost of health insurance may seem daunting, especially if you’re a small or medium-sized employer, health reimbursement arrangements (HRAs) and health stipends are affordable options that enable you to offer health benefits on a budget. Through an HRA, employers can help their employees get qualifying medical expenses and even individual insurance premiums reimbursed 100% tax-free.

Here are three popular types of HRAs:

If you want a health benefit with fewer regulations or if you have employees who receive advance premium tax credits, a health stipend is another option. Health stipends work similarly to an HRA, except they're taxable and must be reported on employees' W-2s.

Wellness resources can include health benefits and perks such as gym memberships, fitness classes, or mental health support. To create an even more robust benefits package, consider adding stipends that cover the cost of pet insurance, professional development, student loan reimbursement, meals, transportation, and more.


Employee retention is a rewarding effort that pays for itself in your finances, productivity, and the overall success of your organization—especially for small employers that are ready to grow their workforce. By following these tips for retention, you'll boost morale and create a positive work atmosphere that your satisfied employees will never want to leave.

If you're ready to take charge of your employee retention efforts by offering employee benefits, PeopleKeep can help! Our personalized employee benefits administration solutions for HRAs and employee stipends make it easy to create and manage your benefits.

Schedule a call with a personalized benefits advisor today to see how employee benefits can boost your retention rates!

This blog article was originally published on November 11, 2014. It was last updated on April 25, 2023.

  1. https://www.enrich.org/blog/The-true-cost-of-employee-turnover-financial-wellness-enrich
  2. https://static1.squarespace.com/static/5a92f73789c172c13de6b650/t/5b8960d5562fa796578c9623/1535729880690/Employee-Retention_JenaBooher.pdf
  3. https://www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx
  4. https://www.glassdoor.com/research/time-to-hire-in-25-countries/
  5. https://www.shrm.org/hr-today/news/all-things-work/pages/to-have-and-to-hold.aspx
  6. https://www.gartner.com/smarterwithgartner/digital-workers-say-flexibility-is-key-to-their-productivity#:~:text=Flexible%20work%20hours%20is%20key,them%20to%20be%20more%20productive
  7. https://www.glassdoor.com/blog/ecs-q3-2015/

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Holly Bengfort

Holly is a content marketing specialist for PeopleKeep. Before joining the team in 2023, Holly worked in television news as a broadcast journalist. As an anchor and reporter, she communicated complex stories to the vast communities she served on a daily basis. Her background has given her a greater understanding of people and the issues that affect our lives. When Holly isn’t writing, she enjoys reading, exercising, and spending time at the beach.