What is employee retention?

Written by: Chase Charaba
Published on May 17, 2022.

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

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 in your products, investors, or even your customers—it’s actually in your employees.

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 four simple ways you can get started right away.

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 turnover rates are based on the number of employees who've left your organization divided by the total average number of employees.

Improving employee retention means that more of your 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

The cost of losing an employee is much pricier than you might expect. Although there’s no one industry standard for calculating the cost of employee turnover, a study 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 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 actually on the low-end—others predict the cost of employee turnover 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 of hiring, onboarding, and long-term training efforts all take a big bite 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 on your employees by investing in their long-term employee satisfaction.

A Gallup survey found that there is 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 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.

In sum, by investing your energy into your employee experience by ensuring your employees are excited about the work they’re doing every day, you’re investing in the overall productivity and profitability of your organization.

Your competitors benefit from your loss

If you don’t invest in employee satisfaction, your direct competitors just might. 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. Glassdoor estimates that the hiring process can take as long as 53 days, depending on the position you’re looking to fill. All the while your competitor already has the perfect fit they’ve been looking for.

While a non-compete agreement can legally keep your employees from going to your competitors, the tips we outline below provide much better incentives to get them to want to stay on their own terms.

Ready to put a retention plan in place? Download our handbook, 11 strategies for employee retention

How to improve employee retention at your organization

Now that we’ve covered why employee retention is so critical, let’s talk about what steps you need to make for your organization to keep your best and brightest employees. 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 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—that’s roughly 91%.

So, is that number good or bad? Generally speaking, if you have a percentage at 90% or above, you’re doing pretty well. However, your average will look a little 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. SHRM 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 it comes to 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 that are earlier on in their careers, 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.

Learn more ways you can become an employer of choice

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 will not only help you keep your employees happy, but it’ll also help you learn valuable insights on how to run your organization more smoothly.

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

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

Evaluate your benefits package

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

This is especially true when it comes to offering the top most requested benefits—health and wellness perks.

While managing the cost of health insurance may seem daunting, especially as a small or medium-sized employer, health reimbursement arrangements (HRAs) and health stipends are affordable options 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.

Three popular types of HRAs are the:

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.

See how HRAs and health stipends compare with our free comparison chart!

You can also offer your employees a wellness stipend. This allows you to reimburse your employees for their wellness expenses, such as gym memberships, fitness class fees, mobile wellness apps, and more.

Learn how offering wellness benefits can improve employee retention rates


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 both increase workplace satisfaction and create an office culture your employees will never want to leave.

If you're ready to take charge of your employee retention rates 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 May 17, 2022.

Originally published on May 17, 2022. Last updated May 17, 2022.


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