Learn about Workable’s breakthrough HR and AI capabilities WATCH HERE

What is employee retention?

Employee retention refers to the ability of a company to prevent employee turnover. In other words, it is the company's concerted efforts to retain their existing staff and keep their best employees on board in order to succeed as a business.

Employee retention is often expressed as a statistic; the percentage of employees that remain in a company for a fixed time period (e.g. a quarter). To measure it, use the following employee retention rate formula:


Employee retention rate formula:

employee retention formula

What is an employee retention strategy?

Employee retention strategies are practices an organization follows to retain its staff (e.g. through compensation, policies, benefits, office perks, etc.). A company’s main intent when planning those strategies is to minimize employee turnover, in other words, the number of employees that leave a company during a certain period. 

Even though a small turnover rate can be healthy depending on the nature of each industry, higher percentages can be expensive both in terms of money and time. Replacing an employee can be expensive, costing approximately 6 to 9 months salary based on the position. Losing highly performing employees can also impact team productivity and employee morale, as it requires adjustments to the daily functioning and workflows of a department or team – particularly if the departing employee is a manager or higher.

Reasons why employee retention is so important for an organization

These are the most important benefits of effective employee retention strategies:

  • Sustained productivity flow: Professionals who work for long periods in an organization add significant value to the company. They understand the company’s vision at a deep level and know well how to fulfill their role’s expectations. Plus, they have acquired all the important skills needed to effectively complete tasks on a daily basis.
  • Reduced company costs: Retaining skilled and reliable employees is financially beneficial for an organization. Scouting, recruiting, and onboarding new staff is expensive and time-consuming, with the average expenses reaching $14,936 and average replacement time of 94 days. With lower employee turnover costs, companies have more funding to invest in other parts of the business.
  • Reduced training time: Long-term employees are highly trained and feel confident to carry out their daily responsibilities. They have built effective communication channels with their manager and colleagues and know how to deliver their projects on time. New employees require training and time to adapt to the new environment and its requirements, which can strain team productivity temporarily.

But, as an employer, how do you retain employees?

Having explored the employee retention definition and its importance, let’s look at which areas most companies usually focus on when crafting employee retention strategies and programs:

  • Compensation and benefits: You can attract a good candidate by offering them a competitive salary and basic benefits (e.g. health insurance, discounts for wellness programs), but that’s often not enough incentive for them to stick around. Rewarding employees based on their performance with pay raises, bonuses or thoughtful gifts vividly shows that you acknowledge their efforts and the value they bring to your company. 
  • A nice working environment: When organizing your company’s office, remember that it will be your employees’ ‘second home’. Many companies offer free snacks and lunch to employees, along with other perks to improve life at the office and increase employee wellbeing. They also organize team-building activities to support healthy relationships in the workplace, both with teammates and team leaders. New additions to organizational policies, such as telecommuting, also highlight the company’s care to embrace employee work-life balance. 
  • Training and career development: Offering learning and training opportunities is also a huge motivator for employee retention. Employees can acquire new knowledge by attending interesting seminars and courses to develop professionally. It’s normal for long-term employees to want to experiment with new methods and specializations. It shakes up well-worn routines and motivates them to develop further in their roles.
  • Clear communication: When you share important information with your employees, for example, pay-raise schemes or a new job task, make sure that you explain all the important details clearly and refer to relevant policies if possible. Employees might get confused with ambiguous messages and expectations and find it hard to respond accordingly. Craft useful documents and policies and distribute them to the staff in order to avoid such hazards.

Wondering how to retain employees? See our tutorial on how to create an employee retention program.

Want more definitions? See our complete library of HR Terms.

See also:

Frequently asked questions

What does employee retention mean?

The retention of employees is an important organizational goal. It's crucial to show appreciation and create a positive work environment in order for people to stay engaged with your company, and receive competitive pay/benefits packages that will keep them happy on top of allowing you to retain valuable talent.

What determines employee retention?

Employees are more likely to stay at a company if they feel valued by their workplace and the people in charge. This means providing them with benefits that accommodate what's important for individual life, such as healthcare coverage or vacation days.

Why does employee retention matter to HR?

It is essential to retain positive and motivated employees because high turnover increases expenses while also having a negative effect on the company's morale.

Let's grow together

Workable helps companies of all sizes hire at scale. Start today by
requesting a demo or posting a job for free to discover how Workable
can help you find and hire great people.

Get started