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What Is Employee Retention?

June 26, 2025 8:46 pm

As an employer or HR professional, is developing an employee retention program on your to-do list, yet somehow it always remains overlooked?

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 keeping employees is truly worth it.

In this blog post, you’ll learn:

How the workplace environment impacts retention.

Strong retention strategies you can implement at your organization.

Why a healthy work-life balance is key to keeping your employees satisfied.

What is employee retention?

Employee retention refers to an organization’s ability to reduce or prevent employee turnover. Turnover occurs when your employees leave for any reason, typically in search of better career growth opportunities. This is also called voluntary turnover. There’s also involuntary turnover, which occurs when an employer terminates an employee.

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 choose 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 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

Although there’s no industry standard for calculating the cost of employee turnover, it’s pricier than you may expect. According to Gallup¹, the cost of replacing an individual employee is up to two times that of an experienced employee’s annual salary.

Here’s an example of what that looks like:

A company with 100 employees offering an average salary of $50,000 might incur annual turnover and replacement expenses ranging from about $660,000 to $2.6 million, based on 2019 survey data.

The high costs related to 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 retention of employees wasn’t a priority.

Engaged employees are productive employees

If financial incentives don’t make you see the value in employee retention, think about the boost in productivity achieved by fostering long-term employee satisfaction.

A Gallup survey²found 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 workplace culture.

When you invest your time and energy in cultivating a more positive employee experience, your existing talent will likely show up to work excited about what 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 will. With heightened competition for talent in today’s labor market, your valuable employees may look for better job opportunities elsewhere.

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

Then starts the time-consuming process of replacing them. The Global Talent Climate Report³ shows that from 2019 to 2023, the average time to hire has increased from 40 days to 44 days. Depending on the position you’re looking to fill, the process can take even longer.

While a non-compete agreement can legally keep your existing talent 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. While federal courts blocked the rule, some states have banned these agreements for certain organizations or lower-income earners. With this in mind, the tips we outline below provide much better incentives to get employees to want to stay on their 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 a month or quarter) by the number of employees on the first day of that time period.
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 instance, if your workforce consists predominantly of young professionals at the start of their career paths, providing benefits such as mentorship opportunities, career development programs, and discounted training courses can be highly appealing.

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 arrangements

Flexible work arrangements continue to grow in popularity. According to our 2024 Employee Benefits Survey, 57% of employees said it’s important for them to have access to remote work or a hybrid work environment. Is your organization maintaining a competitive edge by offering this perk?

A healthy work-life balance is important to your employees. You can give them more freedom by offering remote work options or flexible hours. When your existing talent spends 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.

Foster a strong feedback culture

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

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

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

Evaluate your benefits package

Offering competitive compensation is important, but it’s not enough to seal the deal with today’s job seekers. According to our survey, 81% of employees say that the benefits package an employer offers is an important factor in whether they accept a job. Health benefits are at the top of the priority list, with 92% of employees deeming them important.

Managing the cost of health insurance may seem daunting, especially if you’re a small or medium-sized employer. Thankfully, health reimbursement arrangements (HRAs) make it possible to offer health benefits on a small business budget.

Through an HRA, employers can reimburse their employees for qualifying medical expenses and even individual insurance premiums 100% tax-free.

Here are the two popular types of stand-alone 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. You need to report them on your employees’ W-2s.

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

Conclusion

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 by Remodel Health can help! Our HRA administration platform makes it easy to create and manage your personalized health benefits.

This blog article was originally published on November 11, 2014. It was last updated on June 26, 2025.

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