How to Calculate Employee Retention Rate

Two manager working to figure out how to calculate employee retention rates

The percentage of employees who stick around for an extended period of time is how a company gauges its employee retention rate. These measures are crucial to monitor. It may serve as a sign of how satisfied and engaged employees are at work. This is key information that can help make your workplace more enjoyable for everyone!

Your retention rate can help you assess whether or not your company provides a rewarding workplace that motivates and engages its employees. Your company's ability to maintain a constant staff is finally confirmed. For every year a top performer works at their employment, their value might range from 10 to 100 times their annual wage.

Calculating and monitoring the employee retention rate is significant since high turnover rates can be expensive for businesses. Understanding how successfully your business retains its employees requires knowing your employee retention rate. This article will go through its importance, calculation, significance, and methods for improvement.

Why Is It Important to Track Employee Retention Rate?

Businesses need to assess their employee retention rate in order to better understand how to keep employees and what factors lead to employee retention. This figure can provide managers and business owners with crucial information about the general health of their organization. It can help them identify areas that need improvement, and see where they are excelling. For example, when the leader shows their employees appreciation for good performance and lifts them up when they are facing challenging times personally or professionally. This is an essential tool for any business.

A high turnover rate of employees could indicate that there are problems with the company's management, opportunities for promotion, or salary. One-third of an employee's annual compensation is often lost when they leave. Businesses can make improvements to increase their staff retention rate by understanding it.

Your talent is the most valuable resource in your business. Without your talent, you couldn't accomplish your business goals. For this reason, implementing effective retention strategies is essential. These strategies can benefit the company when they are applied:

By achieving a high retention rate, you may stop constantly organizing the hiring process and concentrate more on the important aspects of your business.

How to Calculate Employee Retention Rate

Employees holding a meeting to calculate retention rate

Employee retention has always been a key issue for employers. The cost of replacing an employee can be quite high, so it is important to know how to calculate your company's employee retention rate.

You may quickly determine your employee retention rate by doing the following: The number of people on your payroll at the end of the year is divided by the total number of people who started working for you throughout that year.

The Basic Formula

(# of employees at the end of a specific period / # of employees at the start of a set time period) x 100 = retention rate percentage

It's not too difficult to figure out your employee retention rate. Calculating the retention rate involves dividing the number of employees on the end day of the period by the number of employees on the first day. We've broken down how to determine your staff retention rate step-by-step in the sections below. To easily determine your staff retention rate, follow the instructions below and use our free calculator. To demonstrate how to determine your employee retention rate, we'll use the following example:

To demonstrate how to determine your employee retention rate, we'll use the example below:

As of January 1st, 2021, Toronto-based cellular Bingo Mobile employed 130 people. There were 135 employees at the conclusion of the first quarter, 10 of them were new hires. Over Q2-Q4, 25 extra individuals were hired. On January 1, 2022, there were 155 people working for the company.

Step 1: Define the Timeframe

The Employee (EE) retention rate is frequently determined annually. Simply create criteria for a shorter time period if you wish to monitor your retention rate more frequently. For the purposes of this illustration, we'll figure out Bingo Mobile's rate of retention over the course of a full year.

We’re looking to calculate Bingo Mobile's retention rate for the year of 2021.

Timeframe = January 1, 2021 – January 1, 2022

Step 2: Determine Employees at the Start of a Set Time Period

On the first day of the time period you've specified, how many individuals were working for you? This information should be simple to obtain; just look up your payroll to find out how many people were working for you on the specified date.

On January 1st, 2021, there were 130 workers at Bingo Mobile.

Total number of employees on the first day of the period = 130

Step 3: The Amount of Employees Who have been Retained

Although it should go without saying, you cannot include any employees who were employed during the time period. The objective is to monitor retention, or the proportion of employees who stayed with you from the first day of the period until the last. Your calculations will be impacted if you factor in new hires.

Subtract the number of employees hired over the time period from the total number of employees on the last day of the period to get the number of employees you kept.

(Total number of EE on last day) - (Number of new hires) = Number of EE retained

With 155 employees at the end of 2021, Bingo Mobile. Ten staff were employed in the first quarter, while 25 more were hired in the following months. Therefore, 35 of the 150 employees should not be included in the computations because they were not working on January 1st.

155 - 35 = 120 employees retained

Step 4: Determine your Employee Retention Rate

Divide the number of employees on the last day of the specified period by the number of employees on the first day to determine your employee retention rate. Then, to convert that figure to a percentage, multiply it by 100.

[(Total EE on last day of set period) / (Total EE on first day of set period)] x 100 = EE retention rate

With 120 of the 130 employees they had on January 1, 2021 still on board at the end of the year, Bingo Mobile had a 92% employee retention rate.

120 / 130 = 0.92 0.92 x 100 = 92%

Step 5: Compare Your Retention Rate to Industry Standards

Consider how your performance compares to that of your competitors in the market before you stress out or rejoice over your employee retention rate.

In order to find out how your company's retention rate compares to industry standards, you will need to first calculate your company's turnover rate. To do this, divide the number of separations that occurred within a given time period by the average number of employees during that same time period. For example, if 10 employees left your company in one year and you had an average of 100 employees during that year, then your company's turnover rate would be 10%.

Once you have calculated your company's turnover rate, you can compare it to industry standards. The Society for Human Resource Management (SHRM) provides data on turnover rates by industry. For example, in 2017, the turnover rate for all industries was 19.3%. This means that companies in all industries had an average turnover rate of 19.3% that year.

It's crucial to specify a timeframe when figuring out your staff retention rate so that you can quickly compare the results to data from the same period in the future.

Ways to Improve the Employee Retention Rate

Managers in a meeting discussing their retention rate

Any firm faces a hurdle with employee retention. The 2018 Retention Report from the Work Institute states that the expense of replacing an employee might be anywhere between 30% and 150% of their annual wage. The poll found that the voluntary turnover rate in the United States increased from 16.4% in 2014 to 20.5% in 2017.—indicating that businesses are having difficulty retaining motivated staff members.

Employee retention is a major problem for firms and can cost up to 150% of an employee's compensation to replace them. Listed below are a few strategies for raising employee retention rates:

1. Offer competitive salaries and benefits

More money for employees

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You must be prepared to pay your top employees what they are worth if you want to keep them. This is essential for ensuring that your best talent stays on board, and it's something that you simply can't afford to skimp on. Make sure your employees feel like they are being fairly compensated for their labor by providing competitive salary and benefit packages.

2. Foster a positive work environment

Positive work environment

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Employee retention is higher when they feel valued and respected. Make sure your managers have had training on how to create a healthy work environment and encourage open dialogue between staff and management. Even something as simple as remembering a milestone, wedding, or birthday, act as a reminder to the employee that their leader cares for them. The key to a successful retention plan is to set an example of good behavior and show empathy, as a result empathetic leaders are recognized as a major retention criteria by 92% of workers.

3. Provide opportunities for career growth

Congratulation on work promotion

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Giving employees the chance to further their careers is more crucial than ever in the current job environment. Businesses can increase employee engagement and profit from a stronger bottom line by investing in employee development, especially when congratulating them when they earn a promotion. Employee retention rates are higher, burnout rates are lower, and team productivity is higher when staff members feel encouraged in their professional development.

Opportunities for job advancement don't have to be difficult or expensive to create. Sometimes making a major difference is as simple as providing regular feedback, access to learning and development materials, or mentorship programs. Approximately 23% of employees are more likely to stay at their company when it's clear the supervisor provides their important role and obligations. The culture of support where employees feel like their professional development is a priority is what matters most.

Final thoughts

Calculating your employee retention rate is a critical part of understanding and improving your business. By following the simple steps outlined in this article, you can begin to get a clear picture of your company's strengths and weaknesses when it comes to retaining top talent. With that knowledge in hand, you can begin to put policies and practices in place that will help you keep your best employees on board for the long haul.

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