What is Employee Retention? Definition and Importance for Businesses

Employee retention, meaning an organisation’s ability to hold on to their top talent and avoid employee turnover, is directly linked to improving company morale, retaining valuable institutional knowledge, and avoiding the financial drain of hiring and training new employees. 

In today’s competitive job market, employee retention is increasingly more difficult. While older generations also sought to derive meaning from their work, things like work-life balance and the potential for career growth have become a higher priority for modern workers, especially gen Z employees.

Calculating Employee Retention Rate

Employee retention rate will be the exact opposite of the employee turnover rate—the percentage of employees who leave a company within a given time frame. So, you can work out retention by calculating the percentage of employees who stay with your organisation during that time period. 

In order to calculate this percentage you first need to decide on the time frame within which you want to measure retention. Next, divide the total number of employees who remained within your organisation by the number of employees working at your organisation on the first day of the period being measured. Then, the number that you’re left with needs to be multiplied by 100.

Why is Employee Retention Important for Business Success?

So, what does employee retention mean for companies, and why is it worth working to improve retention within an organisation? Employee retention is important for maintaining a strong company culture and high employee morale. High retention rates contribute to a stable and cohesive company culture, which can lead to a more engaged and motivated workforce. 

Retaining more employees means that companies can also reduce recruitment costs, leading to significant cost savings. Experienced employees also possess valuable company-specific knowledge and competencies. Keeping these employees ensures their critical skills and expertise are not lost and boosts company-wide efficiencies. A high company turnover rate also means that productivity is lost because of the repeated need to train new employees. Investing in employee retention not only enhances workforce stability and morale but also provides a competitive edge in financial performance and organisational growth.

When Might Employee Retention Be Less Important?

Turnover can benefit organisations, since it can bring fresh ideas into the mix and helps the business avoid becoming stagnant. A balanced approach is needed to encourage development, address performance issues, and retain top talent while allowing natural attrition to occur for continuous improvement. 

In hyper-growth startups or companies experiencing rapid expansion, the primary focus may be on scaling quickly, onboarding new talent swiftly, and addressing immediate operational needs rather than retention. Similarly, industries or roles that are inherently project-based, such as consulting, freelance work, or short-term contracts, may not prioritise retention as projects conclude and new talent is brought in depending on the next set of projects.

Certain roles or industries like retail or hospitality also traditionally experience a higher turnover rate and so it may be more important to focus on efficient hiring and training processes rather than long-term retention in these roles and industries.  Smaller companies, and companies in a growth stage, are less likely to have the resources to focus on retention strategies, and may need to prioritise  survival, funding, and growth instead.

Measuring and Analysing Employee Retention

Other than the employee retention rate and employee turnover rates already discussed, there are several key metrics that are used to measure and analyse employee retention. These are often more focused and tell a fuller story about employee engagement than the company’s overall employee retention rate. These other measurements include::

New Hire Retention Rate

A company’s new hire retention rate tracks the percentage of new employees who remain with their organisation after a set period of time, such as an employee’s first 90 days or first year in their company. Up to 30% of new hires leave within the first 90 days of employment, so specifically measuring new hire retention rates helps you to measure whether your organisation has the right onboarding process in place.

Voluntary vs. Involuntary Turnover Rate

While it’s a good idea to measure a company’s turnover rate, it is also wise to differentiate between employees who leave by choice and those who were terminated. By measuring both the voluntary and involuntary turnover rates of an organisation, organisations can have a clearer picture of who left because they wanted to and who was instead asked to leave.

Employee Engagement Scores

Gauged through company-wide surveys, employee engagement scores reflect how engaged and committed employees are to their work and organisation. 

Exit Interview Feedback

Exit interviews collect reasons behind employees leaving, providing qualitative data to understand and address problems within an organisation.

Absenteeism Rate

This is a measurement of how many days employees are absent, which can signal disengagement or potential retention issues.

Offer Acceptance Rate

By calculating how many job offers issued by the company are accepted, an organisation can gauge its job market attractiveness to prospective employees.

When measuring company retention, it’s also important to segment data between departments, roles, and demographics. This is essential for identifying specific trends that might be hidden in aggregated data, and can help to enable targeted intervention tailored for different groups’ needs. By looking at data in these segregated chunks, companies can more effectively allocate team resources, enhance employee satisfaction, and ensure diversity and equality.

The Role of Employee Engagement in Retention

Employee engagement—the level of emotional commitment an employee feels towards their job and the company that they work for—has a strong relationship with retention, as employees who are more engaged with their work and company are more likely to stay with their company. This can be difficult for a company to foster, especially when more and more of the workforce is completely remote or hybrid, as this can make employees’ connections to each other also feel distant and remote. 

Strategies to Boost Engagement and Retention Simultaneously

Some ways to help improve employee engagement and retention are offsites for employees to connect outside of the office, access to professional development, continuous learning, and opportunities for growth, open channels for company feedback and suggestions, and offering employee benefits that help to make people feel valued within their organisation. 

In fact, 75% of employees admitted that they’re more likely to stay with their employer because of their company’s employee benefit packages. However, not all employee benefits boost retention to the same degree, and certain employee benefits boost employee engagement more than others. If you would like to learn more about which benefits will help your company the most to boost its engagement, we have an in-depth article on the benefits that employees value the most.

To create a work environment that fosters both engagement and long-term company commitment, employees need to have opportunities to establish personal connections with their coworkers, to clearly understand their opportunities for professional growth, and to feel valued for their contributions.

Implementing Retention Strategies In Your Organisation

Some ways to successfully implement an effective employee retention strategy include:

1. Conducting employee surveys and exit interviews, and analyse data to identify trends and common facts that contribute to resignations within your organisation
2. Using the data to develop clear objectives that set specific, measurable goals to improve retention
3. Creating action plans aimed at addressing identified issues
4. Implementing initiatives, ensuring that all organisational levels are aligned
5. Monitoring the progress of your company’s initiatives and making adjustments as they are needed

Strong leadership and communication is the key to driving these retention initiatives. By setting a positive example, workforce leaders help to foster a positive, healthy workplace culture. Additionally, they are the ones who can provide the necessary resources within an organisation to drive retention initiatives. 

Company leadership should also consider that retention strategies need to be tailored to different employee groups or generations. For example, Millennials want their company to engage with them on a personal level, to offer more flexible working schedules, and to create learning opportunities and room for career growth and development. On the other hand, Gen Z employees value social rewards, frequent feedback, and transparency from supervisors.

Employee Retention Ideas

One thing that you can do to help improve employee engagement within your organisation is to offer flexible work arrangements which allow for either remote or hybrid work and flexible hours. Additionally, career development programs address the desires that many employees have for continuous learning and career development opportunities in their roles. 

Investing in workplace culture and putting an employee recognition program in place appeals to peoples’ desires for purpose and a sense of belonging in their job.  

Employee benefits, especially wellbeing and employee assistance programme (EAP) benefits, are also really helpful for employee retention, as they help employees to feel valued and to find ways to better cope with workplace stress, and potentially burnout. Financial rewards, and benefits that support employees with the Cost of Living, are also effective and meaningful ways to retain employees.

Our employee benefits platform houses all of your benefits in one place, making it easier for you to let your employees know what benefits they have on offer and for your employees to access the benefits that are available to them.

Boost Your Employee Retention With Vivup

While a certain amount of employee turnover can actually be beneficial to an organisation, companies should strive to improve their retention rates through employee engagement initiatives that offer things like increased work flexibility, opportunities for growth, and benefits for their staff. 

Strong employee retention helps companies to save money, improve their workplace culture, and to keep their workforce knowledgeable and efficient. If your company is struggling to retain its employees, it might be worth assessing your organisation’s current retention strategies and implementing improvements if needed. 

Vivup is proud of the benefits that we offer employees and the role that we play in supporting employee retention through our benefits and engagement solutions. 

Please feel free to book a demo if you would like to learn more about how our platform can help you with improving your employee engagement and retention rates.