What is employee retention and how to improve it?

Employee retention is crucial for companies to maintain institutional knowledge, reduce hiring and training costs, and more. Learn more about the importance of retention and strategies that you can implement now!
Author Bowtie Team
Date 2024-06-24
Updated on 2024-06-24
What is employee retention rate?Why is employee retention rate important? How can HR Leaders use employee retention rates beneficially?How to increase employee retention?

What is employee retention rate?

Employee retention rate measures the percentage of employees a company is able to retain over a given period of time, usually a year. To calculate a company’s employee retention rate, divide the total number of employees remaining at the end of the year by the total number of employees at the start of the year. A good employee retention rate varies for each company. A rule of thumb is, a high employee retention rate of around 80-90% is considered good news to a company as it signals that the company is able to retain talented and loyal employees. 

Why is employee retention rate important?

Employee retention is an important aspect to success for any organisation. It measures the percentage of employees who stay in the company over a specific period of time. Retaining talented employees helps maintain a stable and experienced workforce, fosters a positive company culture, and boosts morale among team members. Employees who feel valued, supported, and engaged are more likely to stay with an organisation long-term, contributing to its success and growth. Therefore, investing in employee retention strategies, such as competitive compensation, professional development opportunities, work-life balance initiatives, and a positive work environment, is essential for any company looking to build a strong, loyal, and productive workforce.

How can HR Leaders use employee retention rates beneficially?

Employee retention rates can help HR leaders identify areas for improvement and make data-driven decisions. Low retention rates in specific departments, roles, or locations can indicate underlying issues that need to be addressed. Low retention rates may also indicate areas of disengaged employees. By monitoring retention rates, HR leaders can then better anticipate and plan for future workforce needs or implement more employee engagement initiatives. 

How to increase employee retention?

Here are the top 3 approaches to increasing retention:

  1. Compensation and Benefits: Fair and competitive compensation is a fundamental factor in attracting and retaining employees. This includes not only base salaries, but also year-end bonuses, and more. Regularly reviewing and adjusting compensation and benefits to align with industry standards and employee performance can help maintain a satisfied and loyal workforce.
  2. Work-life balance: In today’s fast-paced and demanding work environment, employees increasingly value the ability to balance their professional and personal lives. Offering flexible work arrangements, such as remote work options, flexible hours, or compressed workweeks, can help employees manage their personal responsibilities while still meeting job requirements. By prioritising work-life balance, companies can improve employee satisfaction, reduce stress and burnout, and ultimately increase retention rates.
  3. Career development opportunities: Investing in employees’ professional growth and development is a powerful way to retain top talent. Providing ongoing training and learning opportunities, such as workshops or online courses, helps employees expand their skills and knowledge, keeping them engaged and motivated in their roles. Mentoring programs, where experienced employees guide and support newer team members, can foster a sense of belonging and help employees navigate their career paths within the organisation. By demonstrating a commitment to employee development, organisations can cultivate a loyal and skilled workforce that is equipped to take on new challenges and contribute to the company’s long-term success.
  4. Healthcare Benefits: Providing better employee healthcare benefits can significantly boost and improve employee retention rates. High quality health insurance coverage reduces employees’ financial stress and worry about high medical costs, increasing their overall job satisfaction. Top candidates, especially those with families, are drawn to employers with excellent healthcare benefits when evaluating job offers. Retaining staff by offering good benefits also reduces expensive turnover costs related to recruitment, onboarding and training new hires. Furthermore, healthier employees with access to quality care take fewer sick days and are more focused and productive at work. Generous benefits foster a sense of loyalty, making employees less likely to leave for marginal pay increases elsewhere. 

Bowtie’s group medical insurance provides coverage for outpatient services, dental care, surgeries, and physical examinations, helping companies cater to employees’ diverse needs. The ProCare Series, in particular, enhances the more commonly used outpatient and dental coverage, allowing employees to freely choose their preferred clinics without any medical network restrictions.

Interested to know more? Drop us a line and our Group Medical Specialists will follow up with you soon!

Bowtie Group Medical Insurance highlights
What is employee retention rate?

Employee retention rate is a key indicator of a company’s capacity to maintain a consistent workforce. It calculates the proportion of employees who remain with the organisation over a specific timeframe in relation to the total number of employees during that period. Analysing these rates provides insights into crucial factors affecting an organisation’s success. 


This is particularly important for employees with specialised, highly sought-after skills who are frequently targeted by recruiters and difficult to replace. These individuals, often labelled as ‘high-potential employees,’ play a vital role in organisations due to their technical expertise and leadership abilities. Their retention is especially significant for a company’s long-term success and stability.

What negative impacts does a low employee retention rate have on an organisation?

Low employee retention rates can severely undermine an organisation’s success and profitability. Low employee retention incurs substantial costs related to recruitment, onboarding, and training replacements, while also leading to losses in institutional knowledge, disrupted operations, and decreased productivity. It can also foster a sense of instability, eroding employee morale, engagement, and the company’s culture. Frequent employee churn damages the employer’s brand, making it challenging to attract top talent.


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