Your employee retention rate is a direct reflection of the health of your organisation. A high retention rate indicates a stable, motivated, and productive workforce, which is crucial for long-term success. Conversely, a low rate can signal underlying issues in your processes, culture, or management.
Employee retention has never been so important. According to HR Datahub, the average employee turnover rate in the UK is now around 34%, meaning over a third of employees leave their jobs annually. This makes understanding and improving your retention rate a critical priority for building a stable and committed workforce.
But what is retention rate, and how do you calculate it?
Let’s find out in today’s complete retention rate guide for employers.
Key Facts
- Employee retention rate is the percentage of employees who remain with an organisation over a specific period, usually a year. A rate of 90% or higher is generally considered strong in the UK.
- The average employee turnover rate in the UK is approximately 34%, highlighting a significant challenge for businesses in retaining talent.
- The cost to a UK business of replacing an employee can exceed ÂŁ11,000 on average, factoring in recruitment, training, and lost productivity.
- Organisations with high employee engagement report turnover rates that are up to 43% lower than those with low engagement, demonstrating a clear link between engagement and retention.
What is retention rate?
Retention rate and staff turnover are often used interchangeably, but they are actually two opposing but equally important HR metrics.
So, what is retention rate exactly?
Whereas staff turnover is the rate at which employees leave your company, employee retention is the rate at which they stay. Staff turnover focuses on employee departures and divides the number of leavers by the average headcount at the start and end of a given period. It also takes into account new starters. Retention, in contrast, is only concerned with the proportion of employees who have remained at your company over a given period. In other words, the metric is a direct reflection of the length of time that employees remain at your organisation after you hire them.
What is a good employee retention rate in the UK?
While retention rates vary by industry, a rate of 90% or higher is generally considered a strong benchmark for UK businesses. The UK’s average turnover rate is 34%, which implies an average retention rate of around 66%. However, industries like manufacturing often see higher retention, while sectors such as hospitality and retail typically experience higher turnover.
What does your employee retention rate reveal about your processes?
So, why is regularly tracking your employee retention rate so important?
For one thing, as with your attrition rate, your rate of employee retention gives you a much more complete evaluation of employee transition than simply counting heads that walk out of the door. You can use it to detect areas of improvement and improve the overall health of your company. This is especially true in terms of your employee experience and your ability to retain a stable workforce.
For example, if you have a low rate of retention, it could suggest that there is an issue in your hiring process, and you need to work on your selection, interviewing, and onboarding strategies. Or there might be an issue relating to a lack of training or development. It could even suggest that there is a cultural issue or that your managers are not providing a sufficient level of support and leadership, which is impacting employee morale and engagement.
By tracking your retention rate and implementing strategies to help you retain more employees for longer, you can boost employee productivity, build stronger and more cohesive teams, and save on hiring and training costs, such as the cost of recruitment. And, instead of focusing your time, money, and effort on recruiting replacements for departing employees, you can shift your attention to more strategic matters that help your business grow.
Employee retention rate formula
Regularly calculating your employee retention rate can give you valuable insights into how effective your internal processes are, but it can also help you determine how you measure up compared to your competitors. If your rate is significantly lower than your industry average—for example, below 80% in a sector where the norm is 90%—it strongly suggests that your retention strategies require attention. That’s why it’s so important to track this metric on a regular basis and determine benchmarks for continuous improvement.
There are a few formulas that you can use to calculate employee retention. However, the most commonly used formula is this one:
(# of employees at the end of a set time period / # of employees at the start of a set time period) x 100 = retention rate percentage
If you want to take things a step further, you could also calculate separate retention rates for voluntary and involuntary termination. This will help you understand how many employees are resigning by choice rather than being terminated.
How to calculate retention rate
Let’s break down this formula into steps to help you understand how to calculate retention rates in your business.
- Determine your time period
The first step in calculating your retention rate is determining the time period that you want to measure. This will depend on how often you want to track this metric—annually, every six months, or every quarter. However, if you use a larger timeframe, then it can be harder to identify factors that might be impacting retention. That’s why we recommend tracking it monthly. You get a clearer image of the impact of any changes in your business, and it makes it much easier to identify processes that you need to improve to increase retention.
Most importantly, whatever time period you use to measure your retention rate, make sure you stick to it for future calculations. This makes it much easier to quantify and compare your progress and detect patterns, nuances, and trends. Regular data can also serve as an early warning sign so that you can address potential issues before they become a bigger problem. - Calculate employee headcounts
Once you’ve determined your timeframe, there are two additional data points that you’ll need:- The total number of employees that you had on the first day of your defined period (e.g., March 1). Let’s say, for example, that you had 100 employees on this date.
- The total number of employees that you had on the last day of your defined period, not including any new starters who joined during this time (e.g., March 31). Let’s say, for example, that you had 98 employees on this date.
Subtract your end headcount from your start headcount to determine how many employees left during your defined period:
100 – 98 = 2 employees left your business - Calculate retention
Use these figures to calculate your employee retention rate. Divide the number of employees that stayed with your company throughout the entire time period (your total headcount at the end of the period) by the number of employees you started with on day one (your total headcount at the start of the period):
98 (end headcount) Ă· 100 (start headcount) = 0.98 - Convert to a retention rate percentage
To convert this decimal into a percentage, simply multiply it by 100:
0.98 * 100 = 98% employee retention during the month of March
Generally speaking, the higher this rate is, the better. Once you understand how to calculate employee retention rates, you can start investigating processes in your business that might be impacting your rate.
Retention rate calculation examples
Let’s take a look at a few working examples to help you understand how these calculations work in practice.
Employee retention rate example 1
A high street supermarket had 20 employees at the start of Q1 2026 (January 1). On the last day of Q1 (March 31), 15 of the original 20 employees still worked at the supermarket. The supermarket hired 3 new replacement employees during this time. However, as this metric only focuses on retention, then we will ignore these 3.
The calculation would therefore be:
15 (end headcount) Ă· 20 (start headcount) = 0.75
Then:
0.75 * 100 = 75% employee retention rate percentage for
This means the company retained 75% of its employees during that quarter.
How to improve your employee retention rate
Calculating your retention rate is the first step. The next is implementing strategies to improve it. A high rate is a direct result of a positive employee experience. Here are several key areas to focus on:
1. Refine Your Recruitment and Onboarding
Retention starts with hiring the right people. Ensure your job descriptions are clear and accurately reflect the role and company culture. A structured onboarding process is also critical. Employees who experience great onboarding are 69% more likely to stay with a company for three years.
2. Offer Competitive Compensation and Benefits
Regularly benchmark your salaries and benefits against the UK market to ensure you remain competitive. Insufficient pay is a primary reason for employees seeking new opportunities. It’s a factor for 40% of departing UK workers.
3. Provide Clear Career Development Pathways
Employees are more likely to stay if they can see a future with your company. A lack of career progression opportunities is a major driver of turnover. Implement regular performance reviews, create personal development plans, and invest in training to show you are committed to their growth.
4. Foster a Positive Workplace Culture
A supportive and inclusive culture is fundamental to retention. Encourage open communication, recognise achievements, and prioritise employee wellbeing. Tools that facilitate feedback, like employee engagement surveys, can provide valuable insights into team morale and identify areas for improvement before they lead to resignations.
Factorial’s performance management software helps you streamline reviews and track employee goals, while its employee survey tools make it easy to gather anonymous feedback to build a culture of trust and continuous improvement.
FAQs
What is a good employee retention rate?
A good employee retention rate is generally considered to be 90% or higher. However, this can vary significantly by industry, so it’s important to benchmark your rate against direct competitors and focus on continuous internal improvement.
How do you calculate employee retention rate?
To calculate your retention rate, divide the number of employees who remained for the entire period by the number of employees you had at the start of that period. Then, multiply the result by 100 to get a percentage.
What are the 4 pillars of retention?
The four pillars of employee retention are typically compensation and benefits, a positive company culture, opportunities for career growth and development, and a healthy work-life balance supported by strong leadership and management.
What are the 5 C’s of employee retention?
The 5 C’s of employee retention is a framework identifying five core drivers influencing an employee’s decision to stay. These are Commitment, Compensation, Career Growth, Culture, and Communication.
