Employee retention rate: how to calculate & improve it

Employee retention is critical in tough economic times. As budgets tighten, expectations increase, and hiring slows down, companies must focus on retaining and nurturing existing employees to preserve productivity, morale, and institutional knowledge. 

A high employee retention rate reduces costly turnover, prevents disruptions, and ensures teams remain stable despite uncertainties. But if your retention rate isn’t where you want it to be, you’re not alone. A SHRM Labs study found that over 80% of global organizations have struggled with retention in recent years, and 75% of chief HR officers rank it as a top priority.*

But what qualifies as a good retention rate? How do you calculate it, and what does it reveal about your workplace?

We’ll break all that down in this article, exploring how to calculate your retention rate, what it means, and five key ways to improve it.

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*SHRM Labs, 2023
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What is employee retention rate?

Employee retention rate measures the percentage of employees who remain with an organization over a specific period. It’s calculated using a simple formula and is typically reported quarterly or annually.

If you need any more motivation for calculating your employee retention rate, know that a high rate is often a positive sign that your:

• Hiring and onboarding processes are in good shape
• Employees are engaged, have a good work-life balance, and are satisfied with their jobs
• Compensation and benefits packages are competitive and fair
• L&D and career growth opportunities are ample and robust
• Employee experience is positive

💡 If you’re improving your retention rate, you’re equally reducing employee turnover.

Turnover is the percentage of people who leave your organization (e.g., the ‘other side’ of your retention percentage). So, if you have a retention rate of 96%, your turnover rate would be 4%. If you have high turnover, you have low retention, and vice versa.

What’s a good employee retention rate?

What’s considered a good employee retention rate can differ dramatically depending on the industry, organization, and circumstances. However, according to Erik van Vulpen, Founder and Dean at the Academy to Innovate HR (AIHR), a great employee retention rate is generally 90% or more (or a turnover rate of 10%).

An 80-89% retention rate is reasonable but may indicate challenges. Anything below 80% should be investigated thoroughly, as it might signal issues with company culture, compensation, career growth opportunities, or leadership.

According to Mercer research, the average turnover rate in the United States was 8.2% in 2023 — meaning the retention rate was 91.8%. However, one in four US tech companies reported turnover rates of almost 12%, so the retention rate was lower than average (at 88%). 

In a separate report, Mercer revealed that the average turnover rate for US executives and heads of organizations was 5.4%, making the retention rate higher than average, at 94.6%.
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Why employee retention is important for HR professionals in 2025

Keeping track of your employee retention rate — and working to maintain or improve it — is critical due to its direct influence on workplace stability, employee morale, and business success.

The employee retention rate provides valuable insights into workforce stability and is a key metric for demonstrating the ROI of HR initiatives. By leveraging this data, HR leaders can make informed decisions and secure senior buy-in for employee engagement programs and people enablement initiatives. This need is underscored by our 2024 Workforce Trends Report, which found that 62% of People professionals faced difficulties finding data insights to support their proposals in the past year. Getting a handle on your employee retention rate is even more critical in 2025; our research also revealed that one-third of People teams report hiring freezes and half experienced HR budget cuts.

Against such a challenging backdrop, retaining talented employees, boosting engagement, and making data-driven business cases and decisions are even more vital for organizational success.

💡 Use data to maximize team efficiency and impact by focusing on the small changes that will bring big results.

“With budgets tightening, the focus has shifted to efficiency,” noted Julia Reis of Julia Reis Consulting in our 2024 Workforce Trends Report. “Leveraging data helps People teams maximize impact even with limited resources.”

How employee retention rate can help you better understand workplace dynamics

Tracking your employee retention rate and harnessing people analytics can reveal critical trends about your workforce, helping you identify areas for improvement and reduce turnover. For example, you may get insight into:

• Disparities between senior and junior team members — If your retention rate is significantly higher among senior team members compared to junior staff, it may indicate challenges in onboarding, career growth, or company culture for new hires. Addressing these gaps can lead to a more inclusive and stable culture. 

• DEIB insights — Retention discrepancies across demographics, like gender, race, or age, can signal unconscious biases or systemic issues within your organization. Conducting listening sessions, anonymous surveys, or asking for feedback in 1:1 check-ins can help you uncover and resolve concerns. 

• High performer discrepancies. — Mercer research found that top performers are 4% less likely to leave, while recently promoted employees are 6% less likely to quit. If your organization is experiencing a higher-than-expected turnover among top performers, conduct targeted exit interviews to further explore that trend and develop retention strategies.

🤩 Use Leapsome’s turnover prediction and analysis tool to analyze workforce data and identify groups (like particular seniority levels) at risk of leaving.

‍The feature can also show the departments with the lowest expected turnover rates so you can compare, contrast, and identify areas for improvement.

How to calculate your employee retention rate

To calculate your retention rate:

1. Determine the calculation period. For example, during the year 2024 (January 1–31)
2. Identify the number of employees at the start and end of the period. Don’t include new hires from the same period, as they haven’t been “retained.”

Then, use the simple formula below:

Employee retention rate formula

(Number of employees at the end of the period ÷ Number of employees at the start of the period) x 100 = Retention rate (%)

Employee retention rate calculation example

Imagine your organization had 500 employees as of January 1, 2024. By December 31, 2024, 480 of them remained.

Your three-step calculation would be:

1. 480 ÷ 500 = 0.96
2. 0.96 x 100 = 96
3. Retention rate: 96%
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5 ways to improve your employee retention rate

Employee retention isn’t just about keeping headcount — it’s about creating an environment where your people want to stay. Organizations that prioritize engagement, growth opportunities, and meaningful recognition foster a workforce that’s both loyal and high-performing.

The five initiatives below are great places to start when it comes to improving company culture, the employee experience, team happiness, and overall engagement.
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1. Develop a comprehensive onboarding program

Give employees an excellent first impression and a rock-solid foundation when they join your organization with a comprehensive onboarding program that ensures they feel welcome. 

Good onboarding can make a significant difference: 79% of employees believe strong onboarding programs help them integrate and understand company culture much better than if they hadn’t gone through the process. 

To create a seamless onboarding experience:

• Introduce new hires to peers and leadership early to foster relationships
  
• Ensure IT and administrative setup is completed before the first day
  
• Provide easy access to internal resources and systems (e.g., employee handbook, HRIS, and org chart)
• Clarify internal processes and workflows to help employees navigate company operations seamlessly
  
• Offer structured training and resources tailored to the role
  
• Assign a mentor or buddy to support new hires in their transition

All of the above helps the new hire feel like they’re part of the team and empowered in their new role.

💜 A dedicated tool like Leapsome Learning can save your People team time and get new team members started on the right track!

With personalized learning paths and self-paced modules, your People team can focus on fostering a thriving, high-retention workplace.

2. Prioritize employee development

Employees who feel learning and development are taken seriously are more likely to stay in a role than seek employment elsewhere. Indeed, the Harvard Business Review reported that professionals who have regular learning opportunities are 15% more engaged and have 34% higher retention than those who don’t.

Companies with strong L&D cultures are also 92% more likely to develop novel products and processes, 52% more productive, and 17% more profitable than their competitors. Their engagement and retention rates are also 30–50% higher.

Investing in employee development shows team members they don’t need to change companies to further their careers. Possible ways to enrich your professional development offerings include: 

• Setting personalized goals and OKRs that align with business objectives
  
• Offering skill-building programs  to close knowledge gaps and enhance performance
  
• Creating competency frameworks so team members know exactly where to focus their attention to move forward in their careers
  
• Fostering a culture of continuous feedback and performance management to support growth

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Show employees you care about their development with Leapsome’s personalized learning pathways.

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3. Cultivate an engaging work environment

Despite HR estimates that over half their workforce is completely engaged at work, that figure is less than one-third of employees. Moreover, 60% of employees are emotionally detached at work, plummeting the global engagement rate to just 21%.

Creating an engaging work environment is essential to keeping employees motivated, satisfied, and committed to your organization. A positive workplace culture fosters collaboration, increases job satisfaction, and reduces burnout, leading to higher retention rates.

To build an engaging work environment:

• Run employee engagement surveys to collect actionable insights and measure satisfaction
  
• Use AI-driven analytics to identify trends and areas for improvement
  
• Encourage recognition and appreciation through peer-to-peer shoutouts and public acknowledgment
  
• Foster a culture of inclusivity by promoting diverse perspectives and equitable opportunities
  
• Support work-life balance with flexible work arrangements, wellness initiatives, and mental health resources
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4. Offer competitive compensation & benefits

A strong compensation and benefits package is essential for attracting and retaining top talent. Yet, our 2024 Workforce Trends Report found that “inadequate pay” was one of the three most-cited reasons why employees chose to leave their jobs.

Employees who feel fairly compensated are more engaged and less likely to seek opportunities elsewhere. To build a competitive offering:

• Benchmark salaries regularly — helped by compensation benchmarking tools like Leapsome’s, with real-time insights to support fair and attractive pay
  
• Offer comprehensive benefits beyond salary, including remote work options, extended healthcare, wellness programs, generous PTO, and development budgets
  
• Ensure transparency by clearly outlining salary structures, promotion criteria, and bonus policies
  
• Recognize performance and contributions with merit-based raises, bonuses, and additional perks
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5. Foster regular communication & feedback

Open and consistent communication is essential for fostering trust, collaboration, and engagement within teams — but there’s a notable feedback gap between managers and individual contributors (ICs). According to our 2024 Workforce Trends report, 70% of responding managers believed they provided constructive feedback over the previous week, but only 37% of ICs agreed. 

Employees who receive regular feedback feel more valued, supported, and motivated to grow in their roles.

To create a culture of effective communication and feedback:

• Encourage ongoing feedback with structured performance reviews to provide employees with clarity on their progress
  
• Leverage AI-driven feedback tools to help managers and peers deliver meaningful, actionable insights
  
• Implement recognition programs such as praise walls or peer-to-peer acknowledgments to celebrate achievements
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Employee retention: the key to business success & resilience

A high retention rate suggests a stable, engaged, and productive workforce — and avoids the high costs of turnover and recruitment. 

As we’ve seen, some key retention strategies include developing comprehensive onboarding, prioritizing employee development, driving engagement, providing competitive compensation, and fostering a strong feedback culture. 

Leapsome’s suite of People management tools can support your retention strategy in multiple ways. 

With modules for personalized onboarding and learning, feedback, AI-powered insights, engagement surveys, compensation, and a people-focused HRIS, Leapsome empowers companies to create a workplace where employees feel valued, engaged, and motivated to stay.

😍 Retain your best people 

Leapsome’s comprehensive people enablement features can help you build a workplace where people want to stay.

👉 Book a demo

Frequently asked questions about employee retention rate

What’s the difference between employee retention & employee turnover?

Employee retention measures the percentage of employees who stay with an organization within a given period, whereas employee turnover measures the percentage who leave. They’re complementary HR metrics often measured together. Both are expressed as percentages. 

Employee turnover is, essentially, the opposite of retention — if a company has a retention rate of 96%, the turnover rate would be 4%.
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What are the main factors that influence employee retention rate?

Company culture, engagement, compensation, and learning and development are the most significant factors influencing employee retention rates. A positive work environment where team members feel valued, supported, and part of a team encourages them to stay.

As Leapsome’s 2024 Workforce Trends Report highlights, work-life balance, career growth opportunities, and competitive pay and benefits are also crucial for employee retention.
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What are the most significant benefits of a good employee retention rate?

A strong employee retention rate leads to:

• Cost savings on recruitment, training, and onboarding
• Higher productivity and efficiency due to reduced turnover disruptions
• Stronger company culture and morale from long-term team cohesion
• Better interpersonal relationships and teamwork
• Increased innovation and internal growth as employees invest in the company’s success
• More stable business operations, reducing knowledge loss and workflow interruptions