Employee Retention Rate
Also known as Staff Retention Rate
Employee retention rate is the percentage of employees who remain with the organisation across a defined period, measured against the headcount present at the start. Unlike turnover, it only counts people who were already employed at the start of the period, so new hires who join and leave within it do not distort the figure.
Formula
Retention Rate (%) = (Employees at start who are still employed at end ÷ Employees at start) × 100Note that retention rate and turnover rate do not sum to 100%. They use different denominators — retention excludes anyone hired during the period, turnover includes them.
Worked example
- Scenario
- A team of 200 people at the start of the year. By year end, 172 of those original 200 are still employed. The team also hired 40 people during the year, 6 of whom left.
- Calculation
- Retention = (172 ÷ 200) × 100
- Result
- 86% retention. Note the 6 new-hire exits do not appear here — they would appear in turnover
What good looks like
Annual retention of 85–90% is a common healthy range for professional services and technology. Anything above about 95% deserves a second look rather than celebration: near-total retention sometimes signals a stagnant organisation with no internal movement and no performance management.
Why employee retention rate matters
Retention rate is the cleanest way to answer 'are we keeping the people we already have?' because it is immune to hiring volume. In a company that doubles headcount, turnover rate can look flat while the original team quietly leaves; retention rate exposes that immediately.
How to improve it
- 1Measure retention by cohort — hire year, tenure band, level — rather than as a single company figure.
- 2Track retention of your critical-role population separately from the general workforce.
- 3Look at retention around promotion and compensation cycles, where decisions to stay or go cluster.
- 4Use engagement and manager-effectiveness scores as the leading indicator, and retention as the confirmation.
Common mistakes
- Assuming retention rate = 100% − turnover rate. The denominators differ, so they rarely reconcile.
- Reporting company-wide retention only, which averages away the one team in trouble.
- Treating very high retention as unambiguously good without checking internal mobility.
Frequently asked questions
Why doesn't retention rate plus turnover rate equal 100%?
Because they measure different populations. Retention looks only at people employed at the start of the period; turnover includes everyone employed during it, including people hired and lost within the same period.
Which should I report to the board — retention or turnover?
Report turnover as the headline, because it captures total churn including new hires, and use retention alongside it when headcount is growing fast enough that turnover alone would be misleading.
Related metrics
Employee turnover rate is the percentage of employees who leave an organisation over a set period, divided by the average headcount for that period. It is the headline retention metric most HR teams report to their board, and it covers both voluntary resignations and involuntary exits.
Voluntary Turnover RateVoluntary turnover rate is the percentage of employees who choose to leave — resignations and retirements — as a share of average headcount. Isolating it from involuntary exits is what turns a turnover number into a retention signal, because only voluntary departures reflect decisions your organisation could have influenced.
Average Employee TenureAverage employee tenure is the mean length of time current employees have been with the organisation, usually expressed in years. Read alongside turnover it shows whether your workforce is accumulating institutional knowledge or continuously resetting.
Internal Mobility RateInternal mobility rate is the percentage of open roles filled by existing employees through promotion or lateral move, rather than external hire. It is one of the strongest available indicators of whether an organisation offers a visible career path — and it correlates closely with retention.
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