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What is Employee Retention?

Employee retention is a top priority for most companies. Since employee turnover is expected to rise 50-70% over previous benchmarks, it’s imperative that HR and benefits leaders advocate for actionable and impactful employee retention strategies. There are several benefits of employee retention, and we’ll cover some of them here.

What is employee retention?

Employee retention is the ability of an organization to keep its employees for a certain period, typically measured in months or years. It involves strategies and practices that create a positive work environment where employees want to stay rather than look elsewhere for work. Effective people retention efforts reduce turnover rates and preserve institutional knowledge and expertise within the organization.

Employee retention is the percentage of people who stay employed by an organization. A common way to calculate employee retention is:

Total number of employees who stayed employed for the entire measurement period
Total number of employees at the start of the measurement period
x 100

A related concept is employee turnover, which is the number of employees who leave an organization. Turnover can be voluntary (an employee chooses to leave) or involuntary (as a result of layoff or termination). Most companies hope to achieve a high staff retention rate and low turnover rate.

Why is employee retention important?

Employee retention rates and turnover rates are some of HR’s most important metrics. They provide valuable insight into whether people retention programs are effective or if changes are needed.

How long do most people stay at their jobs?

For salary and wage workers, the median length is 4.1 years. Employee tenure is three times higher among older workers (9.9 years for ages 55 to 64) than younger workers (2.8 years for ages 25 to 34).

Salary & Wage Employees
Ages 55 – 64
Ages 25 – 34

Benefits of employee retention

There’s growing recognition that putting employees first—even before customers—can boost business success. When employees have a good work experience, they’re more likely to stay with an organization. Some of the benefits of employee retention include:

1. Lower costs

The price of ineffective talent retention strategies can be steep. Voluntary employee turnover costs U.S. businesses $1 trillion per year. While some turnover is expected, too much can take a toll. Replacing an employee can cost 50% or more of their annual salary when accounting for recruiting, hiring, and training. Costs add up even more when you factor in the time managers spend interviewing and onboarding new hires. This takes time and energy away from their current work and staff.

2. Increased productivity and engagement

Employee turnover also factors into employee productivity. Onboarding new hires and getting them up to speed takes time—by some estimates, as much as one to two years to reach the productivity of an existing employee. This is time the employee could’ve spent on other tasks and that your organization could’ve spent on increasing productivity rather than recruiting.

Employees who stay with their company for 10-plus years tend to be more engaged and productive than newer workers. They understand company processes and systems, they’ve honed their abilities so they can produce good work quickly, and they’re more likely to have more influential roles, which makes them feel invested in the company’s success.

Workforce retention fuels employee engagement and, in turn, engagement increases people retention. Highly engaged employees are 1.8 times more likely to say they’ll still be at their current company in a year.

3. Better customer experiences

Happy, long-term employees tend to provide better customer service. They approach their jobs with positive attitudes and the knowledge to solve complex problems. Tenured employees also have opportunities to develop consistent connections with customers, which builds rapport and brand loyalty.

Conversely, some of the effects of employee turnover are a disjointed customer experience and reduced confidence in the company. In some industries, when employees leave they take with them customers they’ve built strong relationships with, which can affect revenue.

4. Stronger company culture

Workforce retention and work culture have a symbiotic relationship. Consistent, productive working relationships contribute to a healthy company culture, and a strong work culture is a key driver of employee loyalty.

5. Higher morale

Retaining employees can impact company morale. When valued employees leave, it can be discouraging and disruptive for their teams. It may also prompt colleagues to reconsider their reasons for staying. A low turnover rate, on the other hand, builds camaraderie and collaboration and sends a message that the company is a great place to work.

6. Better ability to attract top talent

In this digital age, employees can easily publicize what it’s like to work at your organization. When their experiences are mostly positive, you increase employee loyalty and your people become brand ambassadors. Low turnover and high engagement can boost your company’s reputation, making it easier to attract the right talent for the job.

7. Deeper expertise

Over time, employees build knowledge, abilities, and skills that bolster your organization’s performance. When they leave, they take all that with them. One of the benefits of employee retention is that workers use the skills they’ve developed during their tenure with you to enhance your organization’s success, rather than your competitors’.

8. Less burden on other employees

When an employee resigns, it takes time to fill their role. Often, this means other employees have to reprioritize and do extra work to make up for their teammate’s absence. If this goes on too long, it can be a recipe for stress and burnout that delivers a double blow to productivity.

The importance of people retention is clear. But it’s not about retaining just any employees—the benefits of employee retention only apply if your organization is attracting and retaining talented employees who are actively engaged, not underperforming talent. That’s why it’s critical to take steps toward securing your position as an employer of choice, so you can attract and retain the best talent.

Build a culture that boosts employee retention

Employee retention isn’t just about balancing the books; it’s about holding onto expertise, building community, and cultivating loyalty. When employees feel valued and part of something meaningful, they’re more productive and happy, and contribute to the long-term success of an organization.

Explore winning strategies to boost employee engagement

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About the reviewer
Keren Wasserman

Keren is the organizational development program manager on the workforce transformation team at Lyra Health. Keren has a master's degree in social work from the University of Chicago and has worked as a management consultant focused on large-scale change management implementations. She lives in Seattle where she spends her free time hiking, soaking up the PNW's most glorious mountain views.

Clinically reviewed by
Keren Wasserman
Organizational Development Program Manager
By The Lyra Team
5 of March 2024 - 5 min read
Mental health at work
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