Employee retention rate is one of the most valuable data points HR professionals can use to take a strategic, proactive approach to talent management. And yet, 62% say retention is their biggest workforce challenge, according to a recent workforce trends report.
Since the pandemic, keeping talent has become more complicated. The rate at which employees are quitting their jobs has declined from 3% in March 2022 to around 2% in the first half of 2025, but retention is still a top concern for many organizations. Tracking this metric can be an effective HR practice to identify turnover risks and potentially tackle the underlying reasons.
In this article, we’ll break down what employee retention rate means, how to calculate it, why it matters, and what you can do to improve it.
Contents
What is employee retention rate?
Why is understanding your employee retention rate important?
How to calculate employee retention rate
What is a good employee retention rate?
Employee retention rate vs. employee turnover rate
Average employee turnover rate by industry
How to increase employee retention rate
FAQ
What is employee retention rate?
Employee retention rate refers to the percentage of employees who remain employed at an organization over a certain period of time, typically over a year. A good employee retention rate is generally 90% or higher, but it all depends on the specific organization, industry, and market conditions.
It’s a key metric for evaluating the health of your engagement efforts, organizational culture, and talent management strategy.
Why is understanding your employee retention rate important?
Measuring employee retention rate gives HR teams a clearer picture of workforce stability and helps them take targeted action. Here’s how it supports your strategy:
- Lowering turnover costs: Recent estimates show that replacing employees can cost an organization between 80-200% for technical and senior positions. Targeted retention efforts help reduce the financial burden of recruitment, onboarding, and training.
- Preserving institutional knowledge: When highly skilled talent leaves your organization, it may result in a loss of institutional knowledge, disrupting productivity and overall business performance. Tracking the employee retention rate for roles with key expertise is crucial for anticipating skills gaps and succession planning.
- Boosting productivity: It can take a new hire up to a year to reach peak time to productivity, so retaining employees is critical for maintaining efficiency, continuity, and overall performance in teams.
- Improving employee engagement: Understanding your employee retention rate allows you to work on key aspects of employee engagement, such as creating a positive work environment, offering competitive salaries and benefits, and providing clear career paths.
- Informing strategic workforce planning: Your employee retention rate will indicate areas of your Human Resources planning process that need attention, such as workforce forecasting and scenario planning, as an organization. You’ll better understand if there are risks in certain roles and in certain departments.
Just as critical to knowing your employee retention rate is understanding the reasons why employees are leaving. A recent Gallup study sheds some light:
Alternatively, this graphic from the Work Institute’s Retention Report provides more insights:
How to calculate employee retention rate
Now, let’s take a look at how to calculate employee retention rate:
Step 1: Define your objective and time frame
Start by identifying which employee group you want to analyze and over what period. For example, you may want to examine the retention rate of technical staff over a two-year period. This helps narrow your focus and ensures consistency in your calculation.
Step 2: Determine the headcount at the beginning of the period
Figure out how many employees were in that group on the first day of your selected period (e.g., the number of technical staff on January 1). You can pull this data from your HRIS or another employee database.
Step 3: Identify how many of those employees are still with the company
You’ll need to isolate how many employees from that original group are still employed at the end of the period. That means you should exclude any new hires who joined during the timeframe.
*Note: Retention rate only tracks the original cohort—those who were already on the team at the beginning. It doesn’t reflect total headcount changes or account for turnover among new hires.
HR tip
Extracting data from your HRIS can ensure greater accuracy. However, it is also important to assess any underlying issues impacting employee numbers, such as organizational changes, department restructuring, or seasonal workforce fluctuations.
Step 4: Apply the employee retention rate formula
Use the following formula:
Employee retention rate = ((Number of employees at end of period − New hires during period) ÷ Number of employees at start of period) × 100
This tells you what percentage of the original employees remained by the end of the time period.
Step 5: Analyze your results
Compare your results to past periods, industry benchmarks, or other teams within your organization. A sudden drop might signal culture issues, management concerns, or gaps in engagement and development.
Employee retention rate example
Using the technical roles example mentioned above, here is how you might measure the employee retention rate.
Period 1: January 1, 2021 – June 2022
- Start of period: 50 technical employees
- End of period: 58 technical employees
- New hires during period: 16
- Retention rate = ((58 – 16) ÷ 50) × 100 = (42 ÷ 50) × 100 = 84%
This tells us that 84% of the original 50 employees stayed through the period, even though the team grew.
Period 2: January 1, 2023 – June 2024
- Start of period: 55 technical employees
- End of period: 62 technical employees
- New hires during period: 11
- Retention rate = ((62 – 11) ÷ 55) × 100 = (51 ÷ 55) × 100 = 92.7%
Here, retention improved significantly, with almost 93% of the original cohort still in place by the end of the period. You can now explore what may have contributed to the improvement, such as changes in leadership, compensation, or engagement initiatives, or what caused the lower rate during the earlier period (e.g., pandemic-related turnover).
What is a good employee retention rate?
A 99% employee retention rate might sound ideal, but that’s not always the case. Some employee turnover is healthy, especially when it creates room for new talent or allows low performers to exit voluntarily. This is known as functional turnover and can be beneficial when managed well.
What organizations should aim for is high functional retention (keeping top performers and key talent) and reasonable functional turnover (where less impactful departures support team development and business agility).
Generally, a 90% retention rate or higher is considered strong, but what qualifies as “good” depends on several factors, including your industry, workforce size, and market dynamics.
Because retention rates aren’t always published, turnover is often used as a stand-in to spot broader workforce trends. Here’s how the data looks in the U.S.:
- A recent survey showed that employee turnover dropped to around 13.5%, down significantly from a previous high of 24.7%.
- According to the Bureau of Labor Statistics report, the overall separation rate was 3.3% in May 2025.
Example: Costco employee retention rate
In retail, it’s common to see employees come and go quickly due to low wages, limited benefits, and irregular hours. But Costco stands out, with a reported retention rate of about 93% among employees who’ve been with the company for at least a year.
That’s no accident. Costco continues to raise wages, with top-of-scale clerks now earning nearly $32 an hour and entry-level workers starting at $21. They’ve also expanded vacation time, especially for long-tenured staff. The combination of strong compensation, solid benefits, and a culture that values loyalty plays a big role in keeping employees around.
Employee retention rate vs. employee turnover rate
Although the two terms are sometimes used interchangeably, there is a key difference between them:
- Employee retention rate measures how many employees from a specific group stayed with the organization over a given period. It focuses on continuity, typically using the original group of employees as a reference point.
- Employee turnover rate, on the other hand, looks at how many people left the organization during a certain period, regardless of when they were hired. It includes both voluntary and involuntary separations and is often tracked monthly or quarterly.
Although they’re related, retention and turnover aren’t direct opposites. Retention tracks how many of your original employees stayed over a period, while turnover includes all departures, both from your starting group and any new hires. For example, you could have a 90% retention rate but a turnover rate of 13% if several new hires also left during the year.
Both metrics give you valuable but different insights. Retention helps you understand workforce stability and how well you’re holding on to talent. Turnover highlights patterns and reasons for departures, often pointing to issues in hiring, onboarding, or engagement.
Understanding both—how many people are staying and who are leaving—is essential for building a stronger workforce strategy.
Average employee turnover rate by industry
The table below summarizes recent data from the Bureau of Labor Statistics (BLS) on annual quits rates by industry—in other words, the percentage of employees who voluntarily left their jobs.
While the quit rate doesn’t measure total turnover (it excludes layoffs, retirements, and other involuntary exits), it’s still a helpful benchmark for understanding which industries tend to see higher rates of voluntary attrition. It also offers some indirect insight into retention challenges across sectors.
Total (all industries)
2.1
Accommodation and Food Services
4.4
Leisure and Hospitality
4.1
Retail Trade
2.5
Health Care and Social Assistance
2.1
Professional and Business Services
2.3
Manufacturing
1.5
Construction
1.8
Financial Activities
1.4
Information
1.2
Government
0.8
Key takeaway: Industries like hospitality, food services, and retail tend to experience the highest turnover rates, often due to lower wages, irregular schedules, or limited advancement opportunities.
How to increase employee retention rate
What can HR professionals do to increase employee retention at their organization?
1. Offer competitive pay and benefits
Compensation and benefits continue to be a leading factor in retention as well as job satisfaction. So, it’s critical that HR professionals regularly review their organization’s pay structure and conduct a compensation analysis, benchmarking against factors such as industry standards, competitor compensation, and cost-of-living indexes.
2. Design clear career paths
Employees with a good understanding of career advancement opportunities are more inclined to improve their skills to advance into future roles (and are more likely to stay). By creating clear career paths, HR can play a crucial role in increasing employee retention rates while developing a strong internal talent pipeline.
3. Invest in manager development
Almost four out of 10 managers have not been trained, according to a recent study. In fact, 65% of those promoted to be managers report not feeling supported. These are concerning statistics, given the link between employee retention and managers. Organizations that dedicate time and resources toward manager training not only improve employee retention rates but also engagement and performance.
4. Promote professional development opportunities
Employees who see that their employer invests in training and development are more likely to stay. That’s why you should focus on developing your employees’ skills and competencies. However, they should also receive opportunities to demonstrate these new skills. HR teams can support managers in conducting informal assessments of how well employees can put new skills into action and reward them accordingly.
5. Act on employee feedback
Collect feedback through engagement surveys, exit interviews, and stay interviews, but don’t stop there. Close the loop by analyzing trends, sharing results, and implementing targeted changes. Focus on areas like recognition, workload, and communication, especially for high-potential and hard-to-replace roles.
6. Promote a positive company culture
Organizational culture and values have an impact on employee retention. Focus on ways to make your organizational culture more inclusive and promote belonging. To improve company culture, always review survey results that measure trust, inclusion, communication, teamwork, and psychological safety. Don’t forget exit surveys, as these can often highlight aspects of company culture that lead to turnover.
Over to you
As this overview of employee retention rate demonstrates, it is more than a ‘useful’ HR metric. It can be used as a strategic, multifaceted tool to proactively address retention issues in your organization and help you better dedicate resources to make employees want to stay.
FAQ
A good employee retention rate is typically considered to be 90% and higher. However, this rate depends on the type of organization, its size, industry standards, and market conditions. The main goal is to retain employees who consistently add value and contribute to your business needs.
A 25% employee retention rate is considered very low, as it means only a quarter of the original employees remained with the organization during the measured period. Rates this low could often be due to organizational restructuring, but if that hasn’t been the case, they can signal deeper issues such as poor culture, uncompetitive compensation, limited career growth, or leadership problems.
The 3 R’s of employee retention stand for respect, recognition, and reward. These are essential values for building a strong employee experience:
• Respect for employees’ ideas and perspectives, creating a sense of belonging
• Recognition of individual and team efforts and achievements on a regular basis
• Reward for performance and accomplishments (monetary and non-monetary).
