How to calculate employee retention rate: Steps & guide
Every time a good employee walks out the door, they take more with them than you might realize. Beyond the obvious disruption to your team, there's the hidden cost of recruiting their replacement, the weeks or months of training, and the productivity loss while everyone adjusts to the change.
These costs become even more problematic as your business grows. You probably used to notice immediately when someone seemed unhappy or was considering leaving. Now, with dozens or hundreds of employees, those early warning signs get lost in the day-to-day chaos.
The problem is, you can't rely on gut feelings anymore. You need systematic ways to understand whether people are staying and why they're leaving. Without proper measurement, retention problems snowball quickly. A few key departures can trigger more exits, and by the time you notice the pattern, you've lost institutional knowledge and damaged morale.
That's where the employee retention rate comes in. This metric tells you exactly what percentage of your workforce is sticking around and whether your talent retention strategy is working.
The good news is that calculating retention rate is straightforward once you understand the formula and process. Whether you're tracking it for the first time or looking to refine your approach, this guide will walk you through everything you need to know to measure and improve your employee retention rate.
What is employee retention rate?
Employee retention rate measures the percentage of employees who remain with your organization over a specific period. Unlike customer retention rate, which tracks how many customers continue buying from you, employee retention focuses on workforce stability.
This metric shows how consistent your workforce is and directly affects your business in several ways. When you keep people longer, you preserve the knowledge they've built up, maintain stronger team relationships, and avoid the constant cycle of recruiting and training replacements. Each person who stays means less disruption and lower costs.
Retention rate is usually calculated as a percentage over a set timeframe. Most companies track it annually, though some also monitor quarterly or monthly rates to spot trends early. The key is consistency; whatever period you choose, stick with it so you can make meaningful comparisons over time.
What makes this key HR metric particularly valuable is that it tells you about problems before they become obvious elsewhere. Things like employee satisfaction, how well managers are doing their jobs, whether your pay is competitive, growth opportunities, and overall company culture all influence whether people choose to stay or leave. When retention starts dropping, it often means issues in one or more of these areas need attention.
Why employee retention rate matters
Understanding why retention rate matters helps you prioritize it as a business metric and make the case for retention initiatives:
Reduces hiring and training costs
Every time someone leaves, you face the cost of recruiting, interviewing, and training their replacement. Industry estimates suggest replacing an employee costs anywhere from 50% to 200% of their annual salary, depending on the role. For a company with 100 employees and 20% annual turnover, these costs can easily reach six figures annually. Higher retention directly reduces these expenses.
Boosts employee engagement and morale
Teams with high retention tend to have stronger relationships, better communication, and more efficient workflows. When people aren't constantly adapting to new team members, they can focus on their actual work. Conversely, frequent turnover creates instability that affects everyone's job satisfaction and performance.
Preserves institutional knowledge
Long-term employees understand your systems, customers, and processes in ways that new hires simply can't. They know the history behind decisions, the reasoning for certain procedures, and the informal networks that get things done. When these employees leave, that knowledge often walks out the door with them, creating inefficiencies that can last months or years.
Indicates overall organizational health
Retention rate serves as a temperature check for your company culture, management practices, and employee experience. Consistently high retention suggests you're doing something right in terms of creating an environment where people want to stay. Declining retention often signals underlying issues that need attention.
Supports long-term growth and stability
Companies with stable workforces can invest in employee development, build stronger customer relationships, and execute long-term strategies more effectively. High turnover forces you to constantly rebuild capabilities rather than building on existing strengths.
Employee retention rate vs. turnover rate
While retention rate and turnover rate are related, they provide different perspectives on workforce stability. Retention rate shows what percentage of employees stayed, while turnover rate shows what percentage left.
The math is simple: retention rate + turnover rate = 100%. If your retention rate is 85%, your turnover rate is 15%. However, looking at both metrics together gives you a more complete picture than either one alone.
Turnover rate (also called churn rate) often feels more urgent because it directly shows you the problem: people are leaving. Retention rate highlights the positive side by showing people are choosing to stay. Both matter for different reasons. When you're talking to leadership, the turnover rate might get their attention and show why action is needed, while the retention rate can demonstrate that your efforts are working.
Many HR teams find it helpful to track both metrics and break them down by department, job level, tenure, and other factors. This helps you spot specific areas where you're doing well keeping people versus areas where you're losing too many, so you can focus your efforts where they're needed most.
Employee retention rate formula
The employee retention rate formula is straightforward:
Retention rate = ((E-N)/S)*100
Where:
- E = Number of employees at the end of the period
- N = Number of new employees hired during the period
- S = Number of employees at the start of the period
This formula specifically measures how many of your original employees stayed throughout the entire period. By subtracting new hires from your ending headcount, you focus on retention of existing staff rather than overall workforce growth.
For example, if you started the year with 50 employees, hired 10 new people, and ended with 55 employees, your retention rate calculation would be:
- S = 50 (starting employees)
- N = 10 (new hires)
- E = 55 (ending employees)
Retention rate = ((55-10)/50)*100 = 90%
This means 90% of your original employees stayed for the full year, even though your overall workforce grew.
How to calculate employee retention rate
Follow these steps to calculate your retention rate accurately:
Step 1: Determine the time period for measurement
Choose a consistent time frame for your calculation. Most companies use annual retention rates because they smooth out seasonal changes and give you useful comparisons. Quarterly rates can help you catch trends early, and monthly rates might work for fast-growing companies or tracking shifts during big changes.
Step 2: Determine the number of employees at the start of the period
Count all starting employees (S) on the first day of your measurement period. Include full-time and part-time employees, but stay consistent about how you classify different types of workers. Some companies exclude contractors or temporary workers since these roles typically have different length expectations.
Step 3: Count employees at the end of the period
Count all active employees on the last day of your measurement period. This gives you your ending headcount (E) before you account for new hires.
Step 4: Identify new hires during the period
Count how many employees were hired during the measurement period. This number (N) gets subtracted from your ending headcount because retention rate specifically measures how well you keep existing employees, not workforce growth.
Step 5: Use the retention rate formula
Apply the formula: ((E – N) / S) x 100. Double-check your math and make sure your numbers make sense. Your retention rate should be between 0% and 100%. if it's outside this range, you likely made an error in your calculations.
Step 6: Compare across periods for trends
Calculate retention rates for multiple periods to spot patterns. Is retention getting better, worse, or staying about the same? Look for connections between retention changes and specific events, policy updates, or market shifts.
Step 7: Benchmark against industry standards if available
Research typical retention rates for your industry, company size, and geographic location. While every company is different, benchmarking helps you understand whether your retention rate represents a competitive advantage, a serious problem, or something in between.
Tips to improve employee retention rates
Once you know your retention rate, you can take specific steps to improve it.
1. Conduct regular employee feedback surveys
Regular pulse surveys help you spot retention problems before people start leaving. Ask about job satisfaction, how they feel about their managers, growth opportunities, and whether they'd recommend working there to a friend. The crucial part is actually doing something with the feedback you get. Just sending surveys and then ignoring the results often makes things worse.
2. Offer competitive compensation and benefits
While money isn't everything, paying below market rate is one of the quickest ways to lose good people. Check what similar companies are paying at least once a year, and adjust when you need to. Don't forget about non-monetary employee benefits like flexible schedules, professional development stipends, or extra additional time off.
3. Improve onboarding experiences
How you welcome new employees matters a lot for whether they stick around. A solid onboarding process helps new employees feel prepared and connected to their team from day one. When onboarding goes poorly, people often leave within their first few months, which hurts your retention rate and wastes all the effort you put into hiring them.
4. Recognize and reward loyalty
Acknowledge people who've been with your company for a while. This could be service awards, extra benefits for long-term employees, or just regularly recognizing what they contribute. When you publicly appreciate people who've stayed, it shows everyone that loyalty is noticed and valued.
5. Invest in professional development
Employees who see opportunities for growth and skill development are more likely to stay long-term. This doesn't have to mean expensive training programs; it could be mentoring, challenging projects, conference tickets, or helping pay for courses. The point is showing you care about their future, not just what they're doing right now.
6. Analyze exit interview data to identify trends
When employees do leave, conduct thorough exit interviews and look for patterns in their feedback. Are several people mentioning the same problematic manager? Lack of advancement? Work-life balance issues? These patterns show you exactly where to focus your retention efforts.
Retain and engage employees effectively with Rippling
Calculating retention rates manually gets tedious and error-prone as your company grows, especially when you want to break things down by department or track changes over time. Rippling's workforce management platform handles these calculations automatically and gives you the data you need to understand what's actually happening with retention across your organization.
With Rippling's headcount planning software, you can see retention trends over time and compare how different departments, teams, or job levels are performing. The platform helps you spot patterns, like whether certain times of year see more departures or if specific teams are struggling to keep people.
What makes this particularly useful is that you can customize the reports with different filters and groupings to answer your specific questions. Whether you want to track retention by hire date, location, or any other employee attribute, the system can break down the data in ways that help you understand what's driving people to stay or leave.
This kind of visibility helps you move beyond just knowing your overall retention rate to understanding the underlying patterns. When you can see exactly where retention problems are happening, you can focus your efforts on the areas that need attention most.
How to calculate retention rate FAQs
What is a good employee retention rate?
A "good" retention rate varies significantly by industry, role level, and company stage. Generally, annual retention rates above 90% are considered strong, while rates below 75% often indicate retention challenges.
How often should I calculate my employee retention rate?
Most companies benefit from calculating retention rates annually for primary reporting and benchmarking, with quarterly calculations to track trends and identify issues early. Monthly calculations can be useful during periods of high growth or significant organizational change, but they may be too noisy for meaningful analysis in stable periods.
Are employee retention rates affected by internal transfers or promotions?
Internal transfers and promotions should generally count as retention since the employee is staying with the company, even if they're changing roles. However, some companies prefer to track "role retention" separately from "company retention" to understand both how well they keep people and how much internal movement they have. Be consistent in your approach and clearly define what you're measuring.
This blog is based on information available to Rippling as of June 10, 2025.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
