Employee Retention Rate: Definition, Formula and How to Interpret It
January 23, 2024 · Human Resources · 7 min read
Employee retention rate is a workforce metric that shows the proportion of employees who remain with an organisation over a defined period. It is useful, but only when the population, period and reason for measuring it are clear.
A single company-wide percentage can hide important differences between teams, roles, locations and employee groups. Retention should therefore be treated as a diagnostic metric, not a standalone score of organisational health.
Employee retention rate formula
A common formula is:
Retention rate = employees who remained for the full period ÷ employees at the start of the period × 100
For example, if 200 employees were present at the beginning of a year and 170 of those same employees were still employed at the end, the retention rate for that starting cohort would be 85%.
New hires during the period are normally excluded from this particular cohort calculation because the question is how many of the original employees remained.
SHRM describes the same basic cohort-retention calculation: employees who remained for the entire measurement period divided by employees at the start, multiplied by 100. CIPD’s current turnover and retention factsheet also treats retention and turnover as related but distinct workforce measures.
Source: SHRM, calculating employee retention and turnover
Source: CIPD, Employee turnover and retention, 2026
Retention rate is not the same as turnover rate
Retention measures staying. Turnover measures leaving. The two are related, but organisations should not assume that one is always the exact mathematical inverse of the other because formulas, denominators and populations can differ.
Turnover analysis can also distinguish voluntary departures, involuntary departures, retirement and other exit types.
Why one retention rate can mislead
An 85% organisation-wide retention rate might conceal a team with very stable staffing and another losing critical employees rapidly. Useful analysis therefore segments the data where sample sizes allow.
Common views include:
- department or business unit;
- job family and level;
- manager or team;
- location;
- tenure band;
- critical or hard-to-replace roles;
- new-hire cohorts.
Small groups require care because individual departures can create large percentage swings and may create privacy concerns.
Voluntary and involuntary turnover answer different questions
Voluntary turnover occurs when employees choose to leave. Involuntary turnover includes employer-initiated exits. Combining them can make it harder to diagnose what is happening.
An organisation concerned about retention should usually examine voluntary turnover separately and then investigate the reasons behind those exits.
What is regrettable turnover?
Some organisations identify regrettable turnover: departures of employees whose skills, performance, relationships or future potential the organisation particularly wanted to retain.
The definition should be documented rather than applied retrospectively to make results look better. It should also not imply that other employees have no value.
New-hire retention deserves its own view
Early exits can indicate problems in recruitment expectations, onboarding, job design, manager support or role fit. A cohort view can track employees hired in the same month or quarter and show how many remain after defined intervals.
This is often more informative than blending new hires into a mature workforce population.
Retention should be interpreted alongside other evidence
A high retention rate is not automatically good. Employees can remain in poorly functioning organisations because external opportunities are limited, while healthy organisations can experience planned turnover.
Combine retention data with evidence such as:
- engagement and employee-experience data;
- absence and workload patterns;
- internal mobility and promotion;
- performance and capability needs;
- exit and stay interviews;
- recruitment difficulty;
- time to productivity in important roles.
Use stay interviews to understand why people remain
Exit interviews explain some departures after the decision has already been made. Stay interviews can help managers understand what employees value, what creates friction and what might cause them to consider leaving.
Questions can explore meaningful work, manager support, workload, development, recognition, flexibility and obstacles to doing good work. The value comes from acting on recurring themes, not merely collecting answers.
Do not rely on universal replacement-cost multipliers
Legacy HR articles often state that replacing an employee always costs a fixed percentage or multiple of salary. Actual cost varies greatly by role and organisation.
A better internal estimate can include recruiting effort, agency or advertising cost, vacancy time, overtime or temporary cover, onboarding, training, manager time and the time required for a new employee to reach expected productivity.
For the broader evidence on why employees stay or leave and practical employer responses, see MATSH’s Employee Retention Strategies guide.
A practical retention dashboard
A useful dashboard can include:
- overall cohort retention rate;
- voluntary turnover rate;
- regrettable turnover rate where clearly defined;
- new-hire retention by cohort;
- retention in critical roles;
- retention by team or manager where sample size is sufficient;
- top documented reasons for voluntary departure;
- internal mobility and promotion rates.
Retention rate is only the first diagnostic layer
A single organisation-wide retention rate can hide the very problem management needs to solve. A company may have a healthy overall rate while repeatedly losing scarce engineers, new hires in one location or high-performing people under a specific manager.
After calculating the headline rate, segment the population in ways that are operationally useful. Common views include:
- job family and critical role;
- business unit or location;
- manager or team;
- tenure band;
- new-hire cohort;
- high performer or succession-pipeline status where governance allows;
- voluntary versus involuntary exits.
Small populations need caution because one departure can create a dramatic percentage change. Use counts alongside rates and avoid publishing slices so small that privacy is compromised.
Use cohort retention to find early lifecycle problems
Cohort analysis asks what happened to a defined group of employees who started at roughly the same time. This is particularly useful for diagnosing onboarding or early-manager problems.
For example, track a quarterly hiring cohort at 30, 90, 180 and 365 days. If retention is consistently strong at 90 days but drops sharply between six and twelve months, the likely question is no longer basic onboarding. Career clarity, workload, manager quality or role expectations may deserve closer attention.
Cohorts can also be compared by recruitment channel, location, job family or manager, provided the sample sizes are meaningful.
Separate preventable and non-preventable turnover carefully
Not every departure is a failure. Retirement, relocation, fixed-term completion and some career moves may be outside the organisation’s realistic control. The useful question is whether the organisation lost someone it wanted to retain for a reason it could reasonably have influenced.
Do not make this classification solely from an exit-interview label. Combine available evidence from manager notes, compensation history, engagement signals, internal mobility, workload, promotion opportunity and the employee’s stated reasons.
Build a retention-response matrix
| Observed pattern | Possible diagnosis | Action to test |
|---|---|---|
| Early new-hire exits | Expectation or onboarding mismatch | Realistic job preview, manager onboarding, role clarity |
| High performer exits | Career or reward issue | Career path, mobility, differentiated development |
| One-team concentration | Local management or workload | Manager review, team capacity analysis |
| Post-promotion exits | Poor transition support | Manager onboarding and role coaching |
| Critical-role exits | Market scarcity or job design | Pay benchmarking, succession and role redesign |
The matrix is a starting hypothesis, not proof of cause. Test the explanation before launching a broad retention programme.
Connect retention to workforce planning
Retention matters most where departures create strategic or operational risk. HR should therefore combine retention data with time to fill, time to productivity, succession coverage and skill scarcity. A role with modest turnover but an eighteen-month capability ramp-up may deserve more attention than a high-turnover role that is easy to replace.
This is also why “zero turnover” is not a sensible universal goal. Some movement is normal. The objective is to retain the capabilities and people the organisation needs while identifying patterns of avoidable loss.
Re-measure after the intervention
If the organisation changes onboarding, manager training, workload or career pathways, define what evidence would show improvement before the change begins. Depending on the problem, that may be six-month cohort retention, regrettable voluntary turnover, internal mobility or manager-level retention.
Do not claim an intervention caused an improvement merely because the rate moved. Hiring mix, labour-market conditions, restructures and seasonality can all change retention. Use the most relevant comparison available and state the limits of the inference.
Frequently asked questions
What is a good employee retention rate?
There is no universal target that is appropriate for every industry, role and labour market. Compare the organisation with its own history, relevant labour-market context and the types of employees leaving.
Should new hires be included in the retention-rate formula?
For a starting-cohort retention calculation, employees hired after the start date are normally excluded. They can be analysed separately through new-hire cohort retention.
Is 100% retention desirable?
Not necessarily. Some turnover is normal and can reflect retirement, performance management, career movement or changing organisational needs. The objective is not simply to prevent every exit.
How often should retention be measured?
Monthly or quarterly monitoring can identify emerging changes, while annual views are useful for longer-term comparison. Use consistent definitions so periods remain comparable.
Related MATSH resources
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