"Training and development maintains employee retention subsequently upgrading their skills that leads to productive performance." ― Viganesh Kumar
As the name suggests, employee retention rate is the rate at which the employees are retained at your organization, i.e., your employees continue to stay with you. Calculating the retention rate is essential for many reasons―it indicates that the workplace environment is healthy, and employees are motivated to stick to your organization. It is beneficial to the organization too, because it reduces the recruitment, advertising, and other training costs of new employees.

Of course, any new recruit will take time to learn new processes and the working style of the organization. Yet, that does not mean new recruits are not good for the employer, since they may bring about striking changes and innovations to the organization. Fresh talent should always be welcomed. But the company should make sure that the returns justify the costs.

For all these purposes, it is necessary to calculate the retention rate of employees, which will help the management of the company to take further decisions regarding the human resource management.
How to Calculate Employee Retention Rate?
For example, your organization has 1000 employees at the beginning of the year, 20 employees have left the organization during the time period. Thus, number of employees retained is 1000-20= 980 employees. In short, the formula is:

Employee Retention Rate = (Total number of employees retained / Total number of employee positions during a specific time period) × 100

This formula is based on the assumption that all the employee positions were occupied at the start of the year.

It means, the retention rate in this case is (980/1000)×100 = 98%
You can calculate the retention rate on a monthly, quarterly, or annual basis, or as per your requirement.
Employee Retention and Turnover Rate
1. The retention rate simply considers the percentage of employees retained in the company, because there might be new recruits replacing those who left.
2. A better representation of facts would be the consideration of turnover percentage along with retention rate. Turnover percentage calculates the percentage of employees that leave the organization out of their own accord.
3. However, there are various techniques to determine the turnover percentages, and it should be kept in mind that the turnover percentage is not necessarily the inverse of retention rate.
Use of Employee Retention Rate
After calculating the employee retention rate, you should consider the following factors.

What are the possible reasons for low rate-retirement, change in employment opportunities as a whole, employees sacked, better opportunities available for employees, employees leaving due to lack of challenges or work satisfaction, or lower pay. All these factors have to be analyzed so that the computation of the retention rate proves useful for the management. Calculations simply determine a number; however, without knowing the reasons behind them, it is not possible to build new strategies or to bring any modifications and improvements in the work culture.
How to Increase Employee Retention?
1. Take feedback from your employees, through exit interviews or other means. Often, managers ignore grass-root level problems and expect employees to perform without understanding their genuine difficulties.
2. Organize training and motivational programs to encourage employees to develop their skill sets and increase interaction with them.
Employees are 'human resource'―the management of the company has to bear this in mind. Anything that is human is prone to errors, and your employees face various challenges, such as competition with other employees, deadlines, fear of being fired, lack of motivation, not to mention myriad of emotions which every human comes with. This is the most important resource of your company, and no organization can survive only through technology and mechanization. You can buy their services, only if they're paid their value. Unfortunately, due to employment crisis, in some nations, there are many employees who continue working in an unhealthy workplace environment. Where human labor is cheap, it is easier for the employers to retain them.
A high retention rate does not necessarily indicate that your employees are happy. It might be high due to the dearth of employment opportunities outside. Keeping your company's working style conducive for the growth of both employees and employers is the responsibility of the management and the human resource department.
Neha B Deshpande
Last Updated: August 22, 2016