Retention Rate
What is retention rate?
Retention rate is the percentage of employees who were on the payroll at the start of a period and are still employed at the end of it, calculated against the headcount at the start. It is the mirror image of the turnover rate, but the two are computed on different bases and do not add up to 100.
Key facts
- Also called: Employee retention rate, staff retention rate
- Measured as: (Employees at period end who were employed at period start ÷ headcount at period start) × 100
- Usual period: Year; first-year and 90-day variants for new hires
- Ignores: People hired during the period, who are neither in the numerator nor the denominator
- Pairs with: Turnover rate, which counts leavers against average headcount
How to calculate retention rate
The formula needs two numbers: the headcount at the start of the period, and how many of those same people are still employed at the end.
Retention rate = (employees still employed at period end who were employed at period start ÷ headcount at period start) × 100
The phrase "who were employed at period start" is the part people miss. Anyone hired during the period is left out of both the top and the bottom of the fraction, even if they are still there at the end. The rate answers one question: of the people we had on day one, how many do we still have?
Three conventions keep the number comparable from period to period. Decide whether employees on leave count as still employed. Decide whether internal transfers count as retained. And fix the period, because a 12-month rate and a 24-month rate are not comparable.
Worked example
The numbers below are an illustration, not a benchmark.
A company has 200 employees on January 1. During the year 30 of those 200 leave. The company also hires 40 people during the year, 5 of whom leave before December 31.
Employees from the starting group still employed on December 31 = 200 − 30 = 170
Retention rate = (170 ÷ 200) × 100 = 85 percent
The 40 hires and the 5 early leavers among them do not enter the retention calculation at all. They do enter the turnover calculation for the same year: 35 separations against an average headcount of 202.5 gives a turnover rate of about 17.3 percent. The two figures describe the same year and do not sum to 100, because retention looks only at the starting group while turnover counts every leaver against the average headcount.
Retention rate and turnover rate
The two rates are usually reported together, and the example shows why they are not interchangeable. Retention rate is a cohort measure: it follows one group of people from the start of the period and asks who is left. Turnover rate is a flow measure: it counts all departures in the period, including people hired during it, against the average size of the workforce. The turnover rate entry (add link when published) carries the turnover formula, its conventions, and a national reference point. The live entry on employee retention covers the practices that move the retention number.
Variants of the retention rate
The same formula applies to any defined group, and the useful variants narrow the group.
First-year retention rate follows the people hired in a period and asks how many are still employed 12 months after their start date. It is the retention form of new-hire turnover and is the figure that tests the hiring process most directly. The 90-day version follows the same cohort to the end of a 90-day probation period. High-performer retention rate follows the employees rated in the top band and asks whether the organization is keeping the people it most wants to keep. Team and manager retention rates cut the starting headcount by team or by reporting line and show where departures cluster.
Why retention rate matters for recruiting
A low first-year retention rate is usually a hiring problem before it is a retention problem. When new hires leave inside a year, the reasons usually sit in the hiring process: an oversold posting, a screening step that tested the wrong skills, or an offer that set expectations the team could not meet. First-year retention by source of hire, by recruiter, and by role shows which parts of the process produce people who stay, which is one input to quality of hire. Stay interviews with the people who did stay, and exit interviews with the people who did not, turn the number into causes.
