Employee retention – what it is, how to measure it and how to reduce turnover

Employee retention is a company's ability to keep its people for longer. It is measured with the retention rate, i.e. the percentage of employees who stayed with the company over a given period. Its opposite is employee turnover – departures that have to be filled with new hires. The most can be gained right at the start of employment, which is why a well-planned onboarding is one of the most effective retention tools.

Below you will find formulas and a worked example, the most common causes of turnover, the components of the cost of an employee leaving, and concrete strategies – from the first day of work to returning after a long absence.

Employee retention – what it is and how it differs from turnover

Retention and turnover are two sides of the same coin. Retention shows how many people you managed to keep. Turnover shows how many left and how often the company has to look for replacements. High retention does not mean everything is fine, though – a team may be staying because of a lack of alternatives, not because of engagement.

When analyzing turnover, it is worth distinguishing its types:

• Voluntary turnover – the employee resigns of their own accord. This is the type you can most often reduce.
• Involuntary turnover – a separation initiated by the employer, e.g. after a failed probation period.
• Desirable turnover – someone leaves who did not fit the role or the team.
• Undesirable turnover – a person you wanted to keep leaves. This is the main target of retention efforts.

Some turnover is natural and healthy. The problem starts when good people leave, when departures are concentrated in one department, or when new hires quit after a few weeks.

How to measure employee retention and turnover – formulas

You calculate both indicators for the same period (a quarter, a year), ideally broken down by department, role and manager. A single company-wide number rarely tells you where the problem lies.

Retention rate

Retention rate = (number of employees at the start of the period who are still employed at its end ÷ number of employees at the start of the period) × 100%

Important: do not count people hired during the period in the numerator. The indicator is meant to show how many people from the “starting” team you managed to keep.

Turnover rate

Turnover rate = (number of departures in the period ÷ average headcount in the period) × 100%

The simplest way to calculate average headcount is (headcount at the start + headcount at the end) ÷ 2. You can also calculate voluntary and involuntary turnover separately.

Early turnover

Early turnover rate = (number of people who left within the first 3, 6 or 12 months ÷ number of people hired in the period) × 100%

This is the indicator that most quickly shows the quality of your recruitment and onboarding.

Calculation example (figures are illustrative only)

Imagine a fictional company that employs 80 people on January 1. During the year it hires 16 new employees and 12 people leave – 8 from the starting team and 4 among the new hires. At the end of the year the company therefore has 84 employees.

At first glance, 90% retention looks good. But one in four new hires left in their first year – and that is a signal that the problem lies in recruitment or onboarding, not in the whole organization.

What else is worth tracking

• length of service at the time of leaving (do people leave after 2 months or after 5 years),
• departures broken down by manager and team,
• time until a new hire becomes fully independent,
• results of post-onboarding surveys and exit interviews,
• reasons for leaving collected during exit interviews.

Causes of employee turnover

Employees rarely leave for one reason. Usually several factors overlap, and the final trigger is a better offer. The most common ones are:

• relationship with the manager – lack of support, lack of feedback, unclear expectations,
• no prospects – no visible way to grow or get promoted,
• pay that is out of line with the market or a bonus system nobody understands,
• overload – constant overtime, staff shortages, pressure without support,
• team atmosphere and a feeling that nobody appreciates the work,
• lack of flexibility – in hours, location, and the ability to balance work and private life.

Why employees leave in the first months

Early departures usually have different causes than departures of experienced employees. In many companies the same scenario repeats:

• Mismatched expectations – the job looks different from how it was described in the ad and at the interview.
• A chaotic start – no equipment or access, nobody is expecting the new person, the first day is spent waiting.
• No plan – it is unclear what to learn, what the priorities are and what “good work” means.
• Loneliness – there is nobody to ask, and asking the manager feels like a bother.
• Information overload – dozens of documents at once, zero hands-on practice.
• Fieldwork without support – a salesperson or merchandiser is left alone with a route and customers after two days of training.

Most of these causes can be removed before the first day. We describe how to do it in our articles on preboarding and the first day at work and on how to prepare an employee onboarding plan step by step.

The cost of turnover and the cost of recruiting an employee

The cost of an employee leaving is always higher than the job ad invoice suggests. Instead of looking for generic estimates, calculate it for your own company – a simple spreadsheet with the components below is enough.

Direct costs

• job ads, job boards, recruitment agency fees,
• HR time spent screening CVs and organizing interviews,
• managers' and specialists' time spent on interviews and recruitment tasks,
• pre-employment medical checks and the mandatory health and safety (OHS) induction training that the employee must complete before being allowed to work,
• equipment, licenses, work clothing, access cards,
• settlement with the departing employee, e.g. payment for unused leave.

Hidden costs

• time to full productivity – for the first weeks a new hire works more slowly while receiving a full salary,
• buddy, mentor and manager time spent on onboarding,
• vacancy – team overtime, delayed projects, unserved customers,
• mistakes made during the learning period,
• lost knowledge and customer relationships that walk out the door with the employee,
• morale – every departure makes the remaining employees think about their own situation.

A simplified formula looks like this: cost of turnover ≈ recruitment cost + onboarding cost + cost of lost productivity during the vacancy and learning period. Once you multiply the result by the number of departures per year, it is easier to justify investing in better onboarding and retention measures.

Want to see how much time you can save on onboarding? See how an automated onboarding path with surveys and reports works – book an OnBoardMe demo and test it on a single role.

How to keep employees – retention strategies

There is no single method that will solve the turnover problem. An effective retention strategy combines several actions and starts on the day the contract is signed.

1. Onboarding with a plan and goals

A new hire should know what they will learn in the first week, month and quarter, and how they will know they are doing well. If you are only starting to organize this topic, begin with the basics: what onboarding is and what stages it consists of.

2. Buddy and mentor

A buddy is a teammate who answers the “silly questions”, shows the unwritten rules and makes sure the new person does not eat lunch alone. A mentor supports development in the longer term. Both roles take time – plan for it and do not treat it as an add-on “after hours”.

3. Development and L&D

People stay where they see their future. Show a career path within the role, plan training and give people the chance to build new skills – including through e-learning that employees can complete at their own pace.

4. Regular feedback

Feedback once a year is not enough. Short conversations every week or two let you catch problems before they turn into a resignation. Feedback should work both ways – ask what is bothering the employee, too.

5. The manager as a pillar of retention

It is the direct manager who most often decides whether someone stays. Train managers in holding conversations, delegating and giving feedback. Analyze turnover by team – high turnover under one manager is a signal to have a conversation.

6. Pay and flexibility

Fair, transparent pay is a necessary condition, but rarely a sufficient one. Flexible hours, hybrid work where possible and a predictable schedule often matter to employees as much as a raise.

The role of onboarding in employee retention

The first months decide whether a new hire commits to the company or starts browsing job listings. Good onboarding shortens the time to independence, builds relationships in the team and lets you spot warning signs quickly. A sample retention-focused action plan could look like this:

The plan has to be adapted to the industry. A few examples:

• Manufacturing – OHS and the workstation in the first days, work under the eye of an experienced operator, a knowledge test before working on a machine independently.
• Salespeople and field workers – online product training available from a phone, joint visits with a mentor, a short recap after each week.
• Outsourcing companies – a repeatable path for large groups of merchandisers or telemarketers, and control over who has completed training before being sent to a client.
• Office and specialist roles – procedures, systems, company structure, gradually taking over cases under supervision.

Post-onboarding surveys and feedback – an early warning system

Post-onboarding surveys let you learn about a problem before the employee hands in their notice. Short, regular surveys work best: after the first week, then at 30, 60 and 90 days.

Sample questions:

• Does the job match what you were told at the job interview?
• Do you know what your goals are for the next month?
• Do you have everything you need to work (equipment, access, information)?
• Who do you turn to with questions, and do you get an answer?
• What was the most and the least helpful part of the onboarding process?
• On a scale of 1–10: how likely is it that you will still be working with us a year from now?

Collect feedback not only from the new hire but also from the buddy and the manager – their assessment will show whether onboarding is going according to plan. And most importantly: act on the results. A survey after which nothing changes teaches people that it is not worth telling the truth.

Reboarding after a long absence

Retention is not only about new hires. An employee returning from maternity or parental leave, a long sick leave or a secondment often comes back to a changed company: new procedures, systems, people, sometimes a new manager. Without reboarding it is easy to feel “I don't fit in here anymore”.

Return checklist:

• a conversation with the manager before the return or on the first day,
• a summary of changes in the company, the team and procedures,
• updating access, equipment and mandatory training,
• remember follow-up medical checks if the regulations require them after a longer sick leave,
• gradually restoring the full scope of duties,
• a survey or conversation a few weeks after the return.

When someone leaves despite everything, make sure you hold a proper exit interview – we describe it in our article on offboarding and the exit interview. It is a source of knowledge about the causes of turnover that no indicator can replace.

How OnBoardMe helps increase employee retention

Retention efforts require consistency: tasks must be assigned, surveys sent on time and results visible to HR and managers. The OnBoardMe onboarding system:

• Onboarding paths – daily or weekly templates with tasks for the employee, buddy, manager and mentor, reused for subsequent roles.
• Progress and engagement reports – you see who is completing tasks and where onboarding has stalled, and not only on the new hire's side but also on the buddy's or manager's.
• Surveys and feedback – rating-scale and open-ended surveys for the whole onboarding team, sent automatically at scheduled moments.
• E-learning courses and knowledge tests – e.g. GDPR, OHS, procedures and products, with live insight into the results.
• Employee development – the platform also supports Learning & Development, preboarding, reboarding and offboarding, so the path does not end after the probation period.
• Notifications and alerts – nobody has to remember the next step.

The Campter compensation claims firm uses OnBoardMe to onboard claims handling and sales staff: “we have up-to-date results of their training, everything online”. You can find the full list of capabilities on the OnBoardMe features page, and examples of implementations in different processes in the onboarding platform use cases.

To sum up: employee retention starts with measurement – the retention rate, the turnover rate and early departures – and is improved through good onboarding, an engaged manager, regular feedback and real prospects for growth. If you want to organize onboarding and keep the progress of every new hire under control, discover the OnBoardMe onboarding platform from 4B Systems.

Frequently asked questions

How do you calculate the employee retention rate?

Divide the number of employees at the start of the period who are still with the company at its end by the number of employees at the start of the period, then multiply by 100%. Do not count people hired during the period. It is best to analyze the result by department and role.

What is the difference between employee retention and employee turnover?

Retention shows what share of your team you managed to keep over a given period. Turnover measures how many people left relative to average headcount. It is worth tracking both together, because they describe the same problem from two sides.

What is a normal turnover rate?

There is no single value that is right for everyone – it depends on the industry, the types of roles and seasonality. The best benchmark is your own results from previous periods and a comparison between departments within the company. Pay particular attention to departures in the first months of employment.

What makes up the cost of employee turnover?

The cost of turnover includes recruitment costs (job ads, agency fees, HR and manager time), onboarding costs (training, medical checks, equipment, buddy time) and lost productivity during the vacancy and the learning curve. On top of that come costs that are harder to quantify, such as lost knowledge and lower team morale.

When should you send surveys after onboarding?

A short survey after the first week works well, followed by surveys at 30, 60 and 90 days. It is also worth collecting feedback from the buddy and the manager. What matters most is reacting quickly to warning signs in the answers.

How do you keep an employee who is thinking of leaving?

Talk to them openly and find out the real reason – it is often about the relationship with their manager, a lack of growth or overload, not just money. Propose specific changes and set a date for the next conversation. In the long run, regular feedback works better than a last-minute counteroffer.