Receiving an unexpected resignation is every manager’s nightmare. Not only does it makes it challenging to find an equally talented, if not more, replacement but it also makes others in your team contemplate looking for other opportunities. Leaders and HR executives must address the causes of attrition to retain their workforce. A low employee retention rate constitutes a high employee turnover rate, which is a costly problem for companies.

What is the employee retention rate?

An organisation’s ability to retain its employees over a period of time is referred to as its employee retention rate. It comprises several functions within an organisation, typically relating to HR policies and their efforts in engaging with their employees in order to retain them. Policies such as offering perks and benefits, a steady work-life balance, and maintaining a healthy working environment play critical roles in an employee’s decision to stay at an organisation.

An organisation’s retention rate throws light at the company’s success and ability to focus on its employees. A low employee retention rate incurs high costs to a company and makes it challenging to re-hire in tight market conditions. In addition, this not only gives an organisation a holistic view of its current workforce stability but also enables them to understand and restructure their strategies to maintain a higher employee retention rate.

When an organisation is focusing on employee retention, then it shall be fruitful in retaining the motivated and trained employees in the organisation. This will result in increased productivity and better performance in the organisation.

How to measure employee retention rate?

The procedure to measure employee retention rate within an organisation is pretty straightforward; divide the number of employees on the last day of a given time period by the number of employees on the first day. Let’s use the following example to easily explain to you the calculation of a company’s employee retention rate.

A BRH Cement – an Indian cement company – has 100 employees on the 1st of January 2019. By the end of its first fiscal quarter, the company has 105 employees, of which 10 are new hires. Across the course of the next three quarters, 25 more people were hired and as of 1st of January, 2020, BRH Cement had a strength of 125 employees.

Define The Period Of Time

Usually, employee retention rates are calculated across a period of one year; however, you can decide to calculate it for shorter periods of time as well. For the purpose of this example, we will calculate BRH Cement’s employee retention rate for the whole year

Period = 1st January 2019 – 1st January 2020

State the number of employees on the first day of the defined period

You can check the company’s payroll to find out the number of employees on this particulate date.

As mentioned in the example, BRH had 100 employees as of 1st January 2019

Total employees on the first date of the defined period = 100 employees

Determine the number of retained employees

The goal of calculating the employee retention rate is to determine the number of employees the organisation has been able to retain over the defined period of time. Hence, new hires cannot be included as part of this calculated as they will interfere with the end result.

To determine the number of retained employees, subtract the new hires from the total number of employees on the last date of the defined period. Referring to our example, BRH Cement had 125 employees at the end of the defined period (1st January 2020) and had 35 total new hires.

Total retained employees = Total employees at the end of the defined period – New hires throughout the defined period

Total retained employees = 125 – 35

Total retained employees = 90 employees

Calculate Your Employee Retention Rate

Divide the number of employees at the end of the defined period by the number of employees at the start of the defined period and multiply the result by 100 to convert it to a percentage.

Employee Retention Rate = (Total number of employees on the last date of the defined period / Total of employees at the start of the defined period) x 100

Employee Retention Rate = (90/100) x 100

BRH Cement’s Employee Retention Rate = 90%

What is the average employee retention rate in Indian companies?

There are two types of attrition in companies – voluntary and involuntary, both of which incur high costs to a company. While involuntary attrition happen when an employee is asked to leave the organisation if they are under performing or if they don’t seem fit for the role they were hired for, voluntary attrition mean when an employee chooses to step down from his role at an organisation for various reasons. Employees can choose to quit an organisation to pursue a better opportunity or to take up a better paying job or for any personal reason such as marriage or relocation.

While a good employee retention rate would be 90% or more, India has an average employee retention rate of 80-85%, which is reducing at an alarming rate.

Why does India have a seemingly low employee retention rate? According to a KPMG report, the top three reasons are:

  • Better Pay Elsewhere (28.1%)
  • Better Career Opportunity (23.4%)
  • Personal Reasons (19.6%)

If you are an Indian company and want to improve your employee retention, download our guide

What are some of the employee retention rate statistics?

The attrition rate in the Indian industry is alarming! In India, long-term employees who are retiring or leaving the organisation are replaced by younger employees who tend to change jobs frequently. It is not uncommon for a 20- or 30-year employee to be replaced with a millennial who tends to change jobs every two to three years. Even Generation X hops more jobs compared to the veteran/traditionalist generations.

The same KPMG report shows the retention rates across all the industries in India with the retail industry having the lowest employee retention rate at 81.5%.

Below is the industry-wise employee retention rate statistic for the financial year 2018-2019:

  • Retail – 81.5%
  • Insurance – 81.7%
  • Financial Services – 81.8%
  • Professional Services – 81.9%
  • Banking – 82.2%
  • ITeS – 84.9%
  • Life Sciences/ Pharma / Healthcare – 85.2%
  • Telecom – 85.4%
  • IT – 85.4%
  • Transport & Logistics – 86.3
  • Infrastructure & Real Estate – 86.7%
  • Consumer Goods – 87.2%
  • NGO/NPO – 90.8%
  • Energy & Natural Resources – 91.5%
  • Engineering & Manufacturing – 91.6%
  • Automotive Components – 92.1%
  • Automotive – 93.4%

Meanwhile, the employee retention rate at Indian startups is at a staggering 20-50%

How to improve employee retention?  Have a look at some strategies to improve employee retention rate

One consistent truth across every type of worker, regardless of age, gender, ethnicity, or geography, is that compensation is king for both recruiting and retention. If you don’t pay employees fairly, they will leave—and no perk will change their mind. This is the main reason behind the attrition in the Indian industry.

With dynamic market trends, it is in an organisation’s best interest to focus on employee retention using encouraging motivated and talented employees to remain a part of the company and contribute to its success.