in-depth

Employee retention and its importance to your business

Helen Webster

“People are your most important asset” or so the saying goes. Most employers would regard the retention of key employees as integral to their business success. As the employment and labour market is continuing to change, with unemployment rates falling in the UK and the supply of labour being impacted by Brexit, employers will need to consider strategies for increasing employee retention.

What is employee retention?

Put simply, it is a measure of an employer’s ability to keep its employees. The usual calculation is:

No.of employees with > 1 year's service x 100
Total no. of employees in post 1 year ago

This is, however, something of a crude measure as it does not take into account reasons why employees may have left the business or indeed whether their leaving was unwelcome.

How does employee retention and turnover affect your business?

High levels of employee turnover will inevitably increase a business's costs. But what do we mean by "high"?  

Conventional wisdom is that a “good” level of employee turnover is around 10%, but this ignores the fact that, in some industries, the average will be much higher due to the nature of the business and the roles within it.

For example, employee turnover in call centre environments can be as high as 30% as people often go into such roles as a “stepping stone” into a company, with a view to moving quickly on to another role. That level of turnover may well be no bad thing for a large company looking to develop in-house talent.

On the other hand, very low staff turnover may lead to stagnation and, ultimately, an ageing workforce causing a demographic time bomb.

As with so many things, businesses need a balance of new people coming in with new skills and ideas and long-serving employees who know the business inside-out and continue to add value.

What should businesses consider?

The first step is to carry out some analysis of your people data. You will need to understand not just the level of turnover in your business but when, why and how this is happening.

For example, is your highest rate of turnover amongst employees with one year's service or less? If so, you might want to look at your recruitment practices. Are you selecting in candidates who are the wrong fit for the role, or who do not have the right skills and competencies for the job?

If your employees are staying with you for more than the first two to three years, what is motivating them to leave? It could be that they are reaching a stage where they expect to develop their careers by moving into a bigger job. Carrying out exit interviews can be a helpful way to find out what the issues are.

Similarly, looking at whether there are any particular “hot spots” can give an insight into what the factors driving retention or turnover are.  You could find that there is an especially high level of turnover in one particular part of the business, which could be down to leadership style, culture within the team or a perception that development opportunities are being blocked by long-serving employees who are unlikely to move on.

Once you understand what the underlying issues are, you can put in place a retention strategy that will work in the context of your business.

Employee retention strategy

There is no “one size fits all” model for employee retention. What matters is what your business needs. Some businesses may want to increase employee turnover in order to bring in new ideas and new ways of working.

The following are some ideas for an effective employee retention strategy:

How can we help?

An effective strategy starts with getting the basics right. We can:

  1. Carry out a review of your contracts of employment and employee policies to ensure that they are up to date and fit for purpose;
  2. Provide training for line managers on the key employment law principles underpinning all stages of the employee lifecycle, from recruitment through to exit; and
  3. Help you to develop effective assessment, talent management and leadership development throughout your organisation.

Contact our expert

Helen Webster

Helen Webster

Solicitor

A qualified lawyer specialising in Employment Law.  Helen provides practical, commercial advice to employers and employees, helping to improve working relationships.