What Is Employee Retention and What Factors Contribute to It?

Employee turnover and employee attrition cost your business money. Employee retention is how you combat turnover.

Employee retention is an organization’s ability to keep its employees. Employee retention is usually represented as a percentage. For example, an annual retention rate of 80% indicates an organization kept 80% of its employees that year and lost 20%.

It’s natural for organizations to experience turnover. Also, some industries are prone to higher turnover rates than others due to wages, difficulty of work, and benefits they traditionally offer to employees. These industries include:

  • Staffing – 352% turnover rate
  • Cleaning professionals – 75-400% turnover rate
  • Logistics – 50% turnover rate
  • Call centers – 33% turnover rate

Truly understand the costs of turnover and what can be done about it.


Why does employee retention matter?

Keeping track of employee retention is important because disengaged employees and turnover costs are wildly expensive. Some studies calculate that entry-level employees who make an average salary of $40,000 cost 40% of their annual salary to replace.

Improving retention is the only way to negate this expense, therefore an organization needs to track retention to see if there is room for improvement – and subsequently room to protect their bottom line.

A variety of factors can cause an employee to withdraw and begin looking for other opportunities.

What factors lead up to an employee’s dissatisfaction?

Some of the most common factors that lead to disengagement from your employees include:

Low employee morale

In a study was conducted by TINYpulse, an employee engagement firm, employees who give their work culture low marks are nearly 15% more likely to think about a new job than their counterparts.

Absence of a clear career path

A study conducted by Glassdoor and Harvard Business Review found that workers who stay longer in the same job without a title change are significantly more likely to leave for another company for the next step in their career.

Staying in the same role for an additional 10 months raises the odds that employees will leave the company for their next role by about one percentage point, a statistically significant effect.

Financial insecurity

When employees are unable to meet their financial obligations, it’s natural for them to question their job. It’s a simple if-then statement. “If I am not earning enough to sustain myself or my family, then I need to get a new job.”

According to the 2016 Employee Financial Wellness Survey, conducted by PricewaterhouseCoopers (PwC), out of 1,600 full-time employees, 52 percent of workers claim to be stressed about their finances. And the younger the worker, the more likely that they are worried. 64 percent of millennials said they feel stressed about their finances.

Lack of satisfaction and commitment to the organization

According to a 2015 employee engagement poll by Gallup, only 32% of U.S. employees considered themselves engaged at the workplace.

In a study by Towers Perrin, engagement can be directly related to turnover. 66% of highly engaged employees reported that they had no plans to leave their company, while only 3% of them were actively looking, compared to 31%, of disengaged employees who are actively looking for new work.

Gallup also says that of 23,910 business units, those with the lowest engagement scores yield 31% – 51% more employee turnover.

How can you tell if an employee is about to jump ship? 

When an employee leaves your organization, it’s not out of nowhere. There may be subtle – or not so subtle – actions leading up to the event.

According to Harvard Business Review, here are 5 signs that an employee is going to quit:

  1. Their work productivity has decreased more than usual.
  2. They have exhibited a negative change in attitude.
  3. They have exhibited less focus on job-related matters than usual.
  4. They have expressed dissatisfaction with their current job more frequently than usual.
  5. They have left early from work or arrived late more frequently than usual.

These red flags don’t even include some of the more obvious signs like, employees dressing up more than usual at work, taking more sick days or longer lunch breaks, or other indicators that they may be interviewing.

How can employers prevent employees from leaving?

Employee retention is more of a strategy than an outcome. It takes careful attention and maintenance to cultivate an engaged and loyal workforce.

Data has shown that offering an instant pay benefit, as part of a comprehensive benefits package, can significantly improve employee retention.

We recently tested using a daily pay product in an industry with notoriously high turnover rates. UCode is a tutoring service for youth aspiring to learn computer code. UCode’s pain-point is retaining the best tutors who are themselves highly qualified coders who could work lucrative jobs at startups and technology companies.

Further, the bulk of UCode’s instructors are millennials who are more prone to switch jobs more frequently than previous workforces.

Some time ago UCode began to offer DailyPay to its instructors. In the education business, the most important asset is people, namely the instructors. The response was so great that the administrative staff also asked to be added to DailyPay.

Want to learn about a hassle-free solution for employee turnover?