EMPLOYMENT RETENTION: Definition, Strategies, Tax Credits, and Rates

Employment retention
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In a labor market that is becoming more competitive and dynamic, businesses need to understand why some workers leave and others stay to boost revenues and retain top talent. Knowing what employees value, keep an eye on the financial impacts of retention and turnover, and managing and improving staff retention are all strategic advantages. In all, there’s a need for employment retention strategies because they provide guidelines on how a business hires the right candidates, conducts training, and also retains them within their work environment. Stay with me as I highlight the need for employment retention, its perfect rates, tax credits, and some expert-proven strategies.

What is Employment Retention

A company’s top talent needs to be kept on staff. This is what employee retention strives to do. Employee retention describes the strategies a company uses to keep its most valuable employees and lower the likelihood of employee turnover. Businesses and HR departments are currently very concerned about employee retention.

There are numerous reasons why people leave their professions. Some are voluntary, such as switching occupations, while others are forced, such as being laid off. Employee retention strategies mostly concentrate on voluntary turnover that is bad for the business rather than the loss of a poor performer. It also highlights instances of turnover that could be avoided, such as when someone leaves their employment to move out of state.

Why Is Employee Retention Important?

Employee retention is a critical aspect of modern human capital management activities. The numbers speak for themselves: According to Gallup, replacing workers who voluntarily leave their jobs costs U.S. businesses more than $1 trillion a year. Revenue, productivity, employee satisfaction, and knowledge retention are all negatively impacted by high turnover, some of which could have been avoided with earlier management action.

Employee Retention Models

To comprehend job satisfaction, academics have created a variety of models over the years. These psychologically based concepts have evolved to influence HR’s retention approach. They include:

#1. The Hierarchy of Needs

Abraham Maslow, a psychologist, developed the Hierarchy of Wants to identify the most crucial human wants and determine which ones should be met first. The idea can also be utilized to research the elements that contribute most to job satisfaction. The five levels of wants are, in order of importance, psychological, safety, belongingness, esteem, and self-actualization.

#2. Motivation-Hygiene Theory

Fredrick Herzberg, a psychologist, identified two primary factors that influence job satisfaction: Examples of motivators, often referred to as job satisfiers, include recognition, meaningful work, and personal development. Pay, perks, and job stability are a few examples of hygiene, sometimes known as factors that make people unhappy at work. Although proper management of hygiene issues may lessen employee discontent, it should be highlighted that they are not regarded as sources of inspiration or fulfillment.

#3. Human Motivation Theory

In his 1961 book The Achieving Society, psychologist David McClelland expanded on Maslow’s theory by identifying three basic human needs: accomplishment, power, and affiliation. By learning which demands are most important to their employees, employers may increase their satisfaction at work. For instance, the favorable public perception could make certain employees feel degraded. Assignments with goals tend to be most effective for some people.

#4. Job Characteristics Model

Organizational psychologists Greg R. Oldham and J. Richard Hackman claims that the following characteristics of a job increase job satisfaction: skill variety, task identity, task relevance, autonomy, and feedback. Employees who work in jobs that are created with these attributes in mind are more motivated and productive.

What Are the Examples of Employee Retention?

Examples of tactics for keeping employees

  • Make your workplace better.
  • Pay Market-Competitive Rates.
  • Create chances for career advancement.
  • Establish Meaningful Relationships at Work.
  • Appreciate and Recognize Their Work.
  • Create training and mentoring programs.
  • Promote a balanced approach to Work and Life.
  • Personalize the employee support you offer.

What Are the Benefits of Employee Retention?

The top advantages of staff retention are as follows:

  • Increased loyalty among the workforce.
  • Reduced hiring expenses.
  • High level of skill in the workforce.
  • Fewer changes in employment and transitions.
  • Improved communication with customers.
  • A good corporate culture.
  • improved brand reputation.
  • Stronger links throughout the staff.

Employment Retention Tax Credit

Employee retention is a shared duty. from the supervisor who mentors the employee, to the team members, they collaborate with to the clients they deal with.

The Employee Retention Credit (ERC) was a refundable payroll tax credit that was initially applied to “qualified wages” paid to retained employees from March 13, 2020, through December 31, 2020. It was produced as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. The objective of the ERC was to convince employers to continue paying employees even if they were unable to work throughout the covered time due to the coronavirus pandemic. Numerous changes were made to the original ERC. It was finally retrospectively discontinued as of September 30, 2021, except for initiating recovery enterprises as defined under the Infrastructure Investment and Jobs Act (IIJA).

Who Is Eligible for the Employee Retention Credit?

The employee retention credit is available to any private sector company or tax-exempt organization doing a trade or business in 2020 if they:

  • A government agency’s directives banning trade, travel, or group gatherings due to COVID-19 forced activities to cease entirely or partially during any calendar quarter; or
  • Gross sales fell significantly during the calendar quarter.

What Does a Partial Suspension of Corporate Operations Mean?

To qualify as partially suspended, an employer’s business operations must have been constrained by a federal, state, or local order, proclamation, or decree that affected the employer’s operations.

For instance, if a restaurant’s dining room had to close due to a local government order but was still able to offer carry-out or delivery service, it was said to have partially suspended operations.

Operations may be temporarily suspended due to a limitation on the number of hours a firm may be open or because some commercial operations had to be shut down and work could not be done remotely.

Employment Retention Rate

A notable metric that illuminates the workplace is your staff retention rate. In a word, it’s the percentage of employees who stay with your business for a particular period. However, determining your staff retention rate requires much more than a simple formula. It helps you assess how well you’re doing at creating an environment where your talent is engaged and motivated. By analyzing retention rates over a predetermined period, you can spot areas where the employee experience is lacking or strong and implement improvements.

What Is the Formula for the Rate of Employee Retention?

There is a simple method you may use to determine your retention rates. Divide the number of employees who have remained throughout a particular period by the total number of employees over that time, then multiply the result by 100:

(End of specified period headcount less than the beginning of set period headcount) multiplied by 100

Why Is the Rate of Staff Retention Important?

Your talent is the most valuable resource in your business. They fuel the initiatives that keep your company thriving. Without your talent, you couldn’t reach your business goals. For this reason, implementing effective retention strategies is essential. When these strategies are employed, you could run into:

  • Increased productivity
  • Educated and talented personnel
  • Increased consumer satisfaction.
  • A more positive organizational culture
  • Cost reduction
  • An increase in staff morale

Examples of How to Calculate Employee Retention Rate

Let’s imagine you have 440 workers on December 31, 2021, and 475 on January 1 of that same year. Divide 440 by 475 to obtain your annual retention rate, then multiply by 100.

The retention rate is (440/475) multiplied by 100, or 92.6%, annually.

Why Does Employee Retention Matter to HR?

One of the key reasons human resources managers are concerned with improving employee engagement initiatives at their firm is retention.

Employment Retention Strategies

Organizations create and put into practice retention strategies to prevent attrition, increase retention, and foster employee engagement. The following are some of the employee retention strategies that businesses use;

#1. Increase Staff Participation

One of the strategies that businesses use for employee retention is to increase staff participation. Disengagement among employees is bad for business. They undermine employee morale, discourage coworkers from giving their all, and set a poor example. One of the things that diminish engagement the most is employees’ lack of a voice. Since employees want to have a say in decisions that influence their jobs and the direction of the company, giving them a true voice can dramatically enhance retention.

#2. Obtain the Appropriate Rewards and Acknowledgment

Even though employees who feel appreciated perform better and stick around longer at their employers, over 80% of American workers believe they do not feel recognized or appreciated. Therefore, acknowledgment and rewards are great strategies that businesses must also add to their employment retention plans. To establish an appreciation-based culture, more than just occasional acknowledgment is required. It requires frequent, focused acknowledgment.

To make constant recognition a reality, your business should give both monetary and social awards equal weight, especially by utilizing a platform that promotes engagement from all employees.

#3. Hire Just the Best Applicants

The most effective employees choose to work with positive individuals over those who bring them down. So, hiring the best applicants is also one of the employment retention strategies businesses must adopt. I mean, you can’t possibly talk about retention without the right employee. Find ways to attract outstanding candidates who will match your culture and stick around for a while. Consider gamifying the hiring process as another way to improve the experience. Hackathons, virtual reality simulations, and digital games are just a few of the many options made possible by gamification.

#4. Improve the Onboarding Procedure

Onboarding is the first step in making new hires feel welcome at your company, and it continues throughout their first year. It can take a new employee up to two full years to reach the same level of productivity as an established staff member, so it’s important to instill confidence and competence in them from the beginning. This can help with your employee retention strategies.

You may help new workers make the shift from outsider to insider by educating them about their responsibilities, giving them the authority and resources they need to complete their work and achieve their goals, and creating an environment where they feel welcome. However, refrain from providing people with too much information.

#5. Provide Chances for Professional Advancement

Inadequate training can cost a business $13.5 million annually for every 1,000 employees. It should come as no surprise that a lack of investment in employee development and worker turnover are related. On the other side, promoting continued education and professional development helps your team members and improves staff retention.

#6. Establish a Culture That Staff Members Want to Be a Part of

Culture is the secret to attracting and keeping top talent. According to the Associated Press, more than half of workers would leave their current position for a lower-paying one at a company with a better culture. According to Glassdoor, 77% of job seekers consider a company’s culture before applying. Creating a strong corporate culture will enhance communication among current staff members, create opportunities for better customer service, and draw top talent.

#7. Give Prizes to Winners

Offering bonuses is a sensible strategy to express gratitude to employees for their exceptional work. 85% of employees feel more motivated to work hard when an incentive is offered. There are numerous strategies to motivate your staff. First, as one of the biggest reasons for employee departures, determine whether the salary your company offers is fair. Then take into account extra monetary rewards like profit-sharing, tuition reimbursement, and referral programs. Bonuses and pay increases are always appreciated, too.

#8. Be Able to Sustain

The relationship between supervisors and their direct reports can have a big impact on the working environment for employees. Nearly half of employee turnover is caused by bad managers, and 60% of workers think their managers could use some improvement.

The top managers act as mentors and put a lot of effort into making their direct subordinates shine. They offer constructive criticism, are happy and self-assured, and recognize the value of their workers. A coaching approach fosters mutual trust and creates the idea that supervisors and their direct subordinates are on the same team. Stress management is arguably the major advantage of coaching. Setting goals, giving employees responsibility, and frequently assessing progress help employees understand where they are and where they need to go.

#9. Avoid Burnout by Focusing on Employee Wellness

Employee burnout is a major issue that is escalating swiftly in the US (76% of workers report experiencing burnout at work). Fatigue, unpleasant emotions, and a sense of isolation are common and difficult-to-address symptoms of burnout. Burnout can even manifest physically, leaving workers with little choice but to leave their businesses.


Employment retention strategies are generally for the overall well-being of the business rather than the employees. This is primarily because it reduces employees’ turnover rate when maximized.

Employment Retention FAQs

What is a good employee retention rate?

About 90%. Maintaining a turnover rate of 10% or less is considered a strong retention rate for employees, implying that a corporation should strive for a rate of 90% or above. However, the average retention rate in 2021 was roughly 52.8%, but it varied significantly among industries and sectors.

Why do we need a retention strategy?

An organization’s retention strategy is a comprehensive plan to keep its best workers and keep them engaged in their work.

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