Why employee retention is important in 2025
Uncover cutting edge strategies for improving employee retention and building a more productive working environment.
Employee retention has arguably never been more important than it is right now. Recent PwC research found almost as many as a quarter of UK workers expect to change jobs in the past 12 months, a 5% rise year on year.
With data from Gallup suggesting that the cost of replacing departing employees can equal 50-200% of their annual salary, it’s clear that employee retention should be a major strategic priority. And our research suggests for many organisations it already is for many, with 46% of employers listing improving their employee retention rate as a core priority.
In this article, we’ll explore the benefits of employee retention and offer practical steps you can take to build an engaged, productive, and loyal workforce.
What is employee retention
Employee retention refers to an organisation’s ability to create a thriving workforce that retains its top performers and minimises turnover.
A comprehensive retention strategy is essential to the sustained success of any organisation, as when an employee leaves it can impact:
- The skills and experience in your organisation
- The overall productivity of your team
- Your customer relationships and customer experience
- Team morale
- Your budgets
This last point is particularly important. While many see the cost of replacing an employee as the recruitment cost alone, it’s the indirect costs that often pack a punch. This includes the cost of training, the loss of expertise, and the impact of lost productivity.
So, while some departures may be beyond your control, such as retirements or relocations, tracking retention rates is crucial for identifying underlying issues and assessing employee engagement.
You can calculate your employee retention through the following key metrics:
- Retention rates: The percentage of employees who stay with the company over a specified period.
- Turnover rates: The percentage of employees leaving during a set timeframe.
- Employee tenure: The average length of time that employees stay in your business.
By understanding both the importance of employee retention and your current performance, you will be able to proactively address any shortcomings you may have. By doing so, you can cultivate a more efficient workplace, benefit your customers, and gain a competitive edge in the market.
Causes of high employee turnover
Understanding the reasons behind employee churn is crucial for implementing an effective employee retention strategy.
While our research shows that salary is the principal factor when candidates choose to accept a new role, there are several factors that contribute to employee turnover. These include:
- Uncompetitive benefits packages
- Lack of career development opportunities through learning and training
- Feeling underappreciated for their work
- Poor or ineffective leadership
- Unhealthy work-life balance
- Low engagement with company culture
External factors can also influence employee retention. For example, nearly 4 in 10 businesses are concerned that the rising cost of living, as well as the cost of housing and travel, will have a tangible effect on their ability to retain staff.
By addressing these underlying factors and creating a supportive work environment that improves the employee experience, businesses can reduce turnover and retain top talent.
5 benefits of employee retention
Investing in employee retention can yield numerous benefits for any employer. Let’s explore the most significant.
Cost savings
As highlighted above, the direct and indirect costs of replacing an employee can stack up quickly, with estimates ranging from 50% to 200% of the annual salary.
To put this into perspective, consider the average salary in the UK, which is just shy of £35,000. This means that finding a replacement hire, training them, and onboarding them into your company could cost anywhere between £17,500 and £70,000.
On top of this, it’s often the case that new hires enter the business at higher salaries than existing employees. Beyond the immediate cost implications, this means that without transparent salary practices and efforts made to tighten pay gaps, you could inadvertently be prompting people in similar roles to leave the company down the line.
This makes a cost-effective investment in retention a key pillar of your people strategy.
Increased productivity and performance
When someone leaves the company, it’s not just leaving cards and farewell drinks.
It causes disruption. Whether it’s their specific skills and experience, the relationships they have with colleagues, suppliers, or customers, or their role in certain projects — they leave a hole in your company.
Having a team that sticks around for the long haul improves collaboration, knowledge sharing, and efficiency, and ultimately offers better results for the entire business.
By focusing your efforts on retaining top talent, you can not only minimise disruption across the whole team but also help the expertise of each employee grow alongside your company.
Improve employee morale and engagement
Keeping your team together can work wonders for morale and engagement across the entire organisation. Long-term employees build long-term relationships, fostering strong bonds that help them feel connected, motivated, and engaged with their roles.
On the flip side, if a team feels like a conveyor belt of new joiners and swift exits, it stunts momentum and relationships, hindering the creation of a culture where each member is invested in their work. Plus, with open vacancies, someone usually has to pick up the slack. High churn leads to overworked and stretched employees, ultimately exacerbating the issue.
More institutional knowledge
Getting new employees up to speed is one thing, but replacing a worker who has been in the trenches for years is another.
The longer your staff stay with you, the more institutional knowledge you have in your ranks. This knowledge can give you a competitive edge on your competition in the market and be passed down to new recruits, a core part of any succession planning strategy.
Enhanced reputation
Creating an attractive employee value proposition (EVP) is key for standing out to candidates in a competitive market. Fortunately, the effort and time invested in retaining your team will benefit your EVP and strengthen your hand in the attraction of top talent.
Plus, by fostering a fantastic work environment, you can begin to leverage referrals from your team. This not only reinforces your company culture but also reduces recruitment costs and increases the likelihood of successful hires.
6 strategies to improve employee retention
As many as 33% of new employees hand in their notice in the UK within six months of starting a job. The only way to avoid this is putting employee retention at the forefront of your people strategy. Let’s look at the steps you can implement to make this a reality.
1. Provide competitive compensation
According to Totaljobs research, 37% of people in the UK are dissatisfied with their current salary.
To address this, conducting regular salary reviews and offering a comprehensive range of appealing benefits should be central to your people strategy.
Interestingly, 66% of candidates say they would skip a pay rise to get their most desired benefit. So, consider surveying your team on the benefits they value most and, budget permitting, incorporate them into your compensation package.
Furthermore, by benchmarking salaries to ensure competitiveness within the industry and fairness within your organisation, you can work to ensure fewer employees are tempted away by high offers elsewhere.
2. Support employee wellbeing
By offering mental health support, implementing wellness programmes, and actively promoting the importance of taking breaks, using annual leave, and switching off at the end of the day, you can avoid the risk of employees feeling burnout.
Prioritising employee wellbeing not only fosters a healthier and happier team, but also contributes to retention in the long run.
3. Prioritise a healthy work-life balance
Offering flexible work arrangements that cater to your team’s needs can significantly boost loyalty and engagement, with our research showing that is candidate’s most desired benefit. This can involve:
- Staggered start/end times
- Remote/hybrid working models
- 4-day working weeks
It’s also worth bearing in mind that the vast majority (85%) of parents are struggling financially as a result of balancing childcare responsibilities and work while 66% of workers view employers who offer family-friendly benefits more favourably. As a result, being flexible around school runs and other individual needs can be particularly impactful in retaining talent.
4. Recognise and reward performance
Research suggests that 8 in 10 people feel more loyal to their employer after being recognised for their efforts or receiving a reward.
So, having a reward strategy that celebrates both individual and team success can be decisive in the creation of a fun, engaging, and special place to work.
Whether it’s a gift voucher or an extra day’s annual leave — it’s important to remember that a little can go a long way. For many, even a ‘shout out’ in front of their colleagues is enough to make a difference.
5. Invest in training and career development
Training, Learning & Development are critical to employee engagement, so much so that research from Deloitte has found that companies that prioritise learning have 30%-50% higher retention rates.
Offering continuous learning opportunities, whether through online courses, in-person training, or mentorship programmes, drives engagement. Additionally, providing clear pathways for career progression and promotion through succession planning can ensure that employees see their future within the company.
6. Develop a strong and inclusive culture
According to the Society for Human Resource Management (SHRM), almost half of people who leave their job cite the company culture as a push factor.
So, creating a culture that’s built on open communication, respect, and collaboration is key to getting the best out of your team and retaining talent. A key element of this is a strong visible commitment to diversity, equity, and inclusion, where people from all backgrounds feel welcome, recognised and that their voices are heard.