Employee retention
Employee retention is a business's ability to keep its employees rather than lose them to other employers. It is usually measured using the labour turnover rate, the percentage of staff who leave over a period, calculated as the number of staff leaving divided by the average number of staff employed, multiplied by 100.
Before you start
Make sure you're comfortable with these topics first:
Method
- Learn the labour turnover rate formula: number of staff leaving in the period divided by the average number of staff employed, multiplied by 100, and be able to calculate it.
- Learn what a high labour turnover rate signals: a possible problem with pay, motivation, management or working conditions.
- Learn the costs of high labour turnover: recruitment costs such as advertising and interviewing, induction and training costs for replacements, lost productivity while new staff learn the role, and loss of experienced staff's knowledge or customer relationships.
- Learn retention methods and match each to the problem it solves: competitive pay for financial dissatisfaction, non-financial motivation such as recognition for job satisfaction, training and career progression for staff who feel stuck, and flexible working for work-life balance.
- For calculation questions, show the working clearly: divide the number leaving by the average number employed, then multiply by 100, giving the answer as a percentage.
- For explain or evaluate questions, identify the likely cause of poor retention from the case's evidence, then match it to the retention method that would address that specific cause.
Worked example
A care home employed an average of 40 staff last year, and 10 staff left during the year. Calculate the care home's labour turnover rate for the year, showing your working.
- Identify the formula: labour turnover rate equals the number of staff leaving divided by the average number of staff employed, multiplied by 100.
- Identify the figures given: number leaving equals 10; average number employed equals 40.
- Substitute the figures into the formula: 10 divided by 40, multiplied by 100.
- Calculate: 10 divided by 40 equals 0.25; 0.25 multiplied by 100 equals 25.
- State the answer with units: the care home's labour turnover rate is 25 percent.
Practice questions
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Q1State the formula for labour turnover rate.Show answer
Answer: The number of staff leaving divided by the average number of staff employed, multiplied by 100.
Q2A shop had an average of 60 staff and 6 left in a year. Calculate the labour turnover rate.Show answer
Answer: 6 divided by 60, multiplied by 100, equals 10 percent.
Q3Identify one cost to a business of high staff turnover.Show answer
Answer: Recruitment and induction or training costs for replacement staff.
Q4Give one non-pay reason an employee might leave a job.Show answer
Answer: Poor working conditions, lack of career progression, poor management, or low job satisfaction.
Q5State one method a business could use to improve staff retention.Show answer
Answer: Offer competitive pay, career progression or training, flexible working, or improve working conditions or management.
Q6Explain one reason high labour turnover can reduce productivity.Show answer
Answer: New staff take time to reach the productivity of experienced leavers, and time must be spent recruiting and training replacements instead of producing output.
Q7Identify what a persistently high labour turnover rate might suggest about a business.Show answer
Answer: That there may be an underlying problem with its pay, motivation, management or working conditions.
Exam-style questions
Written in the style of a GCSE Business exam paper, with a full mark scheme.
A restaurant's labour turnover rate rose from 15 percent to 35 percent over one year. Calculate the number of staff who left in the year if the restaurant employed an average of 20 staff, showing your working, and explain one likely cost to the restaurant of this rise.
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A retail chain has seen its labour turnover rate rise from 18 percent to 42 percent over two years across its stores. Exit interviews show most leavers cite low pay compared with competitors and a lack of any career progression, since staff can only ever remain sales assistants. Recruiting and training a replacement sales assistant costs the company around 800 pounds. Evaluate what the retail chain should do to reduce its labour turnover rate.
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See real GCSE Business past-paper questions, with official mark schemes →
Free printable worksheet
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