Employee retention strategy: How to keep your best people

Published Monday 2 February 2026

Table of contents

• What is an employee retention strategy?
• Why employee retention matters for small businesses
• What are the key components of an effective employee retention strategy?
• Employee onboarding best practices
• Recognition and reward systems
• How to implement an employee retention strategy
• Building a retention-focused business culture
• FAQs on employee retention strategy

Key takeaways

• Implement a comprehensive hiring process that includes clear job descriptions, cultural fit assessments, and effective onboarding to reduce turnover from day one and set new employees up for long-term success.
• Prioritise career development by creating clear advancement paths, offering mentorship programs, and providing training budgets, as 46% of employees considering quitting cite lack of career opportunities as their primary reason.
• Establish flexible work arrangements and promote work-life balance through remote work options, flexible hours, and encouraging time off, since over half of workers would accept lower pay for better work-life balance.
• Conduct regular employee surveys, one-on-one feedback sessions, and track measurable retention goals to identify issues early and adjust your strategy based on what employees actually value most.

What is an employee retention strategy?

An employee retention strategy is a set of actions and plans that aims to keep your workers happy in the workplace.

It makes for a positive culture which staff are loyal to. Plus it can save you time, money, and a lot of headaches.

Why employee retention matters for small businesses

Employee retention benefits reduce costs and improve business stability. Losing staff creates multiple problems that impact your bottom line.

The key benefits include:

• Cost savings: Avoid recruitment, onboarding and training expenses
• Knowledge retention: Keep valuable skills and institutional knowledge in-house
• Team stability: Maintain morale and prevent domino-effect resignations
• Customer service continuity: Ensure consistent service quality for your clients
• Competitive advantage: Retain top talent that's difficult to replace

A successful workforce retention strategy protects your investment in people while maintaining productivity and service standards.

What are the key components of an effective employee retention strategy?

Key retention components are the main areas that help keep employees engaged and loyal. These six areas underpin an effective retention strategy.

The essential components include:

• Robust hiring process: Start with the right people from day one
• Competitive compensation and benefits: Pay fairly and offer valuable perks
• Career development opportunities: Provide clear paths for growth and learning
• Positive work environment: Create an inclusive, supportive culture
• Work-life balance: Support employee wellbeing and flexibility
• Recognition and reward systems: Acknowledge contributions and achievements

Each component works together to create a workplace where employees want to stay and grow their careers.

A robust hiring process

Robust hiring processes reduce turnover by selecting candidates who fit your business culture and role requirements. Getting hiring right prevents costly mistakes and sets the foundation for long-term retention.

Essential hiring practices include:

• Clear job descriptions: write transparent, detailed job advertisements and descriptions
• Streamlined applications: Make online applications simple and user-friendly
• Cultural fit assessment: Evaluate how candidates align with your workplace values
• Role clarity interviews: Ensure applicants understand the position and team dynamics
• Effective onboarding: Set new employees up for success from day one

Research shows that poor hiring decisions are a major cause of employees leaving. Investing time in your hiring process pays dividends in retention.

Onboarding new employees well ensures that they start off on the right foot. It helps to instil your business's values and sets them up for success.

Competitive compensation and benefits

Competitive compensation means paying salaries and benefits that match or exceed market standards for similar roles. Fair pay is the foundation of employee satisfaction and retention.

Key compensation strategies include:

• Market-rate salaries: Research competitor pay rates and industry standards
• Performance-based increases: Tie salary growth to experience and achievements
• Cost-of-living adjustments: Ensure wages keep pace with inflation and local expenses
• Flexible benefits: Offer perks that matter to your employees, from parking to gym memberships
• Accurate payroll systems: Use reliable payroll software to ensure timely, error-free payments

Accurate, on-time payroll is essential for keeping employees satisfied and confident they are being paid correctly. Investing in proper compensation systems shows you value your team's contributions.

Opportunities for career development and growth

Employees want to be able to advance their careers and gain learning opportunities with your business, but according to Gartner, many organisations fall short, with 44% of HR leaders believing they do not have compelling career paths.

A 2023 survey across New Zealand, Australia and the United Kingdom reported that 46% of those considering quitting put it down to a lack of career opportunities.

• A good employee retention strategy prioritises your employees’ career development, emphasises continuous learning, and gives them clear goals and a transparent roadmap for progression.
• You could consider a mentoring program, which helps both mentor and mentee by building mentoring skills, passing on institutional knowledge, creating a talent pipeline and encouraging collaboration and innovation.
• A training budget is essential to equip employees with everything they need to further their learning, such as external courses and workshops, advanced training, and upskilling to learn their way around the latest equipment and technologies.

A positive work environment and culture

A workplace that respects and supports people of all ethnicities, backgrounds, genders, sexual orientations, and neurodiversity gives you a wider range of talent and experience. That diversity can lead to innovation, new market opportunities, and better customer experiences.

• Flexibility matters. For example, you could provide a quiet, private space where a new mum can express milk, a Muslim employee can pray, or a neurodivergent employee can work away from a busy open-plan office.
• Encourage open communication. This should go both ways; employees should feel safe offering feedback on workplace improvements while gaining from positive and constructive feedback on their performance.
• Recognise employee achievements. Simply saying thank you for someone's efforts can go a long way.
• Give people autonomy. Act as a coach by offering advice, support, clear goals, and room to make decisions.

A positive work environment and culture not only attracts top employees; it also helps keep them over the long term.

For more information on employment conditions, see: Fair Work Ombudsman: Employee entitlements.

Work-life balance

More and more workers are citing work-life balance as the reason they're looking for new jobs, with research showing over half of workers would take a job with lower pay if the employer provided a better work/life balance.

• Employees should not feel they have to answer emails or check their phones on weekends or outside normal working hours.
• You can encourage a good work-life balance by enabling job-sharing, remote work, flexible hours, or a compressed work week. In one study, over 80% of employees said they would be more loyal to their employers if offered these options.
• Remote workers often report less commuting, fewer interruptions, fewer distractions, fewer meetings, and greater autonomy as drivers of higher productivity.
• Encourage people to use their holiday, parental, and sick leave when they need to, and lead by example.
• Be flexible if someone needs to leave early for a family event, care for a family member, deal with child-care problems, or support elderly parents.

Learn more about managing a remote team.

Employee onboarding best practices

The first step to keeping employees is starting them off on the right foot. A good onboarding process helps new hires feel welcome and sets clear expectations from day one.

Make sure they understand their role, the company culture, and how their work contributes to the business's goals. This helps them integrate smoothly and feel like a valued part of the team.

Recognition and reward systems

Employees who feel appreciated are more likely to stay. One long-term study found that employees who feel recognised are 45% less likely to leave within two years.

A simple 'thank you' can go a long way, but a formal recognition and reward system can make a bigger impact.

How to implement an employee retention strategy

Implement your strategy with clear steps you can track and measure. Here's a practical step-by-step guide to building an effective employee retention program.

1: Conduct employee surveys and feedback sessions

Employee feedback collection reveals what's working and what needs improvement in your retention efforts. Regular surveys and structured feedback sessions provide the data you need to make informed decisions.

Key feedback methods include:

• Regular satisfaction surveys: Measure employee engagement and identify concerns early
• One-on-one feedback sessions: Create safe spaces for honest conversations
• Exit interviews: Learn why departing employees chose to leave
• Anonymous suggestion systems: Encourage honest input without fear of repercussions

Acting on feedback shows employees you value their input, yet many companies miss this opportunity; one report found only 17.2% of employers conducted “stay” interviews to gather valuable constructive feedback from current staff.

2: Set measurable goals and track progress

• Establish clear retention goals and key performance indicators (KPIs) so you can track how well you are reducing turnover.
• Work out who is leaving (your top performers?) and when. If it's within a year of hiring, your recruitment process may be in need of an overhaul.
• Regularly reviewing these goals and figures helps ensure that you stay on track and can make any necessary adjustments.

3: Develop competitive compensation and benefits packages

• Offer salaries that are benchmarked against industry standards.
• Research the pay being offered by similar businesses in your area and by your competitors. Your employees will move to another employer for the right salary.
• Offer an attractive pay and benefits package. Bear in mind that flexibility around working hours and allowing staff to work from home can be as attractive as financial benefits.
• Ask your employees which benefits are most important to them and be sure to know which are legally required.
• Carry out regular reviews of your salary structure and employee benefits.

4: Unlock career development and growth opportunities

Employees are much more likely to be satisfied in their work if you:

• create a learning culture, with access to learning opportunities, training and upskilling
• create career paths within the business as you may lose employees who realise they must leave to further their career
• provide mentorship opportunities and continuous feedback and ask your employees where they would like to be and create a plan to help them achieve it
• offer a range of career development opportunities and think beyond formal training

5: Set up recognition and reward systems

Establish a system for regularly acknowledging and rewarding employees' contributions and achievements:

• Offer a variety of rewards, such as bonuses, gift cards, or extra time off, to cater to different preferences
• Ensure that the criteria for rewards are transparent and consistently applied to avoid any perceptions of favouritism

6: Create a positive work environment and culture

Fostering an inclusive and supportive work environment where all employees feel valued and respected goes a long way to helping retain your people.

• Organise team-building activities and social events to strengthen community and improve workplace culture. Make participation optional, especially for out-of-hours events, so you respect people’s family and personal time.
• Recognise employees' hard work and career milestones.
• Address any workplace issues or conflicts promptly and carefully to maintain a positive atmosphere.

A positive work environment and culture not only attracts top employees, it helps to keep them, with a 2024 report finding that 83.4% of workers said they would be more likely to stay with an organisation if it provided a positive work environment.

7: Promote work-life balance

A healthy work-life balance is crucial to avoid burnout, not just for your employees but for you too.

• Offer flexible work arrangements, such as working from home, flexible hours, and compressed work weeks, to help employees balance their personal and professional lives
• Implement wellness program that support employee physical and mental health, such as free flu jabs, health screenings, massages at work, and gym memberships or discounts.
• Encourage employees to take their allotted time off to prevent burnout and promote well-being

8: Regularly review and update the retention strategy

Regularly review how well your employee retention strategy is working.

• Adapt your strategy in response to changing needs, new challenges, and evolving industry trends
• Involve employees in the review process to gather their input and ensure that the strategy remains relevant and effective

Building a retention-focused business culture

Keeping your best people isn't about a single initiative, it's about creating a culture where they want to stay. By focusing on clear communication, growth opportunities, and a healthy work-life balance, you build a supportive environment.

This not only improves retention but also makes your business a better place to work. With the right systems in place, you can spend less time on admin and more time on your team. See how you can run your business, not your books, when you try Xero for free.

FAQs on employee retention strategy

Building an effective retention strategy raises common questions about implementation, measurement, and best practices. Here are answers to the most frequently asked questions about employee retention.

What are the five Cs of employee retention?

The 5 C's are a framework for retention, focusing on Commitment, Compensation, Career Growth, Culture, and Communication. These five areas are key to an employee's decision to stay with a business.

What is the most effective method for retaining employees?

There's no exact science to retaining employees. However, cultivating a positive and inclusive company culture that values employee well-being, growth, and engagement is a great place to start.

This includes providing a supportive work environment, ensuring competitive pay and benefits, offering clear career development opportunities, maintaining transparent communication, recognising and rewarding contributions, and promoting a healthy work-life balance.

What are the key challenges in employee retention?

A major challenge in employee retention is burnout. This can be addressed by promoting a healthy work-life balance through flexible work arrangements, encouraging regular breaks, providing wellness program, and regularly assessing and redistributing workloads to prevent excessive stress.

With supportive management and a focus on employee well-being, you can reduce burnout and improve retention.

How can you tell your retention strategy is working?

Monitor your employee retention statistics to track the success of your strategy. Your employee turnover rate is calculated by dividing the number of employees who leave during a year by the average number of employees, then multiplying by 100.

You can use qualitative insights and feedback, from both staff who are leaving and those who are staying, to highlight issues and adjust your strategy.

What's the difference between employee engagement and retention?

Employee engagement is about how connected and motivated an employee feels at work. Retention is the result of that engagement; it's whether they choose to stay with your business. High engagement often leads to high retention.