Employee Retention: Benefits, Causes, and Strategies to Improve It

Employee retention has become a top priority for businesses across Malaysia, especially as the global workforce navigates a post-pandemic landscape marked by rapid shifts in job markets. Companies are facing increasing challenges to retain their best talent in a competitive and ever-changing environment. High turnover rates lead to significant financial losses, decreased productivity, and disruptions in team cohesion. 

Whether you are HR professionals or business leaders, understanding the underlying causes of employee turnover and implementing effective retention strategies is the key to securing long-term success. Through this guide, we will explore the importance of employee retention, factors contributing to high turnover in Malaysia, and actionable strategies to enhance retention rates, including the use of Earned Wage Access (EWA) programs.

What is Employee Retention?

Employee retention refers to an organisation's ability to keep its employees for an extended period, minimising voluntary turnover. High employee retention rates are indicative of a positive work culture, where employees are satisfied with their job roles, feel valued, and see opportunities for career growth. Conversely, high turnover often signals dissatisfaction, leading to frequent resignations and the loss of key personnel. For HR professionals, reducing turnover is crucial, as it enhances workforce stability, saves recruitment and training costs, and improves overall business performance.

Which Industry Has the Highest Turnover Rate in Malaysia?

In Malaysia, turnover rates vary significantly by industry. According to Qualtrics' Attrition Rate report, the retail sector holds the highest turnover risk, with a staggering 26% attrition rate. This is largely due to the nature of retail jobs, which often involve low pay, irregular hours, and limited career progression. 

On the other hand, the IT and tech industry reported the lowest attrition risk, with only 14% turnover. The tech sector is known for offering competitive salaries, flexible working environments, and opportunities for growth, making it a desirable industry for employees.

The same report highlights that Malaysia has the second-lowest employee engagement in the Southeast Asian (SEA) region. Employee engagement in the country dropped from 59% in 2016 to 54% in 2020, underscoring the importance of focussing on employee satisfaction to reduce turnover. Poor engagement can be a significant driver of voluntary resignations, making it essential for companies to improve work environments and foster a culture of commitment.

Importance of Employee Retention for Business

Employee retention is vital for the long-term success of any organisation. When businesses retain skilled and experienced employees, they benefit from enhanced productivity, reduced hiring and training costs, and improved company morale. Below are the key benefits of strong employee retention:

1. Cost Savings

Replacing an employee in Malaysia can be costly, with expenses for recruitment, onboarding, and training potentially reaching up to 75% to 150% of the employee's annual salary, depending on their role. A study by the Malaysian Employers Federation (MEF) revealed that recruitment costs for replacing employees, especially in skilled roles, are significant due to the time taken to find suitable candidates and get them up to speed. 

This makes employee retention critical for cost savings. Keeping employees long-term helps reduce these expenses, enabling businesses to focus more resources on growth and innovation rather than continuously filling vacant positions​. Keeping employees long-term reduces these expenses and allows companies to focus their resources on growth initiatives rather than continuously filling vacant positions.

2. Increased Productivity

Employees who stay longer with a company gain valuable experience and knowledge about their roles, leading to higher productivity and efficiency. New hires, on the other hand, may take time to adjust and reach their full potential.

3. Enhanced Employee Morale

High turnover rates can negatively impact the morale of remaining employees, leading to disengagement and lower productivity. Retaining employees fosters a more positive work environment, where staff members feel supported and motivated.

4. Improved Customer Satisfaction

Consistent employee retention leads to better customer service, as long-term employees have a deeper understanding of customer needs and company values. This can result in higher customer satisfaction and loyalty, which directly impacts business profitability.

5. Stronger Company Culture

When employees stay with a company for an extended period, they become integral to the organisation’s culture. A stable workforce helps preserve and strengthen the company’s identity, ensuring long-term success and stability.

Ways to Improve Employee Retention

Implementing effective strategies to improve employee retention is essential for maintaining a competitive edge. HR managers and business owners must adopt a proactive approach, focussing on the well-being and satisfaction of their workforce. Here are several key strategies to reduce turnover and promote retention:

1. Offer Competitive Compensation

One of the main reasons employees leave their jobs is insufficient compensation. Offering competitive salaries and benefits packages helps retain talent, especially in industries with high turnover rates. Regular salary reviews and performance-based incentives can also motivate employees to stay.

2. Provide Career Development Opportunities

Employees are more likely to stay with a company that invests in their professional growth. Offering opportunities for career advancement, skills training, and mentorship programs allows employees to see a clear path forward within the organisation.

3. Foster a Positive Work Environment

Creating a healthy, inclusive, and supportive workplace culture is essential for employee retention. Creating a healthy, inclusive, and supportive workplace culture is crucial for employee retention, as happier employees are proven to be more productive. In Malaysia, a study by the Credit Counselling and Debt Management Agency (AKPK) found that employees with higher financial well-being and job satisfaction were 37% more productive than their counterparts under financial stress​. 

Additionally, research from the Malaysian Institute of Human Resource Management (MIHRM) highlighted that companies with strong recognition programs and work-life balance initiatives see up to a 50% increase in employee engagement, which directly boosts productivity and retention​.

4. Implement Flexible Working Arrangements

As remote and hybrid work models become more common, offering flexibility in work arrangements can significantly improve retention. Many employees now prioritise the ability to work from home or have flexible hours, especially as work-life balance takes on greater importance.

5. Recognize and Reward Employee Contributions

Employee recognition is a powerful motivator. Regularly acknowledging and rewarding employees for their contributions not only boosts morale but also increases loyalty and engagement. Employee of the month programs, bonuses, or even simple praise can make a big difference.

6. Conduct Exit Interviews and Employee Surveys

Understanding why employees leave or what makes them stay is critical for improving retention strategies. Exit interviews provide valuable insights into the reasons behind turnover, while regular employee surveys can help identify issues before they lead to resignations.

7. Promoting Financial Wellness through Earned Wage Access (EWA) Program

Financial stress is a significant driver of employee turnover, particularly in industries with lower wages. A report by the Credit Counselling and Debt Management Agency (AKPK) found that 26% of Malaysian employees face significant financial stress, which directly impacts job satisfaction and productivity​. 

Additionally, a survey by the Malaysian Employers Federation (MEF) indicated that financial difficulties are one of the top reasons employees leave their jobs, particularly in sectors with lower wages, where workers struggle to cover rising living costs​. This financial strain often leads employees to seek better-paying opportunities, contributing to higher turnover rates and increased recruitment costs for companies.

Offering financial wellness programs like Earned Wage Access (EWA) can alleviate some of this pressure. With EWA, employees can access a portion of their earned wages before payday, helping them manage financial emergencies without resorting to loans or credit cards. This innovative benefit can reduce employee stress, increase job satisfaction, and improve retention.

In conclusion, employee retention is critical to maintaining a productive and successful workforce. By focusing on competitive compensation, career development, work-life balance, and financial wellness programs, businesses can reduce turnover and create an environment where employees feel valued and motivated to stay.

Maintain your Employee Retention with Paywatch

One of the most effective ways to boost employee retention is by offering financial flexibility through Earned Wage Access (EWA) programs. This can help your employees to access their earned wages in real-time, reducing financial stress and improving overall job satisfaction.

As the leading Earned Wage Access service provider, Paywatch delivers reliable and secure EWA App that seamlessly integrates with your payroll system. Our solution ensures full compliance while providing your employees with financial flexibility, boosting their overall well-being and engagement.

Ready to take your employee retention rate to the next level? Get in touch with us today and discover how Paywatch can transform employee well-being in your workplace!