Abstract This research tries to identify the impact on employee retention on employee performance. The data has been collected from 50 samples and respondents are from employees of SMEs in Pondicherry. Hence, it is concluded that there is direct influence of job characteristics (skill variety and task identity) on employee retention. The research also identified that there is indirect influence of job characteristics ((skill variety and task identity)) on employee performance. It is found that there is direct effect of employee retention on job performance. Finally, the research discovered that employee retention mediate the relationship between job characteristics and job performance. Therefore, SMEs should take steps to improve their work engagement and lead to improvement in employee performance and reduce the turnover intention.