Employee turnover is a problem that almost every employer of any size needs to deal with in some way. Improved employee retention is an essential concern for 87 percent of employers.
This is because the expenses, productivity loss, and moral impact of excessive employee turnover are well understood and felt throughout a business. Getting a handle on staff retention difficulties should be a top concern for any firm dealing with them.
What exactly is employee turnover?
Employee turnover is the gradual loss of talent in a workforce. This is determined by how employees quit the firm over time for various causes.
Employees may leave a corporation for a variety of reasons, including:
- Changes in location
- Accepting a position with a new firm
Related: Staff Turnover: What Every Employer Needs To Know
Employee turnover isn't always a terrible thing; it all depends on the reason for the turnover and how it affects the organization.
For example, a business that replaces a few low-performing employees with one high-performing person reaps net gains from turnover. Alternatively, if an employee quits freely for a more exciting role at a new firm, it reflects favourably on your organisation's prospects for growth and development. While the initial departure may be difficult, the organization may increase motivation and engagement among the remaining members of the team eager to demonstrate their strengths.
Employee turnover might have a variety of reasons and consequences for a business. Understanding the sorts of employee turnover you're experiencing, and the reasons that contribute to it is critical for effectively managing your retention efforts.
What are the many kinds of employee turnover?
According to Human Capital Hub, there are two types of employee turnover: voluntary and involuntary.
The following are some examples of voluntary turnover:
- Getting a new job
- Internal exchange
- a long sabbatical
- Personal considerations
- Return to the classroom
- Dissatisfaction with one's job
Voluntary turnover is typically more costly for a company since it frequently results in losing a high performer. This is especially true when the person changes jobs or is promoted internally.
Voluntary turnover frequently leaves a knowledge and skill gap in your organization that an internal or external applicant must fill. As well seen later in this piece, filling these roles, especially more senior or technical positions, can be costly and time-consuming.
Related: Is money the main reason for employee turnover
Here are some examples of involuntary turnover:
- cutbacks in the workforce
Depending on the conditions, involuntary turnover can be beneficial or detrimental to the business. Terminating a poor performer or insubordinate who violates corporate policies might have a good long-term influence on the firm. On the other hand, layoffs are frequently indicative of bad management or financial troubles.
It is critical to consider the sources of employee turnover. Understanding why employees depart and at what rate will assist you in identifying potential difficulties and causes before they become a major problem for your firm.
One way to do this is to calculate your employee turnover rate quarterly or yearly.
How to Estimate Employee Turnover Rate
Regularly calculating your staff turnover rate will help you predict and adapt to the job losses you might expect in the following year.
The turnover rate is defined as the percentage of employees who leave the organization during a specified period. Typically, you would compute your turnover rate once a year as part of an evaluation of the preceding fiscal years' performance to guide future planning.
The formula for estimating the turnover rate is straightforward:
The turnover rate is calculated as the number of employee departures divided by the average number of employees multiplied by 100.
You'll need two figures to complete this calculation:
- The average number of employees you had in the previous year. In an Excel spreadsheet, break down your employment data month by month. Find the average of the previous 12 months. This will be your yearly average staff count.
- The total number of employee resignations. Obtain a list of all employee resignations from around the organization. Determine the total of all departures.
For example, if 47 people left your company this year and you employed 500 people on average, your turnover rate would be 9.4 per cent.
If your organization does not maintain a centralized database of all employees and all exits in a given year, this process may need to approach each department head individually. To make calculations use Excel to populate data as you go.
Once you've determined your annual staff turnover rate, compare it to the industry average and your company's prior years' performance. Look for employee turnover figures from organizations in the same industry, that have the same locations, are the same size, and have the same revenue levels as you. To determine how you compare to the competition, compare your turnover rate to the industry average.
Similarly, you should maintain track of your employee turnover statistics year after year. This can assist you in swiftly identifying spikes or dips in turnover that may suggest positives or disadvantages in your hiring and performance initiatives. This will help your company in identifying and promptly adapting to future challenges.
Related: 18 Employee turnover: Facts and why you need to know them
How much does staff turnover cost?
It is pretty expensive to replace personnel. Anyone who has run a business or worked in recruitment can attest to this. According to conventional figures, filling a vacant role costs the employer around 20% of the position's compensation in hiring, recruitment, and onboarding expenditures.
It's also common knowledge that filling more senior, technical, or in-demand posts can take significantly longer than other roles. And the pay for these roles is considerably higher. The cost of filling the most senior and in-demand positions is a combination of hiring resources and expense, lost productivity owing to the vacancy, and lost strategic direction in the case of empty senior management roles. The longer a specific role goes unfilled, the higher the expense.
In total, "20 percent of that positions remuneration" would include the following:
- Cost of lost production before turnover
- All expenditures associated with recruitment and onboarding
- All resource recruitment and onboarding initiatives
- Productivity losses occurred during the transition period between turnover and new hires.
- Corporate knowledge loss
- Returning to former levels of productivity in that position takes time.
- Strategic losses as a result of vacant leadership positions
As you might expect, determining the exact cost to the organization when a single employee leaves can be challenging. To assist, here is a simple formula you can apply to calculate the actual costs of staff turnover.
(number of employee departures) x (average wage of departing employees) x (0.2) = approximate cost of employee turnover
The above analysis implies that your personnel turnover cost equals the 20 percent average mentioned earlier. Calculating your actual cost-per-turnover utilizing real-world data from within your firm would help to highlight the real cost of staff turnover.
You'll need two figures to complete this calculation:
- The overall number of employee departures within the period covered by your survey. This is the total of all employees who departed your company within the last year.
- The average pay for each of those workers. Identify each of the departing employees and note the compensation they were receiving from the organization. Use Excel to collect this information, and then calculate the average salary for all leaves.
For example, if 47 workers left your company last year and you paid them an average salary of ZWL$ 75,650, your employee turnover cost would have been ZWL$ 711,110.
What are the causes of employee turnover?
As you can expect, numerous causes and variables might contribute to employee turnover.
In general, the following are some of the most prevalent reasons why people quit an organization, whether freely or involuntarily:
- Inadequate hiring
- Management failure
- Payor perks that aren't competitive
- Job market competition is fierce.
- Inability to advance in one's profession
- Inadequate training, support, or resources
- Inadequate vision or communication
Individual examples of staff turnover aren't always caused for concern. Trends in employee turnover derived from aggregated data, on the other hand, should be regarded seriously by the senior management of your firm.
Take note of the reasons for each person who left, and keep an eye out for trends throughout the year. If you notice that one or two explanations keep coming up, this indicates a problem.
How can you limit staff turnover?
You can now begin to make efforts to ease the situation and reverse any unfavourable employee turnover trend you're experiencing once you've discovered it. Typically, lowering employee turnover involves addressing one of the following issues:
Let's take a closer look at each.
"People don't leave companies; they leave bosses," as the adage goes. While this is not always the case, it does address an essential component of employee turnover. Employees are more likely to leave a company if their direct managers - or senior management - fail to meet their expectations.
Managers serve as coaches, assisting employees in problem-solving. Superiors empower subordinates by delegating responsibilities, resulting in more satisfied subordinates (Keller and Dansereau, 1995). All of this makes employees more committed to the organization, and the likelihood of them quitting is low.
If you notice a higher degree of turnover from a specific department or management, it's probably time to evaluate that manager's performance. It is also vital that you assist your management team by providing them with the training, direction, and resources required to function at a high level.
This should include the following:
- Clearly defining expectations for managers and staff
- Providing management best practices training and coaching
- Putting a premium on and developing effective supervisor-staff relationships requiring open and straightforward communication
- They are creating a management structure that allows people to contribute their unique skills and insights rather than micromanaging them.
- Monitoring employee engagement and morale, as well as making efforts to increase both
- Providing all employees with the resources, training, and employee development opportunities they require to do their jobs well in the long run.
Above all, your company should ensure that all staff are treated fairly and respectfully by their supervisors and peers regardless of rank. "Train people well enough so they can leave. Treat them well enough, so they do not want to," says Richard Branson
Employee turnover is a strong indicator of a faulty hiring strategy, especially within the first year of work.
If you hire the right individuals and screen them for the appropriate reasons, new employees should stay with the company longer. If they aren't, then its time to consider the following questions:
- Are you employing employees who fit your company's culture, mission, and values?
- Are you actively looking for applicants who are a good fit?
- Have you formalized your cultural screening procedure?
If you answered "no" to any of these questions, you'll likely want to reevaluate your screening process to ensure that you recruiting the correct types of people who will be more likely to remain on in the long run.
One place to start is with employees who have been with the company for more than three years. Find out what they have in common and focus your screening on those characteristics.
Did you know that structured onboarding processes increase the likelihood of workers staying with your firm for three or more years by 58%? There's a reason for this, and it all starts with making your new workers feel welcome and like they're a member of the team.
Strong onboarding has several turnover-reducing advantages, including:
- Boosting Employee Engagement
- Early expectations and goals setting
- Integrating new personnel into the team as soon as possible
- demonstrating a significant interest in and dedication to new staff
- demonstrating a commitment to providing the necessary tools and training to execute the job properly
- Communicating the values, vision, mission, and history of the firm
For new hires, first impressions are essential. If your company is unwilling to take the time to properly onboard and train new employees, don't be surprised if they leave shortly.
Employee turnover, like most organizational challenges, has distinct signs and causes. Tracking your employee turnover rate, accompanying expenditures, and identifying underlying causes can allow you to keep ahead of possible problems and mitigate them as soon as they arise.