What is employee turnover?
Employee turnover, employee separations, employee attrition, or employee leaving refers to the number of employees that leave an organization. In other words, it is the measurement of the employees who leave a job during a specified time period, typically within a one year timeframe.
Why is employee turnover a problem for a business?
Employee turnover can create major problems within businesses by creating gaps in work forces and increasing recruitment costs. Because of this, high employee turnover has been found to be one of the most detrimental factors for any business. Another downside of high turnover of employees is the chance of it damaging a company's own reputation within the community, if an explanation isn't provided when it occurs.
For example, after a long-time employee at a Subway restaurant in California left due to alleged sexual harassment from an assistant manager, Subway replied with a statement claiming they had "worked to support the employee and help her find a new job." While this showed concern for the employee, it did not address the employee's turnover intention.
Cause and effects of employee turnover
Unlike involuntary employee turnover which can result in positive changes to the work environment, voluntary employee turnover is generally worse as it can have many negative effects on many elements of a job including employee morale, employee working conditions, employee benefits, etc. Some of these causes can be controlled by business employers, while others cannot.
Common reasons for low employee retention rate may include: poor management, lack of career advancement opportunities or training, compensation issues, and dealing with difficult customers. These factors can lead to an employee's decision to voluntarily quit their job instead of being terminated which causes immediate high turnover cost in recruitment and replacement expenses and long-term impacts in lost productivity, knowledge, and employee morale.
For instance, when a worker at a fast food restaurant decides to leave for another job, that lost employee must be replaced which creates direct costs such as recruitment fees, new employee training costs, or loss in productivity if employees are forced to cover extra shifts.
Staff turnover can also harm employee morale within organizations through lack of consideration for employee needs. This leads to lower employee satisfaction which further increases employee departure rates. It is found that when employees are "engaged" in their work they are happier with their company culture and tend to stay longer. On the other hand, when employees are "disengaged" due to issues including lack of respect from managers they tend to leave their organization at a faster rate.
Cost of employee turnover
The cost of employee turnover is high due to the costs of recruitment fees, training costs, and loss in productivity. As an example, if the monthly employee turnover rate at an airline was found to be 22%, that would effectively mean that out of 100 employees, 22 left on average every month. If it takes around 3 months for this company's managers to hire new employees with average starting salaries around $22 per hour, then this high employee turnover rate could cost around $123,800 per month. This doesn't include all the extra work that must be done by other employees due to the employee turnover. To make things easy, use our employee turnover calculator to estimate how much turnover is costing your company.
High turnover of employees can also include hidden costs that might arise after hiring new employees through employee related expenses such as recruitment fees, training materials, uniforms for new hires, etc. These costs create indirect costs to companies which makes undesirable turnover one of the top 5 most expensive problems businesses face.
Average employee turnover rate/ratios
In 2020, it was found that the global talent shortage is now nearly double what it was a decade ago with the greatest year-over-year increases in talent shortages from the United States, Finland, Hungary, Sweden, and Slovenia. Companies in the United States saw an average employee turnover rate of 22%, with 15% attributed to voluntary turnover in 2018. That same year, other countries saw similar numbers with Canada having an average of 18% and 12% respectively.
Since then, the average turnover rate of employees has only grown with something now known as the great resignation affecting employee turnover among businesses worldwide. In fact, a study from the Bureau of Labor Statistics states that the US annual turnover rate in 2020 was a whopping 57%.
How to calculate employee turnover?
There are many different formulas used when calculating employee turnover rates. The two major methods are typically referred to as "prevalence" and "attrition". The prevalence method calculates staff turnover rates by dividing the number of employees that are left by the total number of employees. If 100 people work at an organization and 15 leave then this would represent an employee turnover rate of 15%. Employee turnover rates can also be calculated by dividing the number of hires into the total employee count throughout a specific time period, in order to find the monthly or annual turnover rate for your business.
On average for every employee who voluntarily leaves a company, 25% more follow suit within 24 months. This means high turnover rate is a major problem especially considering that it costs a company around one third to replace each employee.
How to reduce employee turnover
Of course, there are several strategies that employers can try implementing in order to try to reduce their employee turnover rate. Employee research indicates that one way retention strategy to help reduce voluntary turnover is to provide employee benefits programs. It is found that employee benefits programs are effective in retention of top talent, especially when combined with employee engagement initiatives.
Providing current employees benefits through employee retention efforts creates a climate where they feel good about their employer and tend to stay longer. According to research conducted by Towers Watson, an employee's annual salary has the second biggest impact on employee retention next to offering meaningful accomplishments at work.
One of the best ways employers can keep the employee retention rates at their organization is by providing effective leadership within their company's culture. Good leadership plays an important role in employee happiness, job satisfaction, motivation, commitment, and an overall good employee experience which leads to better management of human capital resources.
These are typically found as one of the top reasons for why employees stay with an organization. A workplace free of voluntary turnover can also be achieved by providing employee training programs such as leadership development and career management programs.
Matter helps organizations build a positive work culture, and may help your business lower its employee turnover rate by empowering good employees through praise and constructive feedback. If you found this article interesting or informative, consider trying out Matter today for free.
