In the business world, voluntary and involuntary employee turnover both happen on a frequent basis. Here we will take a look at what these two types of employee turnover mean and how they affect an organization.
Side note: if you’d like to learn more about employee turnover, feel free to check out our comprehensive guide to employee turnover or calculate how much employee turnover is costing your company.
Involuntary employee turnover, also known as involuntary separation, is when an employee leaves a position because they were terminated or laid off. The reasons for this can vary greatly.
An employee may be laid off during the slow season because there is no work for them to do or their department was closed. This can happen due to budget cuts, company restructuring, or any other reason. This type of turnover usually happens suddenly and not all voluntarily.
Voluntary employee turnover is when an employee chooses to leave his position before his contract expires with the business. These employees are offered voluntary severance packages where they are paid based on their length of service with the company or given a stipend that will help pay for schooling.
One positive for an organization with involuntary turnover is that its voluntary termination rate (the voluntary turnover rate minus involuntary turnover) will be lower. The voluntary termination rate includes voluntary resignations, retirements, deaths, etc. A low voluntary termination rate can mean that employees are more loyal to the company and want to stay with it, equating to a higher employee retention rate and better employee satisfaction. However, this also means that it may be harder to find new hires because there aren’t many people leaving their jobs voluntarily.
Another benefit of having high involuntary employee turnover rate is the lack of benefits associated with voluntary employee terminations such as tuition reimbursement or paid leave days off work. Having these voluntary perks increases the cost of having employees which can be costly to a company’s bottom line.
While there are certainly some positives to both voluntary and involuntary turnover of employees, it is usually the ideal situation for most companies as there are several benefits associated with it. One benefit is that it helps promote employee advancement which increases job satisfaction and overall productivity in the workforce.
It also helps to have voluntary separation from a business standpoint because voluntary turnover does not require severance packages, unemployment insurance, or outplacement services. This means a firm will save time and money by not going through these processes when someone leaves voluntarily.
While voluntary turnover sounds good (and it has several benefits), it also creates many problems for organizations as well, as it results in skilled workers leaving; this means that training new ones takes more time and money as well as a potential loss in productivity.
High employee turnover can be bad for business because it means that an organization’s voluntary termination rate is high. This high voluntary termination rate often happens when employees are dissatisfied, unmotivated or unhappy with their jobs. Having voluntary turnover at a company is similar to having employees go on strike: it decreases the overall productivity of an organization and more money has to be spent on training a new employee which increases costs.
Having involuntary turnover, or involuntary separation, can be beneficial to some organizations as well. If there are budget cuts across the board at a company all the voluntary terminations will decrease because people don’t want to quit their jobs. This usually means that there aren’t voluntary terminations happening at a high rate and the voluntary termination rate will be low.
Involuntary turnover can be good for business if it happens for one of two main reasons: restructuring or reallocation of resources. Restructuring is when an organization restructures itself because it needs to revamp its company goals.
Reallocating resources involves shifting people (employees) around so they are in more suitable positions with the company, such as moving someone from accounts receivable to payroll. Both of these processes could improve the employee retention rate by giving employees new opportunities within their companies which will decrease voluntary turnover rate over time.
While neither voluntary or involuntary employee turnover are necessarily good for business, there are silver linings to both of them.
Companies want voluntary turnover because it means their voluntary separation rates will be low. However, high turnover isn’t always a good thing and may be indicative of an unhappy workforce which is not productive and therefore decreases profits and revenue to a company.
Involuntary turnover can benefit companies as well but should only happen if the voluntary employee turnover rate was high or restructuring/reallocation of resources has occurred at the company. Having involuntary employee turnover reduces costs associated with having to hire a new employee which saves time and money for organizations as well as giving employees new opportunities within their firms.
Matter has helped many organizations with building a positive work culture, and could very well help with lowering your own business’ employee turnover rate by empowering good employees through praise and constructive feedback. Try it out today for free.
