Reducing Employee Turnover: Strategies & Impact on Business

What is employee turnover?

Employee turnover measures the rate at which employees leave an organization and are replaced by new employees.

It is often expressed as a percentage of the total number of employees or as the number of employees who leave divided by the average number of employees during a certain period (such as a year).

High employee turnover can be costly and disruptive to a company, as it may lead to a loss of productivity, reduced morale, and increased training costs for new employees. On the other hand, low turnover can indicate a healthy and stable workforce.

Useful Read: How To Calculate the Cost Of An Employee + Free Template

How can we calculate employee turnover?

Use this formula to calculate employee turnover rate:

(Number of separations / Average number of employees) x 100

• Several separations refer to the number of employees who left the company during a specific period (such as a year).
  
  
• The average number of employees is calculated by adding the number at the beginning of the period to the number of employees at the end and then dividing by 2.

For example, if a company had 100 employees at the beginning of the year and 110 employees at the end of the year, the average number of employees would be 105. If 10 employees left the company during the year, the annual turnover rate would be: (10 / 105) X 100 = at 9.52%

Voluntary vs. involuntary turnover

Here is a comparison:

Voluntary turnover

Voluntary turnover is a type of employee turnover that occurs when employees choose to leave the organization on their own accord rather than being forced to leave.

It can happen for various reasons, such as dissatisfaction with their current role or the desire to pursue other opportunities.

Advantages

• Allows new talent to join the company and bring fresh ideas and perspectives.
• This can lead to cost savings on recruitment and training expenses.
• Can improve overall team morale by removing disengaged or unhappy employees.
• Can create opportunities for current employees to take on new responsibilities and advance in their careers.
• Can increase diversity within the organization by bringing in new hires from different backgrounds.

Disadvantages

• It can lead to a loss of institutional knowledge.
• Can lower employee morale
• It can be a sign of poor management.
• It can hurt the company's reputation.
• It can lead to a lack of continuity in the workforce.

Involuntary turnover

Involuntary turnover is a type of employee turnover that occurs when employees are forced to leave the organization rather than choosing to leave on their own accord.

It can happen for various reasons, such as layoffs or terminations due to poor performance, downsizing or company restructuring, or lack of job opportunities.

Advantages

• This can lead to a reduction in payroll costs for the company.
• Can improve overall team productivity by removing underperforming employees.
• It can provide a way to address issues of harassment, discrimination, or other forms of misconduct within the organization.
• Can improve the remaining employees' overall job performance and productivity by reducing the number of disengaged or underperforming team members.

Disadvantages

• It can be disruptive to the organization and lead to a loss of productivity.
• It can hurt employee morale and engagement.
• It can be costly for the organization due to severance, unemployment, and other benefits.
• It can create a negative image in front of potential employees, clients, and stakeholders.
• It can signify poor management or a lack of job opportunities.

What causes employee turnover?

The major reasons for employee turnover are discussed below:

• Job dissatisfaction - Employees may leave an organization due to dissatisfaction with job duties, lack of growth opportunities, or poor working conditions.
  
  
• Compensation and benefits - Employees may leave an organization if they feel they are not being compensated fairly or their benefits are inadequate.
  
  
• Poor management - Employees may leave an organization due to poor management, lack of communication, or support from their supervisor.
  
  
• Work-life balance - Employees may leave an organization if they feel that their work schedule is too demanding or cannot achieve a balance between their work and personal life.
  
  
• Lack of opportunities for advancement - Employees may leave an organization if they feel no opportunities to advance within the company.
  
  
• Organizational culture - Employees may leave an organization if they feel that the company culture is not a good fit for them or if they do not feel valued or respected by the organization.
  
  
• Personal reasons - Employees may leave an organization for personal reasons, such as health issues, family obligations, or a desire to relocate.
  
  
• Better job opportunities - Employees may leave an organization if they receive a job offer from another company with better pay, benefits, working conditions, or career advancement opportunities.
  
  

Levels of employee turnover

It can be measured at different levels, including:

1. Organizational level: This measures the overall turnover rate for the entire company.
2. Departmental level: This measures the turnover rate for specific departments or teams within the organization.
3. Position level: This measures the turnover rate for specific job positions or roles within the organization.
4. Tenure level: This measures the employee turnover rate based on how long they have been with the organization (e.g., the turnover rate for employees with less than 1 year of tenure versus those with more than 5 years of tenure).

How can employee turnover be reduced?

There are several strategies that organizations can use to reduce employee turnover:

• Improve the hiring process - Carefully screening and selecting candidates who fit the corporate culture and the specific role can help reduce turnover in the long run.
  
  
• Invest in employee development - Providing opportunities for employee growth and development through training and professional development can increase job satisfaction and employee retention.
  
  
• Foster a positive work environment - Creating a positive and inclusive workplace where employees feel valued and respected can improve morale and reduce turnover.
  
  
• Address employee concerns - Encourage open communication and actively listen to employee feedback. Address any concerns or issues they raise promptly.
  
  
• Provide competitive compensation and benefits: Offering competitive salaries and benefits packages can help attract and retain top talent.
  
  
• Recognize and reward top performers: Provide regular feedback, recognition, and rewards to high performers, as it improves employee engagement and motivation.
  
  
• Improve work-life balance: Implement flexible work arrangements and encourage employees to take time off when needed.
  
  
• Have a clear career progression path: Communicating the career progression opportunities within the organization can help employees feel invested in their long-term future with the company.
  
  

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3 Examples of employee turnover

Here are examples:

#1. Technological company

A technology company is experiencing high turnover among its software developers. After conducting exit interviews, the company discovers that many developers are leaving for higher-paying job opportunities at other companies.

To reduce turnover, the company decides to increase the salaries and benefits for its software developers and provide more opportunities for professional development and advancement.

#2. Restaurant

A fast-food restaurant is struggling with high turnover among its kitchen staff. The manager discovers that many of the staff members are leaving due to the high-stress and demanding nature of the job.

To reduce turnover, the manager implements a more flexible scheduling system and provides additional training and support to help the staff handle the job demands more effectively.

#3. Call center

A call center is experiencing high turnover among its customer service representatives. The company discovers that many representatives are leaving due to a lack of job satisfaction and poor working conditions.

To reduce turnover, the company provides more opportunities for employee engagement and feedback, creates a more positive and supportive work environment, and implements a comprehensive training program to help the representatives improve their skills and job satisfaction.

Effects of employee turnover on the organization

Employee turnover can have several negative effects on an organization, including:

• Increased costs: High turnover rates can be costly for organizations to recruit, hire, and train new employees. The cost of replacing an employee can be as high as several times the employee's annual salary.
  
  
• Reduced productivity: High turnover can disrupt workflow and productivity as new employees require time to get up to speed with their responsibilities. Additionally, the departure of experienced employees can create a knowledge gap that can be challenging to fill.
  
  
• Decreased morale: High turnover can create a negative atmosphere and affect the morale of remaining employees, leading to a decrease in employee engagement and motivation.
  
  Useful Read: 6 Metrics to Measure Employee Engagement: The Employers Guide
  
  
• Difficulty in maintaining relationships with customers: High turnover can lead to inconsistency in the level of customer service, as new employees may not have the same level of knowledge and experience as those who have left. It can lead to customer dissatisfaction and loss of business.
  
  
• Difficulty in maintaining continuity: High turnover can make it difficult for organizations to maintain continuity in their operations, as new employees may not be familiar with the company's culture and processes.
  
  
• Difficulty in Meeting long-term goals: High turnover can make it difficult for organizations to meet their long-term goals as they will constantly train new employees.
  
  
• Difficulty in maintaining a positive brand reputation: High turnover can negatively impact an organization's reputation, as it can be viewed as a sign of instability and poor management. This can affect the company's ability to attract and retain new customers.
  
  
• Difficulty in maintaining team dynamics and cohesion: High turnover can affect team dynamics and cohesion, leading to teamwork, communication, and productivity difficulties.

It's important to note that high turnover can significantly impact an organization's bottom line and can be detrimental to overall organizational success. Therefore, organizations need to reduce turnover and retain top talent.

What is the rate of turnover generally high or low?

The turnover rate is generally considered high when it exceeds the industry average. The industry average employee turnover rate can vary, but generally, a rate of 15-20% per year is considered normal.

Example

For example, some industries, such as retail and fast food, tend to have higher turnover rates than others, such as healthcare or finance. Some companies may have a higher turnover rate than others because of the nature of the job or the company's culture.

Additionally, turnover rates can vary depending on the location, as some areas may have a more robust job market than others. On the other hand, a turnover rate lower than the industry average is generally considered low and can indicate that an organization is doing a good job of retaining employees.

Is the turnover rate higher today or in the old times?

It isn't easy to directly compare today's and past turnover rates, as the data and methods used to measure turnover have evolved. Turnover rates can vary widely depending on factors such as the industry, the economy, and the job market.

Some industries have reported relatively high turnover rates in recent years, while others have reported relatively low employee turnover rates. That being said, a study by the Bureau of Labor Statistics (BLS) shows that the overall turnover rate for the US private sector was about 20% in the early 2000s and slightly decreased to around 15% in the late 2010s.

Additionally, according to the Society for Human Resource Management (SHRM), the voluntary turnover rate for the US private sector was around 22% in 2021. It's important to note that these figures are averages and turnover rates can vary greatly depending on the specific industry, job market conditions, and other factors.

Conclusion

Companies need to understand why employees are leaving, as employee turnover can drain resources and reduce profits if not properly managed.

The best way for employers to manage turnover is to take proactive steps in understanding their company culture, recognize the factors that trigger an employee's departure, and make necessary changes to address any underlying issues.

With the insights gained from this complete guide on employee turnover, you should now have the necessary tools to put an effective system in place that can help contain the rate of employee turnover while creating a productive work environment. 

Frequently Asked Questions

• What factors influence turnover?

  Several factors can influence employee turnover, including job dissatisfaction, compensation and benefits, poor management, work-life balance, lack of opportunities for advancement, organizational culture, personal reasons, and better job opportunities.

• What increases employee turnover?

  Several factors can increase employee turnover, such as poor working conditions, lack of growth opportunities, low pay and inadequate benefits, poor management and communication, and poor organizational culture.

• How does turnover affect performance?

  High turnover can affect performance by leading to a loss of productivity, a loss of institutional knowledge and skills, and lower employee morale and engagement. It can also be costly for the organization as it may result in the need to recruit and train new employees.

• What is a good turnover rate?

  A good turnover rate varies depending on the industry, but generally speaking, a low turnover rate is around 10-15%. However, it's important to consider factors such as the industry and the organization's specific circumstances when evaluating employee turnover rates.

• What does 80% attrition mean?

  80% attrition means that 80% of the employees have left the organization. Attrition is a type of turnover that occurs when employees leave an organization due to retirement or other reasons unrelated to job dissatisfaction. A high attrition rate of 80% means many employees have left the organization.