The topic of employee turnover should be taken seriously by all companies, because there are both direct and residual effects of a high turnover rate.
A little bit of turnover is unavoidable. No one can stick around forever, and sometimes what you thought was a good fit turns out to not be. A low rate of turnover is ok – you’ll survive. And there’s something invigorating about newcomers and new minds coming on board.
On the other hand, a company with a high turnover rate might need to take a closer look at what the underlying problem is.
Before we look at how to calculate turnover and ways you can reduce the problem in your company…
Definition of employee turnover
Employee turnover refers to the number or percentage of workers who leave an organization and are then replaced by new employees.
Essentially, it’s the number of employees that leave your company in a certain amount of time and need to be replaced.
The opposite of turnover is retention, which refers to the rate at which companies keep their employees.
We want to help you understand what turnover really means for an organization, and then offer tips on how to avoid it.
Employee turnover statistics
Employee turnover is incredibly costly, which is why HR departments and managers need to work toward keeping their team intact.
Bonusly offers some interesting statistics on turnover in the workforce:
Clik here to view.
The question is, how expensive is turnover really?
Employee turnover costs
Unfortunately, this issue isn’t so black and white; there are many ways to evaluate the cost of turnover. And in addition to dollars and cents, there are other less tangible costs to consider.
These costs include:
- Costs associated with hiring (job posts, interviews, technical tests, etc.)
- Onboarding costs (employees aren’t “valuable” for at least 3 months)
- Training costs
- Lost time from other employees helping out with questions
This graph by Josh Bersin demonstrates it well.
Clik here to view.
For more specialized positions that take longer to fill, the cost of turnover is higher. For jobs that inherently have high turnover (retail, call centers, etc.) turnover costs will be lower.
To keep it simple, let’s look at a mid-range position. The cost to replace a manager making $ 40,000 a year would be $ 8,000, suggesting that employee turnover costs 20% of an employee’s annual salary.
Employee turnover rate calculation
Use the following formula to calculate turnover rate:
Clik here to view.
Not a math person? That’s ok. We’ll break it down for you. Suppose you have a company with 200 employees, and 30 of them leave throughout the year. That would leave with you 170 employees, but of course, to fill the holes you bring new employees in (in this case, 25). This gives you a turnover rate of 15%.
Clik here to view.
Is that good? Is that bad?
There is not a definitive answer on this because the truth is that it doesn’t only matter how many people leave, but who is leaving. If 15% of your top talent and execs are leaving, then yes, that is a problem. However, if 15% of your bottom-performing employees are leaving, you might even consider this exodus to be a positive thing, as it leaves room for new talent to come in.
According to Gallup, 10% would be the ideal rate, and that 10 % would ideally also be bottom performers.
Causes of employee turnover
There are many causes of employee turnover, but lumped together you might simply call it employee disengagement. Two of the biggest factors of turnover are problems at the hiring stage, and bad management.
Hiring
According to the RainMaker Group, hiring problems account for 80% of employee turnover.
This is why it’s so important to make sure you have an amazing hiring process that is up-to-date with the latest technologies, and that considers things such as cultural fit and company alignment in addition to the experience.
Bad managers
Another significant cause of turnover is bad management.
The truth is that most people don’t quit their jobs; they quit their bosses, which is quite sad because they might love their job and be really good at it.
At a previous job, five people quit over the course of two months. Each one announced an obscure reason for leaving, like focusing on other passions, moving to freelance, etc. All five left without having secured a new job, which seemed reckless, until it became clear, after a sixth person left, that their reason for leaving was unmentioned but unanimous: the boss. After the first employee mustered the courage to leave, it triggered a domino effect.
Can you imagine the stress that losing six team members caused for the remaining employees who had to pick up the slack; for the HR reps, who had to hire quickly but strategically; and for the manager, who had to train a slew of new employees? It’s a huge, time-consuming, discouraging setback.
How to reduce employee turnover
Focusing on employee engagement and personal growth for your employees will pay huge dividends for your team.
Here are a few ideas you can use to reduce your turnover:
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Improve the hiring process
The hiring process is where it all begins, so it needs to happen properly. Make sure new hires are a good cultural fit and that they are aligned with the company’s mission and values in addition to considering their skill set and past experience in the field. It might take a bit more time to do the hiring process right, but it’s better to get it right the first time then have to do it over and over.
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Improve the onboarding process
20% of employee turnover happens in the first 45 days, and a big part of that is due to improper onboarding. Be sure to set proper expectations, make them feel welcome, collect feedback, and touch base with them often.
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Train managers
When you hire a manager or promote an employee to a managerial position, it’s important to consider more than just their skill set. There is an element of personality and psychology to leadership that is just as important to consider. Offering training for managers is one of the best ways to ensure that they can lead a team successfully. Things like emotional intelligence and empathy cannot necessarily be taught, but they should be considered during the hiring process.
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Give opportunity for growth
What employees really want, as famously taught by Dan Pink, is autonomy, mastery, and purpose. You can easily fulfill their need for mastery by letting them improve whatever skills they have for their job. It’s a win-win, because if they’re better at what they do, they’ll be more productive and feel encouraged to keep learning and improving.
Offering your employees professional development opportunities shows them that you are invested in their future at the company, which will in turn inspire them to stay in the organization.
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Recognize employees
Companies that scored in the top 20% for building a “recognition-rich culture” actually had 31% lower voluntary turnover rates, according to research by Josh Bersin.
The research shows that it’s more important to receive recognition from peers than from top managers, so set up a way for employees to praise and recognize each other.
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Promote work-life balance
Work-life balance is one of the most important parts of keeping your employees happy, healthy, and productive. Organizations are finally starting to understand to the importance of helping employees maintain a proper work-life balance to reduce stress and maintain a positive outlook when they go to work in the morning. Being mindful not to overwork your team and avoiding contacting them outside office hours is a great start, but you can also offer benefits such as gym memberships, proving that you care about both their mental and physical health.
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Collect frequent feedback
Some companies still survey their employees only once a year, but employees need to be able to express themselves and offer feedback on a more frequent and regular basis. Employees want to be listened to and feel that their opinion matters. Collecting frequent feedback allows managers to act instantly on problems.
For more insight on employee retention, see 8 Employee Retention Facts That’ll Keep You Up At Night.
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