Discover the unseen financial burdens of employee turnover and learn effective strategies to avoid them. Equip your business for better talent...
Everything You Need to Know About Employee Turnover
Employee turnover is a major concern for any company, regardless of size. To help you understand and manage it, we uncover solutions to all of your retention issues.
In this article
- What is Employee Turnover?
- Types of Employee Turnover
- Employee Turnover Explained
- 4 Main Effects of High Employee Turnover
- Causes of Employee Turnover
- What is a Healthy Turnover Rate?
- How to Calculate Employee Turnover
- What Do Turnover Rates Tell Us About a Business?
- Cost of Turnover For Businesses
- Turnover by Industries
- 5 Ways To Reduce Employee Turnover
- Employee Turnover & Workplace Culture
- How a PEO Can Help Employee Turnover
What is Employee Turnover?
Employee turnover is best described as the total number of employees who leave a company, either voluntarily or involuntarily, over a specific time period.
It's important to differentiate turnover and attrition. Attrition only accounts for the number of employees who leave voluntarily, while employee turnover includes both voluntary and involuntary departures.
Each year, employee turnover can cost businesses tens of thousands, sometimes even millions, of dollars. In fact, high employee turnover rates can have a significant negative impact on your business. This can include increased costs for recruiting, hiring, and training, and onboarding new employees, loss of institutional knowledge, decreased productivity, lower morale, and damage to your company’s reputation.
High employee turnover rates may also indicate underlying issues in your company, such as poor management practices, low employee engagement or job satisfaction, insufficient or inadequate compensation and benefits, or toxic company culture.
Types of Employee Turnover
Employee turnover can be categorized into two main types: voluntary and involuntary. Understanding the difference between these two types is crucial in identifying the factors that contribute to turnover and developing effective strategies to retain employees, minimize turnover, and create a positive work environment.
Voluntary employee turnover
Voluntary employee turnover takes place when an employee decides to leave their employer, typically in search of a higher salary, better benefits, a better work-life balance, or a new workplace environment. Better job opportunities elsewhere, workplace conflict, disengagement or loss of interest, and new life goals can all contribute to your employee leaving voluntarily.
Involuntary employee turnover
Involuntary employee turnover occurs when someone is terminated permanently, possibly due to poor behavior and/or performance, or is laid off due to seasonal work or a workforce reduction.
Excluding unavoidable layoffs, termination from a position is often regarded as a desirable form of involuntary turnover. Termination allows for the replacement of less effective employees with more motivated and skilled ones.
Voluntary turnover, on the other hand, is generally regarded as undesirable because it can result in the loss of valuable experience and knowledge. Retention strategies aimed at reducing voluntary turnover can assist organizations in keeping a stable and experienced workforce.
Employee Turnover Explained
Employee turnover, particularly voluntary turnover, impacts a company's ability to achieve its goals. Some business owners and executives, however, may not realize the full extent of the negative consequences of turnover.
It's worth considering how demographics affect employee turnover and attrition. The reality is that different age groups and generations have different reasons for leaving their jobs. For example, as more baby boomers are leaving the workforce and retiring, it may contribute to higher overall turnover rates.
Meanwhile, younger generations, such as millennials, have different job preferences that can influence their willingness to stay in a job for the long term. Today, millennials make up 35% of the modern workforce, but they tend to switch jobs more often and not stay in the same place for too long.
According to the U.S. Bureau of Labor. Statistics, workers aged 55 to 64 have typically been with their current employer for about 9.9 years on average. This is more than three times as long as the average for workers between the ages of 25 and 34, which is only 2.8 years. In addition, as of January 2020, 53% of workers aged 60 to 64 had held their current position for at least 10 years compared to 10% of workers aged 30 to 34 who had held their position for the same amount of time.
Additionally, there’s the issue of location-based employee supply and demand. For certain roles and geographies, there simply aren't enough candidates with the necessary skills to fill open positions. For example, medical professionals, scientists, mathematicians, skilled tradespeople, engineers, and many IT specialties have all been in short supply. Many of these shortages are expected to persist even with higher-than-average unemployment rates.
Another point worth mentioning is that people today expect more from their employers than just money. For most professions, guaranteed lifetime employment is no longer an option. Even baby boomers want more than a steady paycheck and consider working for a company with a meaningful mission to be a top priority. Today's workforce values flexibility and time off, as well as a clear career path with the necessary training to advance and remain marketable.
4 Main Effects of High Employee Turnover
When turnover rates become too high, it can pose a serious problem that must be addressed, particularly when key employees are leaving your organization. A high turnover rate can cause substantial negative consequences for your company.
1. Loss of Revenue
Losing employees with strong institutional knowledge and who have developed strong relationships with clients can result in the loss of those clients. This, in turn, can damage your company's reputation, especially if you do not have a suitable replacement to take over their responsibilities. All of these factors can end up affecting your revenue over time, ultimately benefiting your competitors.
2. Production Decrease
Although some departures, such as retirements, are unavoidable, losing a large number of experienced employees due to voluntary turnover can lead to major issues.
The departure of seasoned employees can have a ripple effect on a business. When they leave, their responsibilities must be transferred to someone else, which results in a shift in resources and a burden on existing staff, often resulting in higher costs and disrupted workflows. Furthermore, finding and training a replacement can be a time-consuming and costly process, adding to the already-existing difficulties.
3. Difficulty Recruiting
When word spreads that your company has a high turnover rate, your HR department may struggle to find valuable prospective employees.
High turnover rates can harm your company's reputation, which is crucial when it comes to attracting top talent. If your company is perceived as a revolving door, it may be difficult for your HR department to attract qualified candidates. Potential employees may be hesitant to apply for or join your team, which can worsen the issue.
4. Low Morale
High turnover rates in your company can damage the morale of your remaining employees. The increased stress caused by high turnover can make your team feel overworked and lose faith in management. All work and no play leads to unsatisfied employees, and this is one of the first things you may notice as your employee turnover rates increase. As morale goes down, turnover rates may go up, further exacerbating the issue. When you lose talent to your competitors, you also risk losing the competitive edge that motivates your team.
Causes of Employee Turnover
There are many reasons why an employee may choose to leave your company. While some reasons may be negative, the majority of employees are simply ready to move on, so some turnover is expected and is totally normal.
What you should be concerned about is when turnover increases for negative or unexpected reasons. The most common reasons for employee turnover can be segmented into internal or external factors.
Internal Factors for Employee Turnover
- Poor management: When employees feel that they are not being adequately managed or that their supervisor is not supportive, it can lead to dissatisfaction and ultimately turnover.
- Lack of job satisfaction: If employees are not satisfied with their job duties, workload, or opportunities for growth and development, it’s very likely that they will look for other employment options.
- Limited opportunities for advancement: Employees who perceive that there are no opportunities for career growth or advancement within the organization may look for opportunities elsewhere.
- Low compensation and benefits: If employees feel that their compensation and benefits are not competitive or adequate for their needs, they may seek employment with other organizations that offer more attractive compensation and benefits packages.
- Poor work-life balance: When employees have work demands that disproportionately impact their personal life or health, they may seek employment with an organization that offers a better work-life balance.
- Bad workplace culture: Employees who experience a negative and toxic environment may feel undervalued, unsupported, and unappreciated, leading them to seek other opportunities.
External Factors for Employee Turnover
- Economic conditions: In an economic downturn, employees may leave for better opportunities due to increased job availability.
- Competition: High competition from other employers offering better compensation or benefits can make it difficult to retain employees.
- Industry trends: Significant shifts or changes in an industry can lead employees to seek more stable or growth-oriented opportunities.
- Demographics: Changes in workforce demographics, such as an aging or younger workforce, can impact turnover rates.
- Social trends: Changes in societal attitudes towards work, such as a greater focus on work-life balance or social responsibility, can significantly impact employee turnover rates.
Understanding the factors that contribute to employee turnover will allow your business to make the necessary changes in order to retain your workforce.
What is a Healthy Turnover Rate?
According to LinkedIn, the average turnover rate across all industries is 10.6%.
Gallup, an American analytics and advisory firm, says that 10% turnover is considered healthy, but each industry and organization is unique.
How to Calculate Employee Turnover
Calculating your company’s employee turnover rate is easier than it may seem.
To determine your company's turnover rate for any given time period, compare the number of employees who left for any reason, whether it was voluntarily or involuntarily, with the average number of employees during that time period.
To calculate the monthly turnover rate:
- Begin by counting the number of employees who left the company during that month.
- Next, calculate the monthly average number of employees at the company.
- One simple method is to add the employee count on the first and last days of the month and divide the total by two to get the average number.
To calculate your turnover percentage:
- Divide the number of employees who left by the average number of employees
- Multiply the result by 100.
(# of departed employees/Average # of employees) X 100
Rather than following the equation, you can use Stratus HR's employee turnover rate calculator to quickly and easily determine your company's turnover rate.
What Do Turnover Rates Tell Us About a Business?
Employee turnover rates differ depending on the industry. Industries like professional services, hospitality, and retail, for example, have historically experienced higher-than-average employee churn, so turnover rates must be viewed in the context of their respective industries.
According to LinkedIn, professional services, such as accounting, have the highest turnover rate at 13.4%, while government administration has the lowest turnover rate at 8.4%.
To determine how well your company retains talent, you can, and should, compare your turnover rate to that of similar businesses in your industry.
Generally speaking, high turnover rates can indicate problems with a company's recruiting, culture, compensation and benefits structure, individual managers, training and career advancement paths, or other areas.
Cost of Turnover For a Business
Turnover is an expense for businesses, and it’s costly. With employee turnover comes more than just the cost of hiring and training; you pay in terms of productivity, output, and employee morale.
When an employee leaves, it can cost your company time and money for things such as administration, loss of institutional knowledge, temporary staffing costs, and reduced productivity from the remaining employees.
Higher salary = higher cost to replace
- Replacing an entry-level employee will cost 30-50% of their annual salary
- Mid-level employees can cost over 150% of their annual salary to replace
- A high-level or specialized employee will cost 400% of their annual salary to replace
For example, if an entry-level worker's yearly income is $40,000, recruiting a new staff member could set you back $12,000 to $20,000. This calculation only accounts for a single employee; when several employees require replacement, the expenses could quickly add up to hundreds of thousands of dollars.
Hiring new employees is expensive, as time and resources are allocated to recruiting, administration, operations, management, and training. The higher the salary of your former employee, the greater the cost of replacing that employee.
Turnover by Industries
As mentioned before, turnover rates must be considered in the context of their industry. What is high in one industry may be completely normal in another.
According to a Mercer study, retail and wholesale industries have the highest annual voluntary turnover rates at 37%, while the national average is 20%.
Call centers and customer service (17%), manufacturing and operations (15%), and sales (14%) have the highest annual voluntary turnover according to Mercer.
Industries are recommended to assess their employee turnover rate on a monthly basis. HR teams should consult analysts and industry sources for trends in their specific verticals. The U.S. Department of Labor continuously monitors statistics on turnover and job openings.
5 Ways To Reduce Employee Turnover
Now that you have a full understanding of what employee turnover is, it’s time to develop a strategy to manage retention and reduce employee turnover.
The key to retaining your employees is keeping your employees happy. Studies show that 77% of turnover causes are easily avoidable by employers with minimal effort.
Below are five proven strategies that help reduce employee turnover.
1. Create a Retention Plan
You can work closely with your human resources team or HR partner to develop the right employee retention plan for your business, which may include some of the following:
- Survey and talk to your employees about their workplace satisfaction and find out what makes your employees tick. Which workplace solutions do they want and need?
- Offer competitive benefits so your workers aren’t tempted by other businesses offering something more.
- Conduct “stay” interviews to learn more about each employee’s goals and motivations.
- Try simple, fun tactics to keep morale running high.
- Set up career development paths.
You should aim to repeat this process on a regular basis, at least once a year.
2. Hire the Right Employees
Businesses can reduce employee turnover and stay ahead of the competition by attracting and hiring top talent from the start.
Hiring the right employees, however, is not always easy. To do so, you must define and communicate your company's core values to potential candidates to assist you in attracting prospects who are a good fit for your company. Be sure to use multiple venues to find applicants. Social media platforms such as LinkedIn, Twitter, and Facebook are great (and affordable) for finding potential employees. An applicant tracking system that posts on multiple job sites is even better.
When searching for the perfect candidate, preliminary interviews should be conducted over the phone or via video call to save time and money by only meeting the most qualified candidates.
3. Prioritize Employee Development
Employee engagement and retention can be increased by prioritizing employee development. Hardworking, driven employees are always looking for ways to grow and advance.
Provide your employees with exciting opportunities to take on more responsibilities that improve their competencies and skills. Take the initiative to organize training boot camps and seminars for them and meet with team leaders one-on-one to discuss opportunities for improvements.
You should also provide opportunities for internal career changes to keep talented employees engaged in new challenges and reduce employee turnover.
4. Give Employees a Hybrid Option
Remote work is not only satisfying for employees but also effective. According to research, there’s a positive relationship between remote work and job satisfaction.
If possible, give employees the option to work remotely from home, the office, or a hybrid of both locations.
5. Check-In on Your Top Performers
Most of the time, your most productive employees are also the most likely to burn out. One of the best strategies to retain your top employees is to listen to them, discuss their ideas with them, and offer solutions for any urgent issues they have. Your overworked and exhausted employees may require a helping hand or a motivating incentive from time to time.
You should consider providing your hardest-working employees with specialized training, opportunities for advancement, and an exceptional benefits package. But don't just focus on the top performers, use them as role models to encourage and motivate your other employees to improve their results, too.
At the end of the day, people want to work for companies and with people who inspire them, according to LinkedIn's Talent Trends survey. The modern workforce values flexibility and time off, as well as a clear career path that includes the necessary training to advance and remain marketable.
Employee Turnover & Workplace Culture
Research conducted by the University of Columbia found that organizations with a high-impact company culture have employee turnover rates of only 13.9%. On the other hand, organizations with a low-impact company culture had significantly higher employee turnover rates of 48.4%.
These numbers indicate that a positive company culture can help attract and retain top talent, motivate employees to be productive and innovative, and increase client satisfaction.
To reduce your company’s employee turnover, you should make a point of understanding what your employees value in the workplace culture. With multiple generations in the workforce, it's important to know which generation your employees fit into and what factors are driving their success.
- What they value: A culture that fits
- Driven by: Success, recognition, and work-life balance, making workplaces feel like family
- What they value: stability and flexibility
- Driven by: Telecommuting, child care, incentive plans, and saving options
- What they value: experience
- Driven by: Stability, integrity, long-term care insurance, retirement counselling, wellness programs
Businesses should work to instill a sense of belonging among their staff. Employees are much more likely to be engaged and invested in their work when they feel like they are part of a supportive team. This can be accomplished through social events, networking opportunities, and career development programs. Your business can create a strong company culture that will support long-term success by taking these steps.
How a PEO Can Help Reduce Employee Turnover
PEOs can help small to mid-sized businesses streamline their HR processes and offer better benefits and training opportunities to their employees. This can lead to increased job satisfaction and reduced employee turnover rates.
According to NAPEO, companies that use a PEO have 10–14% less employee turnover than comparable companies. NAPEO also discovered that businesses that use PEOs are approximately 50% less likely to fail from one year to the next when compared to similar companies in the general population.
Overall, there are clear advantages for PEO clients on two of the most fundamental issues confronting any business: employee retention and continued survival across all industries. Here’s a deeper look into how PEOs help with each of these.
Streamline HR Processes
PEOs absorb many of the administrative tasks associated with HR. This frees up business owners and managers to focus on other important tasks and reduces the stress and workload on their employees. When you partner with a PEO, you share responsibility without losing control and avoid the need to hire an entire in-house HR team.
Improve Employee Benefits
As a small or midsize business owner, providing a good benefits package to employees can be a challenge due to the high costs and limited resources. But partnering with a PEO gives you access to solid healthcare benefits, as well as retirement opt-ins and a la carte items such as dental, vision, flexible spending, and supplemental plans, all at economies-of-scale pricing. In all, the ability to offer Fortune-500 level benefits gives you a clear advantage over your competitors.
Provide Training and Development Opportunities
Many PEOs offer training and development programs that help employees improve their skills and advance their careers within the company. This can help increase job satisfaction and reduce turnover rates.
Enhance Workplace Culture
PEOs help businesses develop a positive workplace culture by offering resources and support for employee engagement, recognition, and communication. This can improve employee morale and create a more cohesive and productive team.
The Best PEO Partner to Help You Reduce Employee Turnover
Stratus HR is a full-service PEO that has been perfecting its craft for over 20 years. We help both junior office managers and experienced HR professionals save time with customizable solutions so they can focus on the core activities of their business, such as employee retention.
As the industry leader in human resource management, payroll, employee benefits, and risk management, our team of certified HR experts are ready to assist you in navigating best practices. We provide 24/7 access to our fully integrated Human Resource Management and Information System, and provide Fortune-500 level employee benefits at economies-of-scale pricing. By offering a solid benefits package, you become a more attractive employer that can compete in a tight labor market.
Stratus HR is here to assist you in streamlining your human resource processes so you can focus on running and growing your business. Book a consultation with one of our experts today to learn how you can lower your employee turnover.