Employee Turnover: The Ultimate Guide
6.700€ — that’s how much it costs to replace the average employee. In today’s competitive job market, employee turnover is one of the biggest issues companies deal with. Within the next three years, voluntary employee turnover alone is expected to rise to almost 30%, according to a recent report. As a result, it’s more important than ever before for organisations to understand the causes of turnover and learn how to retain their employees.
From the lack of recognition to toxic workplace culture, most causes of employee turnover are preventable. In this article, causes and different types of turnover will be discussed, as well as ways to reduce it.
What Is Employee Turnover?
Employee turnover is the number or percentage of workers who leave a company and are replaced by new employees. A company experiences high employee turnover rates when their workers routinely leave or are terminated, resulting in the need to hire new staff. Terms used to describe employee turnover are attrition, churn and separations, but they mean different things.
The Difference Between Attrition and Employee Turnover
Attrition describes the process of a decreasing workforce, following a period in which a number of people retire or resign and are not replaced. A reduction in staff due to attrition is often called a hiring freeze and is seen as a less disruptive way to trim the workforce and reduce labor costs. The key aspects of attrition are that the departure of an employee must be voluntary and the company decides not to rehire. This is what sets the term apart from employee turnover.
What Is the Average Rate of Employee Turnover?
Employee turnover rates greatly vary depending on the industry you’re looking at. However, the average worldwide labor churn rate is 10.9%.
According to LinkedIn, these are the industries with the highest employee churn:
1. Technology and Software Dev.: 13.2%
2. Retail and Consumer Products: 13%
3. Media and Entertainment: 11.4%
4. Professional Services: 11.4%
5. Government; Education; Non-Profit: 11.2%
6. Financial Services and Insurance: 10.8%
7. Telecommunications: 10.8%
Types of Employee Turnover
There are four different types of employee turnover — voluntary vs. involuntary and desirable vs. undesirable turnover:
· Voluntary turnover: This type of turnover occurs when an employee willingly decides to leave the company he or she works for. It is the employee’s own choice to separate from the organisation, without pressure from any external forces. Causes for voluntary turnover can be e.g. retirement and new job opportunities.
· Involuntary turnover: This form of turnover happens when an employee is fired, or asked to leave by the organisation. Often times employees are let go due to poor performance or the need to reduce the workforce.
· Desirable turnover: Turnover is considered desirable when an organisation fires or loses underperforming staff and replaces them with skilled talent. It’s advantageous for the company because poor job performance and absenteeism are costly. Replacing am underperforming employee with one who does their job better can improve the company’s profitability.
· Undesirable turnover: Undesirable turnover means that a company loses employees whose performance, skills and qualifications are valuable resources. These workers tend to be much more difficult to replace, causing a less than desirable situation for companies.
How to Calculate the Employee Churn Rate
The employee turnover rate is one of the most important HR metrics which is usually calculated on a yearly basis. In order to calculate the rate of employee turnover, the following numbers are needed:
· The number of employees who left the company, either voluntary or involuntary, in a certain period of time
· The number of employees the company was employing at the beginning of a certain period
· The number of employees the company was employing at the end of certain period.
Once the aforementioned numbers have been established, the following equation can be used to calculate the employee turnover rate:
The turnover rate is a key indicator that gives companies important long-term information regarding personnel movement within their business. In industry-specific comparisons, it can reveal whether your company’s staff turnover is within the normal range or not. The lower the rate, the better.
The Main Causes of Staff Turnover
Some causes of employee turnover such as retirement, schooling or relocation are unavoidable. However, there are other reasons as to why staffers underperform or decide to quit that stem from poor business practices.
- Lack of Recognition and Feedback
Not giving valuable feedback and recognising employees’ accomplishments can do serious damage in terms of retaining workers. Job dissatisfaction occurs when employees feel unappreciated and taken for granted by their employers. When employee recognition improves, so does employee turnover. Providing feedback and recognition is not only essential for the growth of individual workers, but for the organisation as a whole.
- Overworked Employees
Overwork and subsequent stress are major reasons as to why employees decide to leave an organisation. Working beyond someone’s capacity or strength can cause illness and depression and often leads to reduced productivity. Research conducted by a German health insurance provider revealed that six out of ten employees suffer from typical burnout symptoms like persistent exhaustion, inner tension or severe back pain. Overworked employees will often times quit and instead work for companies that have a better understanding of the necessary work-life-balance.
- Low Salary and Lack Of Benefits
Compensation is often cited as one of the top reasons for voluntary employee turnover. In fact, a study by The Work Institute found that 19% of job seekers left their job the year prior due to low pay. However, not only dissatisfying monetary compensation can lead to employee turnover, so can the lack of a good benefits package. According to a study conducted by Glassdoor, 4 out of 5 employees prefer company benefits over a pay raise. If the salary is low, there is no pay increase in sight and the corporate benefits that are available are unsatisfactory, a valued employee may choose to work for another company that offers a higher wage and better perks.
- No Professional Development
If there is no way to progress and move up in their career within the company they work for, employees often feel no choice other than to leave their current job and look for one that will fund their personal and professional growth. Wanting to be supported in their professional development doesn’t necessarily mean that people are looking for promotions or salary increases, but opportunities to grow and develop skills. If businesses don’t provide their employees with the tools to do so, they might find an employer who does.
Similarly to being overworked, a lack of challenging or engaging tasks — in other words boredom — is also a major cause of employee turnover. A British study found that 35% of workers left their jobs due to boredom and frustration. When employees think that their capabilities aren’t being utilised or their work lacks meaning, boredom can set in. Interestingly enough, it has been proven that boredom can cause more stress than overwork due to “[…] the feeling of helplessness that results from being stuck somewhere with nothing to occupy your mind”.
How to Reduce Employee Turnover
Though the aforementioned causes for employee turnover may seem concerning, they are easily preventable. Here are three simple measures any business can take to improve their employee turnover rate and successfully retain talent.
1. Reward and Compensate
Employees want to be compensated well for their work. In order to keep them from switching to a higher-paying company, it’s advisable to offer more competitive salaries. When determining suitable compensation for employees, conducting market research on wages can provide insight on how much competitors are paying their staff. For example, if you want to hire a Marketing Manager in Berlin, you should consider what similar companies located in Berlin pay their managers. Platforms like Glassdoor are useful for this kind of research as they allow users to compare salaries with thousands of other companies. Increasing salaries may be a high cost initially but will save you money in the long run by automatically reducing recruitment costs. However, far more than a pay raise, an effective employee benefits package can generate an exceptionally high ROI as an employee retention strategy.
Read more about employee benefits in our article “These Are the Most Important Employee Benefits and Perks”.
To reward your employees with a benefit they can use every day, consider providing office lunch using a catering service. A study shows that free food at work increases job satisfaction by 67% and thus constitutes a great employee retention tool. We at Bella&Bona deliver healthy and affordable food to employees every day and offer a convenient lunch experience for everyone involved. Our dishes are specifically designed for office workers to boost productivity and mental wellbeing. If you are interested in our service, please don’t hesitate to reach out to us: firstname.lastname@example.org.
We offer healthy and balanced dishes and deliver lunch directly from our kitchen to your office. bellabona.com
2. Considerate Feedback and Recognition
Employees want to know that their work is valuable to the company and appreciated by management. Unfortunately, only one third of employees feel that they receive regular recognition for their accomplishments. In order to reduce employee churn, it’s advisable to routinely check in with all staff members and provide valuable feedback as well as give praise for jobs well done.
Surveys and feedback sessions are great ways to determine if employees are overworked, if they feel appreciated and supported by the company and if they believe they are being fairly compensated. According to managers and business experts, scheduling regular check-ins with employees can boost their individual performance and in turn help the business as a whole. The goal here is to create a supportive and positive work environment — when employees feel acknowledged, they are more likely to stay. Best of all, this method of employee retention is free.
Recognition software platforms like Nectar encourage thoughtful conversations between peers as well as managers and enhance company culture.
3. Improve Recruitment Process
Improving hiring practices can significantly influence turnover. Here is how you can discard unsuitable job candidates:
- Define role clearly
Presenting applicants with a realistic job description, including the required skills and knowledge the person must possess, has a positive effect on new employees. Research shows that retaining new hires is an issue for almost 90% of employers, as they are likely to quit if the position doesn’t match their expectations. As a result, defining the role clearly before advertising the job will help target the right candidates and dismiss those that aren’t fit for the role.
- See if candidate aligns with company culture
The interview stage provides a great opportunity to understand an applicant’s behaviour and see if his or her values align with those of your company. Open questions are generally recommended as they give a good insight into their thought process and personality. Questions to understand the applicant better are:
1. How would your co-workers describe you?
2. Can you give me an example of a time you worked well in a team?
3. What is your preferred management style?
- Test if candidate has desired skills and knowledge
To assess the competency of applicants, conduct practical testing such as role-play or ask for work samples from their previous jobs. Trial days are also recommended because they allow both parties to get to know each other and see if the position is a suitable fit for the job candidate.
Written by Charline Will