Employee turnover is one of the most significant challenges that companies face today. If workers aren’t happy at their jobs, they’re not hesitating to walk out the door. In fact, about 40% of employees who quit in their first year did so within the first 90 days.
Employers are often caught off guard when employees decide to leave, especially so soon after they’re hired.
But it’s not just the act of an employee leaving that stings — the underlying reasons and the ensuing turnover costs can cripple an organization’s momentum.
In this article, we break down how to calculate employee turnover, examine what this metric means for your business, and look at what you can do to prevent your valued employees from walking out the door.
What is employee turnover, and why is it important?
Employee turnover is the number or percentage of workers who leave an organization and are replaced by new employees over a certain time period. Turnover can happen for various reasons, including resignation, retirement, termination, or even a transfer. The rate at which employees leave a company and are replaced is known as the turnover rate.
Calculating employee turnover and understanding what’s causing it is important for any company. Here’s why:
Financial impact
The financial impact of turnover is substantial. It’s estimated that losing an employee can cost a company one-half to two times that employee’s salary.
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And this isn’t only about putting out ads and interviewing. We’re talking about training, the time it takes for them to get up to speed, and the work that goes undone in the meantime.
Operational impact
High turnover can lead to workflow disruptions, as departing knowledge and experience aren’t easily replaced. This can reduce the efficiency and effectiveness of teams and projects.
Morale and engagement
Constantly seeing colleagues leave can lower the morale of the remaining employees, leading them to question the company’s stability or their place within it. This, in turn, can reduce their engagement and productivity.
Company reputation
If a company gains a reputation for high turnover, it can deter potential top talent from applying. This can make it even more challenging to hire and maintain a strong workforce.
Institutional knowledge
Every time an employee leaves, they take with them a unique set of skills, experiences, and understandings about the company’s processes. This loss of institutional knowledge can have long-term ramifications.
Types of employee turnover
Here are the primary types of employee turnover:
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Voluntary turnover
This type of turnover happens when an employee chooses to leave the organization on their own accord.
Common reasons for voluntary turnover include the following:
- Better job opportunities elsewhere
- Personal reasons
- Relocation
- Retirement
- Dissatisfaction with their current job
Involuntary turnover
Involuntary turnover happens when the organization decides to terminate an employee or employees. Reasons can include the following:
- Layoffs due to financial constraints or downsizing
- Termination due to performance issues
- Contract expiration
Internal turnover
Unlike external turnover, in which employees leave the company altogether, internal turnover is about shifts in roles or responsibilities within the same organization. This can include:
- Promotions
- Transfers to different departments or positions
- Demotions
Retirement
This form of turnover happens when an employee decides to end their professional career, typically due to reaching a certain age or after many years of service.
Retirement is a natural and expected form of turnover, as opposed to other forms that might be due to job dissatisfaction, better job opportunities elsewhere, or termination.
How to calculate employee turnover
Calculating employee turnover is essential for understanding how frequently your organization is losing and replacing employees. Here’s a step-by-step guide to calculating the turnover rate:
1. Determine the period. First, decide on the timeframe for which you want to calculate your business’s turnover rate. This could be monthly, quarterly, annually, or any other period relevant to your organization.
2. Number of employees who have left. Count the total number of employees who left the organization during that period. This includes all reasons for departure, such as resignations, terminations, and retirements.
3. Average number of employees. To get this number:
- Begin by noting the number of employees at the start of the period (beginning headcount).
- Then, note the number of employees at the end of the period (ending headcount).
- Add the two numbers, and divide that sum by two.
4. Apply the formula.
Plug the numbers from Steps 2 and 3 into the following formula:
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For example, if 20 employees left your company during the year, and you had an average of 200 employees over that year, your turnover rate would be:
(20 / 200) x 100 = 10%
This means 10% of your workforce left during the specified period.
A very high turnover rate might indicate problems like poor employee satisfaction or other organizational issues. A very low turnover rate, on the other hand, might mean that your company retains employees effectively — but it might also suggest stagnation.
It’s important to contextualize your employee turnover rate and compare it with industry benchmarks or your company’s historical data.
Effects of high employee turnover
High employee turnover can have multiple effects on an organization, ranging from financial burdens to cultural shifts. Here are the key consequences and implications of a high turnover rate:
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Increased costs
Replacing employees can be expensive. Costs can include advertising job openings, recruiting and interviewing, onboarding and training new hires, and potential overtime for the remaining employees who cover the departed employee’s duties. There might also be severance or outplacement costs associated with terminations.
Decreased productivity
New employees usually take time to reach their predecessors’ productivity levels. The time it takes to bring a new employee up to speed can lead to reduced output and efficiency.
Knowledge and experience drain
When an employee leaves, they take the knowledge, experience, and skills they acquired with them. This loss can be particularly damaging if that employee is a seasoned professional or has unique insights into company processes or clientele.
Morale and engagement issues
Regular employee departures can negatively impact the morale of the remaining staff. They might begin to question the company’s stability, their job security, or the work environment as a whole. Constantly seeing their peers leave can also be demotivating and lead to reduced engagement.
Overburdened remaining staff
As employees leave, their responsibilities often get temporarily redistributed to the remaining team members. This can lead to increased workloads and potential burnout.
Product or service inconsistency
Consistently having new people in a role, especially a customer-facing role, can lead to inconsistent service delivery or product quality. This inconsistency can potentially prevent customers and clients from coming back.
Common causes of employee turnover
Employee turnover can be influenced by a variety of factors. Understanding them is crucial for organizations aiming to reduce unwanted turnover and retain top talent.
Here are some of the most common causes of employee turnover:
Insufficient compensation
Employee compensation isn’t just a figure on a paycheck — it’s a direct reflection of an individual’s worth and value within an organization.
In today’s competitive market, an inadequate compensation package can be a silent killer for retention. Employees who feel they are not adequately compensated for their efforts may look for better-paying opportunities elsewhere.
Lack of career development
Employees want to feel that their role is not just a dead-end job. When they see no opportunities to advance or grow, they may become disheartened and dissatisfied with their current position. Over time, this dissatisfaction can lead to disengagement from work.
From the company’s perspective, the lack of career development options makes it harder to attract and retain top talent. Competitors that offer better career progression opportunities can lure away the best employees, leading to a talent drain.
Job stress and lack of work-life balance
Overwhelming job demands, long hours, and limited flexibility can lead to burnout and prompt employees to seek jobs that offer a better balance. Research shows how prevalent and far-reaching this issue is in the modern workplace. Lost productivity from depression and anxiety disorders costs the global economy $1 trillion every year.
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If an organization becomes known for having a high-stress environment and employees with a poor work-life balance, it may struggle to attract and retain top talent. Word of mouth, company reviews, and decreased employer branding can all deter potential candidates.
Poor onboarding and training
Without proper onboarding and training, employees can feel lost or unsure about their roles, responsibilities, and expectations. This uncertainty can lead to feelings of frustration and incompetence.
Onboarding is about not just role-specific training but also integrating the new hire into the company culture. Not having this integration can cause the employee to feel disconnected or misaligned with the company’s values.
5 strategies for reducing employee turnover
If you’re facing the challenge of frequent employee departures, then it’s time to act. Here are five strategies for not only retaining but also engaging your workforce more effectively.
1. Regular feedback and communication
Effective communication is the bedrock of any successful organization. Regular feedback sessions, both formal and informal, give employees insights into their performance and areas where they could improve. Fostering open lines of communication can make employees feel valued and heard, meaning they’re more likely to feel secure in their roles.
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2. Competitive compensation and benefits
In today’s competitive job market, offering a fair and attractive compensation package is non-negotiable.
But it’s not just about the paycheck. Benefits like health insurance, retirement plans, and paid time off can influence an employee’s decision to stay with a company.
3. Professional development opportunities
Career stagnation is a common reason for employee turnover. Providing opportunities for professional growth, from in-house training sessions to industry conferences, can help combat this.
When employees know that the organization they work for is invested in their professional development, they’re more likely to stay committed to the company.
4. Foster a positive work environment
A toxic work environment plays a huge role in driving employees away. A negative company culture is 10.4 times more influential in determining its turnover rate than pay scales, especially when compared to industry averages.
It’s crucial to cultivate a culture of respect, collaboration, and recognition. Regular team-building activities, acknowledging achievements, and promoting a culture of inclusivity can significantly boost morale.
5. Flexible work arrangements
The modern workforce values work-life balance. In fact, more than half of employees are willing to accept a lower-paying job in exchange for a better work-life balance.
Flexible work arrangements, whether that means having the option to work remotely or work flexible hours, play a significant role in achieving this. Providing these options helps companies show that they respect and understand their employees’ needs outside of work — which can, in turn, increase loyalty and reduce turnover.
Unlock employee retention with Motion
It’s often said that employees don’t leave companies — they leave managers. Weak leadership, a lack of feedback, and ineffective processes can drive employees away.
The right management tools empower managers to oversee their teams and projects more effectively. With Motion’s task management and tracking tools, managers and team members have a clear view of project progress, potential bottlenecks, and completed tasks. This transparency helps the team members feel more involved and valued, fostering a sense of loyalty and encouraging them to remain committed to the company.
Dive into a future where your employees stick around for the long haul with Motion and its collaboration features.
