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What Is Employee Turnover Why It Matters for Your Workplace

2022-05-23
What Is Employee Turnover Why It Matters for Your Workplace

Employee turnover is one of the most important metrics to track in any workplace. It tells you how satisfied your employees are, and if they are likely to leave. Voluntary turnover refers to employees deciding to leave, whereas involuntary turnover is when a boss decides to remove an employee from the team.

Turnover is the calculation of how many employees leave their positions within the company within a given time period. Typically, this does not include internal promotion but does include neutral factors such as retirement.

High turnover can be costly and disruptive to your business, so it's important to understand what causes it and how to reduce it. In this blog post, we'll explore what employee turnover is, why it matters, and some ways to keep your workforce happy and engaged.

What Is Employee Turnover Rate?

Employee turnover is the rate at which employees leave an organization. A high turnover rate can be costly and disruptive to a business, while a low turnover rate can indicate a healthy and productive workplace. There are many factors that contribute to employee turnover, including job satisfaction, pay and benefits, company culture, and workload.

How to Calculate Employee Turnover Rate

This figure represents the number of employees who leave the company over a given time period, and it can have a major impact on the bottom line.

To calculate employee turnover, simply divide the number of employees who leave during a year by the total number of employees. For example, if 10 employees leave a company with 100 total employees, the annual turnover rate would be 10%. While turnover rates can vary depending on the industry, most businesses aim to keep their rates as low as possible.

Larger businesses may choose to calculate turnover on a monthly basis to give a more in-depth view of when and why employees leave. By understanding how to calculate turnover rates, businesses can better track their progress and identify potential problems.

What Are the Main Causes of Employee Turnover?

Employee turnover is a given in any industry. In fact, it has increased dramatically across the globe since the Covid-19 pandemic. Here are some huge factors in why employees choose to leave:

  • Dissatisfied with Position. Simply put, the position isn't a fit. This could be due to not identifying with the company's ethos, not enough work-life balance, or not enough opportunity for progression.
  • Discrimination. This is sadly a big factor in employees choosing to leave. In a recent survey, one-third of transgender respondents said they had left a position due to discrimination at work. In a similar survey, 33% of black respondents reported not feeling respected or valued at work.
  • Retaliation. Retaliation refers to the ill-treatment of employees in response to them raising a concern or complaint. Many companies are ill-equipped to protect against retaliation, but the problem is statistically growing.
  • Favoritism. This can happen between co-workers or be displayed by a manager toward staff. Either way, it can cause tension and feelings of injustice, having a negative impact on employee retention.
  • Nepotism. Hiring family members or friends instead of unfamiliar workers is an age-old habit. However, hiring familiar faces can often lead to poor performance and increase the workload on other staff.
  • Intimidation. An estimated 30% of US workers have experienced bullying at the workplace. This is a hugely negative factor in employee engagement, self-esteem, and employee loyalty.
  • Toxic Work Environment. Of course, all the above factors can play into a toxic work environment. Some of the other features of a toxic workplace are gossip, cliques, bad leadership, burnout, and a lack of motivation, or growth opportunities.

Why Is Employee Turnover a Problem for Business?

Turnover is a problem for businesses because it can lead to lost productivity, high recruitment and training costs, and decreased morale among remaining employees. And finally, high turnover rates can reflect negatively on businesses, making it difficult to attract and retain top talent. Turnover rates vary depending on the industry, but turnover is generally considered to be undesirable because it can disrupt the smooth operation of a business.

How Do Employee Turnover Rates Affect a Company?

High turnover has a high cost for businesses, both financially and in other ways:

  • Productivity. As new employees are trained up to speed, the productivity of the team lags behind what it would be with experienced employees. Because of this, there can be an added strain on existing staff and planned projects may need to be postponed.
  • Financial Losses. Employee turnover is estimated to cost a company around 1.5-2 times the employee's salary, depending upon their position.
  • Morale. When turnover rates are high, it can negatively affect morale within a company. This is because employees who stay with the company are often left feeling overworked and underappreciated. In addition, high turnover rates can lead to a shortage of experienced workers, which can make it difficult for a company to meet its goals, creating frustration for the team
  • Company Image. When a company has a high employee turnover, this indicates something is wrong. With voluntary turnover, it can indicate the rewards are not matching the work involved. With involuntary turnover, it can indicate that the people in charge view their staff as expendable. This can have a negative impact on the company, potential hires, and sometimes the customers.

What Are the Costs of Employee Turnover?

The negative impacts of a high turnover rate can snowball. For example, the term "turnover contagion" refers to how when a number of employees leave, it can have an influence on others who are weighing up whether to do so.

In many ways, the disruptions caused by issues in a workplace can exacerbate each other, creating a more hostile environment, lessened productivity, and more staff turnover.

Employee Turnover Statistics

As mentioned, turnover is a standard part of every company. A desirable turnover rate would remain at around 10% or less, including both voluntary and involuntary turnover. However, factors such as the Covid-19 pandemic and the great resignation hype have pushed many turnover rates sky high over recent years.

Turnover Rate by Gender

In studies, the turnover rate for women is much higher than that of men. There are various theories about why this is but no clear conclusions have been drawn. Some researchers find the statistics paradoxical though, as women also tend to report higher job satisfaction than men.

Turnover by Industry

The expected annual turnover rate of a workplace can differ greatly between industries. For some industries, undesirable turnover is a common occurrence, often due to stress, low job security, or low pay.

Retail

Employee turnover is a big problem in the retail industry. Bearing in mind that a good turnover rate would be considered at around 10%, retail industries across the world see much higher statistics. These higher turnover rates are often due to low wages, lack of progression, and not enough room for building skills.

In the UK, the turnover rate for retail workers is quoted at 31.3%. This is considerably high when taking into account the average UK turnover rate of 15%.

In the US, retail turnover is staggeringly high, at almost 60%. According to the bureau of labor statistics, US general turnover is also incredibly high at the moment, at 57.3%.

Healthcare

Within the healthcare industry, pressures such as long hours, high stress levels, and burnout can lead to staff seeking new positions elsewhere. UK healthcare staff need to be signed to a register, so when they leave a position, they often tend to seek a similar position elsewhere. We call this factor the rate of staff stability, rather than turnover.

In the UK, staff stability worsened greatly over the pandemic. However, even pre-pandemic, there was an increase in staff leaving their posts, particularly around 2017/2108. In the lowest-stability areas of the UK, around 1 in 5 healthcare workers left their post that year.

In the US, there are similar rates of staff turnover in hospitals, with 2019 recording 17.8% staff turnover. Some market analysts say that the healthcare industry is the second worst for staff turnover, right after hospitality.

Hospitality

The hospitality industry is one of the world's largest employers and is often the sector in which young people find their first paid job. It is also one of the most stressful industries to work in, producing the highest staff turnover rates.

In the UK, there is a turnover rate of 30% - staggeringly higher than the national average of 15%.

For the US, labor statistics state the average number of employees leaving these jobs each year is a huge 73.8%. It's clear that as far as job security and satisfaction go, the hospitality industry is lagging far behind national averages.

Banking

Banking has also faced some issues with retention in past years, with some theorists blaming millennials for the change. However, overall, the banking sector is proving much more stable in terms of retention than other industries.

In the UK, the turnover rate is at 14%, which is an increase from previous years but still lands below the national average.

For the US, banking has managed to reduce employee turnover over recent years, which may be down to improvements in salary and benefits. The average number of employees leaving their jobs has fallen for both officer and non-officer jobs in the past few years.

Call Centers

Call centers are notorious for quick turnover, whether due to staff wishing for a career path with more growth, poor management, or the stress of the work itself. However, when we take a closer look at reports, the turnover isn't too far away from the general average.

In the UK in 2020, turnover in call centers was around 20%, which is about 25% above the average.

In the US, the mean turnover statistic for 2020 was 30%, which is actually below average. This may be due to the ability to work remotely during the pandemic, which then provides more flexibility to workers if the option for remote working remains available.

Logistics

The logistics industry is integral to maintaining a strong economy. However, around 10% of the UK logistics workforce comprised EU workers, which is why Brexit had such a huge effect on the turnover rate.

Pre-Brexit, however, the turnover rate was still relatively high for logistics workers, at 34%. Nowadays, the main issue seems to be in filling the job vacancies left by departed EU workers.

In the US, the rate is at around 46% as of 2021, which shows a similar level of dissatisfaction and insecurity within the field.

Small Business

Employee turnover is a major challenge for small businesses. Not only does it cost time and money to train new employees, but it can also lead to a loss of institutional knowledge and decreased morale among the remaining staff.

In the UK, turnover in small businesses is an average of 36% - over double the national average. This figure lowers to 16% for a medium-sized business, which is food for thought as to what causes employees to jump ship.

What Is an Ideal Employee Turnover Rate?

A high employee retention rate is often considered a sign of a strong and successful company. After all, if employees are happy with their job and their colleagues, they're less likely to leave. A low turnover rate also saves the company money, as it's much more expensive to train new employees than to retain existing ones.

It is generally accepted that a company should aim for a turnover rate of 10% or less. This means that, annually, up to 10 out of 100 employees leave their position within that company during the year.

Most organizations aim for this benchmark, though the majority tend to fall beyond, at around 12%-20%.

What’s a Good Employee Turnover Rate?

Though the ideal rate is 10% or lower, falling a little higher than this marker is generally considered OK. This is especially true within industries that have typically higher turnover in general, such as hospitality. A turnover rate below 20% for many industries is still considered OK.

What Is the Average Rate of Employee Turnover?

Employee turnover is a serious issue for businesses in both the UK and US. In the UK, the turnover rate is 15%, while in the US it is a staggering 57.3%. Both countries have businesses reporting that these figures have been rising considerably since the pandemic, with many employees citing job insecurity and uncertainty as primary reasons for leaving.

Within the UK, Brexit has also had a negative effect on employee turnover, with businesses reporting an increase in resignations since the referendum. The high cost of living and uncertain economic outlook are also major contributing factors. As businesses continue to grapple with the fallout from the pandemic and Brexit, it is clear that employee turnover will remain a major challenge in both the UK and US.

What Is High Employee Turnover?

A high employee turnover rate can be a cause for concern for any company. Not only is it costly to constantly train new employees, but it can also lead to a decline in morale and a loss of institutional knowledge.

A high turnover rate is considered a rate that sits above the national average. However, it is important to remember that turnover rates vary greatly from industry to industry, so what is considered high in one sector may be normal in another. It is therefore useful to also take a look at the industry average in the area.

Companies should also look at other factors such as the new hire turnover rate and voluntary or involuntary turnover when trying to determine the cause of high employee turnover. By understanding the reasons behind high turnover, companies can take steps to address the problem and improve retention rates.

How To Reduce Staff Turnover

There are many effective ways a company can reduce staff turnover. By taking these steps, companies can significantly reduce the level of staff turnover and create a more stable and motivated workforce:

  • Utilize specialist software. A company can monitor its turnover closely with HR software to see if there are any weak spots in particular areas such as hiring or promoting.
  • Collect feedback. To get to know individual staff experience, managers can carry out regular reviews of staff satisfaction levels and take action to address any issues.
  • Help staff skill up. Invest in training and development programs to help employees progress in their careers.
  • Work on the psychological climate. Create a positive working environment where employees feel valued and respected.

Frequently Asked Questions

What Are the Predictors of Employee Turnover?

In order to determine the factors that may contribute to employee turnover in a particular company, it is important to consider both internal and external factors.

Internal factors include things like company culture, work-life balance, and compensation. External factors include the job market, the local economy, and industry trends. By taking all of these factors into account, it is possible to develop a comprehensive understanding of the factors that may contribute to employee turnover.

Additionally, it is important to keep in mind that different employees may have different reasons for leaving a company. As such, it is important to create a data-driven approach that takes into account the unique needs and desires of each individual employee.

With a thorough understanding of the factors that contribute to employee turnover, companies can develop strategies to reduce turnover and improve retention.

How Does Employee Engagement Affect Turnover?

Employee engagement is a key driver of turnover rates within an organization. Employees who are engaged with their work are more likely to be satisfied with their jobs and less likely to look for new opportunities. Conversely, employees who are disengaged with their work are more likely to be dissatisfied and to actively seek new employment.

While there are many factors that contribute to employee engagement, some of the most important include a sense of purpose, autonomy, and mastery. When employees feel like their work has a purpose and they have the freedom to do it in their own way, they are more likely to be engaged. Similarly, when employees feel like they are developing new skills and gaining new knowledge, they are also more likely to be engaged.

What Are Four Types of Employee Turnover?

Workplace turnover can broadly be classified into four categories: voluntary, involuntary, functional, and dysfunctional.

Voluntary turnover happens when an employee decides to leave the company of their own accord, usually because they have found a better opportunity elsewhere.

Involuntary turnover occurs when an employee is let go by the company, either due to poor performance or because of organizational restructuring.

Functional turnover is often seen as a positive thing and happens when an employee moves up within the company or changes roles in order to find a better fit.

Dysfunctional turnover is considered to be negative and can happen when an employee leaves due to poor working conditions or because they feel undervalued. Understanding the different types of turnover can help companies to develop strategies for reducing it.

Why Is Reducing Employee Turnover Important?

Employees are the lifeblood of any organization. They are the ones who carry out the day-to-day work that keeps the company running. So, it is essential to keep turnover low and retain good employees.

There are several reasons why reducing employee turnover is important. First, it costs money to constantly train new employees. Second, high turnover can impact morale, as other workers have to pick up the slack. And finally, it can damage a company's reputation if potential customers hear that it has a high turnover rate. In short, reducing employee turnover is important for many reasons. By retaining good employees, companies can save money, improve morale, and protect their reputation.

Is Employee Turnover Good or Bad?

Employee turnover is an inevitable part of any company. While it can have several negative effects, such as decreased productivity and morale, as well as increased training costs, it can also lead to some positive outcomes in certain cases.

For instance, turnover can be a sign that employees are unsatisfied with their current position and are willing to leave in search of a better opportunity. In some cases, this can lead to the company making changes that improve the workplace and increase employee satisfaction.

Additionally, turnover can also bring fresh perspectives and new ideas to a company. In many cases, these new employees can help to increase productivity and morale. As a result, while employee turnover is often seen as a negative thing, it can also have some positive effects.

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