What Is Employee Turnover and Why Does It Matter?

Employee turnover is defined as the measurement of the number of employees who leave an organization during a specified time period, typically one year. It doesn’t matter whether the employees resigned or were fired, their absence takes a toll on the overall productivity of the company.

A high employee turnover rate is an expensive problem for any company to have. According to recent research from SHRM, direct replacement costs can reach as high as 50%-60% of an employee's annual salary. However, this cost doesn’t include the loss in productivity that companies face when dealing with high turnover rates.

Understanding turnover has never been more important as Millennials, who now make up nearly 40% of the US workforce, don’t stay at their jobs as long as previous generations did.

In fact, a recent Gallup report on Millennials revealed that 21% say they've changed jobs within the past year, which is more than three times the number of non-Millennials who report the same.

How to calculate employee turnover?

Calculating employee turnover is simply a matter of dividing the number of employees who left the company during a specified period by the average number of employees working for the company in the same period. 

To find the average number of employees, an employer should add the number of employees they had at the beginning of the period to the number of employees they have at the end of the period, and divide that number by two.

What is a good turnover rate?

Companies lose 18% of their workforce to turnover each year on average. Around 12% of this is voluntary, and 6% is involuntary (layoffs, termations, etc.).

Certain industries report higher employee turnover rates due to the nature of the job. Retail, staffing agencies, hospitality, and fast food have the highest employee turnover rates, according to the Small Business Chronicle.

What causes employee turnover?

Toxic workplace culture

According to a recent report from MIT Sloan Management Review, employees are quitting their jobs in droves because of toxic workplace culture, not low pay. In fact, the report says toxic workplace culture is 10.4 times more likely to contribute to an employee quitting. Data analysis identified three elements of a toxic culture:

• Failure to promote diversity, equity, and inclusion
• Workers feeling disrespected
• Unethical behavior

Failure to recognize employee performance

Recognition helps employees see that their company values them and their contributions to the success of their team and the organization overall. When employers fail to offer their workers this recognition, it has serious consequences.

Employees stay with companies that show they appreciate the contributions their employees make. Employers who use relatively simple measures for recognizing their employees can actively reduce high turnover rates.

Employee recognition tips:

• Give shout-outs
• Offer fun projects or professional/personal development opportunities
• Take them to lunch
• Distribute non-cash rewards
• Throw a competition, party, or potluck
• Encourage peer-to-peer recognition
• Just say thank you

Lack of opportunity for growth

It’s no secret that employees value professional and personal growth opportunities. Research shows development opportunities lead to higher employee retention and engagement levels. If a worker feels trapped in a dead-end position with no chance of receiving a promotion or raise, they will be tempted to look elsewhere.

Overworked employees

It’s only natural for employers to want their staff to be as productive as possible and there will be occasions when every company is busier than usual.

However, employers must always be conscious that their employees are not being overworked as it will likely lead to burnout. Recognized as a medical condition by the WHO, burnout stems from chronic workplace stress and leads to employees who are less motivated, less creative, and less productive.

How to keep on top of employee turnover?

• Hire the right people - Hiring the right people, to begin with, will lessen the need to hire more employees down the line. Great employees are an investment that will pay off in the future.
• Offer competitive salaries - A  common mistake of employers is overlooking the importance of providing a competitive salary to their workers. This is because they view it as an expense when really it is an investment and essential when it comes to retaining top talent. Employees who feel they are not well compensated tend to look for other higher-paid work elsewhere, quit, and move on.
• Closely monitor toxic employees - Toxic employees come in many forms whether they are gossips, slackers, or negativity spreaders. Toxic employees are a drain on any organization. Along with decreasing morale, they hinder performance, their own and others, and bring down productivity. Spotting toxic employees and stopping them in their tracks is essential before the problem grows any worse.
• Offer flexibility - Flexibility helps more people access the labor market and stay in work, manage caring responsibilities and work-life balance, and supports enhanced employee engagement and wellbeing. Flexible working practices are a key reason for staff at all career stages being satisfied with their work and staying with their employer.
• Pay attention to employee engagement - An engaged workforce or employee ensures that everything they do is infused with purpose, energy, and enthusiasm. A lack of engagement can result in people doing solely what they have to, in order to scrape by. They will view their jobs as means to an end and will show no passion for doing anything other than securing their monthly paychecks. You shouldn’t expect any new ideas or creative solutions to problems from these people – they won’t care about the wider picture.

Key Takeaway

Getting talented people to stay with an organization requires examining the reasons why they leave, what it costs the business and what can do to change it. Employees leave for a variety of reasons such as lack of culture fit, an unhealthy work environment, or below-average compensation.

To keep on top of employee turnover, there are a number of steps companies can take such as hiring the right people, investing in their employees’ growth and offering them the recognition they deserve. Having low turnover comes with a host of advantages for organizations including an increased sense of employee morale, productivity and engagement.