Employee Turnover: Why It’s Important and How to Combat It

Employee turnover is a critical issue for organizations of all sizes. It can impact brand reputation, productivity, morale, costs—the list goes on and on. In fact, Gallup estimates that businesses lose a whopping $1 trillion every year in the U.S. alone due to voluntary turnover.

Identifying factors that contribute to staff turnover and implementing effective retention strategies are clearly important. This guide aims to equip employers with the knowledge and tools to understand employee turnover and reduce turnover rates by building an engaged workforce committed to achieving organizational goals.

 

What Is Employee Turnover?

Employee turnover is the process of employees leaving a company and being replaced by new hires. It includes all instances where an employee exits an organization voluntarily or involuntarily. While employee turnover is a natural part of business, high turnover rates can signal deeper organizational issues that companies should explore.

Are Employee Turnover and Attrition the Same?

No. Both employee turnover and attrition reflect employee departures, but they differ in terms of what causes them and their implications.

Types of Employee Turnover

Understanding the different types of turnover is crucial for addressing the root causes and developing effective retention strategies.

Voluntary Employee Turnover

Voluntary turnover occurs when employees leave the organization on their own accord. It includes departures for better job opportunities, personal reasons, or dissatisfaction with their current role. These departures can be planned (e.g., retirements), unplanned but with notice, or abrupt without notice. The latter often indicates dissatisfaction but can also be tied to urgent personal reasons. 

Involuntary Employee Turnover

Involuntary turnover is when an organization decides to terminate an employee. Employees might be let go due to financial constraints or organizational changes, such as reductions in force (RIFs) or seasonal layoffs, or based on an individual’s poor performance and failure to meet job expectations.

How To Calculate Employee Turnover Rate

Calculating employee turnover rate is essential for companies to understand how they perform over time and compared to peer organizations. Employee turnover rate is expressed as a percentage and is a relatively simple calculation.

While the calculation is simple, there are several important factors to consider:

1. Turnover rates are calculated for periods (e.g., month, quarter, year). Make sure the numerator (the number of employees who left) and the denominator (the average number of employees) reflect the same timeframe.

2. Include everyone on the payroll, including directly hired temporary workers. Exclude agency staff and independent contractors.

3. The number of employees who left should count voluntary and involuntary departures but exclude employees on leave, furlough, or who have been temporarily laid off.

4. The average number of employees should be the average, not simply the employee count at the end of a period. Reports from HRIS systems can help here, but a common approach is to use payroll data. For example, when measuring the average number of employees across a quarter, take the number of employees who received compensation for each pay period within the quarter, add them up, and then divide that total by the number of pay periods.

How to Analyze Turnover Rate

Analyzing turnover rates involves looking at those metrics plus considering other quantitative and qualitative information. 

Depending upon company size, slicing and dicing turnover data based on factors such as department, region, role type (e.g., senior, manager, frontline), and tenure can be insightful. Are spikes or declines companywide, or are they segment-specific?  Diving into those metrics can identify areas of concern or where retention strategies are working. 

Additionally, take steps to capture and review other feedback, such as engagement surveys, employee exit surveys, and workforce demographics. Combining these insights with turnover analytics can help companies determine primary turnover drivers and the best ways to retain employees.

Why Employee Turnover Matters

Employee turnover has significant implications for organizations that range from hard financial costs to damaging customer relationships and brand reputation. 

Financial Costs

The cost of replacing an employee can be substantial, ranging from 50% to 200% of the employee's annual salary (Gallup). This cost includes recruiting, hiring, training, and lost productivity during the transition period.

Impacts on Productivity and Morale

High turnover can disrupt team dynamics and decrease overall productivity. Remaining employees may feel overworked and stressed, leading to lower morale and potentially more turnover.

Loss of Knowledge and Skills

Experienced employees have valuable institutional knowledge and skills. Losing them can result in a loss of expertise and negatively affect departmental and organizational performance.

Customer Relationships

Employees often build strong relationships with customers. High turnover can disrupt these bonds, potentially leading to customer dissatisfaction and churn.

Employer Brand

High turnover rates can damage an organization's reputation as an employer, making it harder to attract top talent. A company known for high turnover may struggle to compete in the job market.

What Causes High Employee Turnover?

The factors affecting turnover at any specific company may vary, so analyzing turnover rates and digging into what’s driving them is critical. That said, several common causes of high employee churn include:

Toxic Environment

A toxic work environment can drive employees away faster than almost any other issue. Workplace bullying, harassment, and discrimination all contribute to a hostile, negative workplace.

Leadership/Management

Good management practices are pivotal to retaining employees. Ineffective management includes lack of communication, failure to recognize and reward performance, micromanagement, and inconsistency. Employees who feel undervalued or misunderstood by managers are more likely to seek employment elsewhere.

Compensation

Competitive salaries and benefits are crucial for retaining top talent – they’re among the primary motivators. Employees who feel unfairly compensated for their work will likely seek better-paying opportunities.

Career Development

Most employees want to grow, advance, and see a future for themselves. Lack of training, career development, or promotion opportunities can lead to frustration and disengagement.

Work-Life Balance

The importance of work-life balance gained prominence in recent years. Working too many hours, unrealistic goals and expectations, and a lack of recognition for good work can lead to stress, burnout, and resignations.

Job Misalignment

Employees who feel their skills and talents are not being utilized effectively will likely become disengaged and leave. 

Tips to Reduce Employee Turnover

Reducing employee turnover requires a proactive approach to creating a constructive work environment. Companies should evaluate turnover drivers to prioritize strategies, but common approaches include:

Focusing on Employee Engagement

Engaged employees are committed to their companies, invested in hitting organizational goals, and, by definition, less likely to attrit. Developing an employee engagement plan that includes conducting regular surveys and implementing changes based on feedback can reduce turnover and deliver significant additional benefits, like improved productivity and profitability.

Evaluating Hiring Practices

High turnover rates among new hires can indicate issues with recruitment and screening. Examine evaluation questions and criteria to ensure they capture and measure whether candidates are good fits in terms of experience, skills, and company culture. Implementing structured interviews can help establish consistency, objectivity, and fairness during hiring. Additionally, consider adding “first-year turnover rate” as a recruitment key performance indicator (KPI) to encourage best practices.

Developing Strong Onboarding Programs

Effective employee onboarding programs make new employees feel welcomed and supported, increasing their likelihood of staying with the company long term. Develop new-hire training that covers all aspects of their job and the organization. Help them acclimate by pairing them with mentors and ensuring managers touch base regularly. Also, collect post-onboarding feedback to identify areas for improvement.

Supporting Management Best Practices

Managers are companies’ frontline offense and defense for employee turnover. Ensure they are well-trained in leadership skills, people-management approaches, emotional intelligence, and other soft skills. Give them the tools and resources to create a culture that recognizes and rewards successes and promotes transparent communication with their direct reports. Also, 360-degree feedback may be helpful in giving managers insights on their strengths and weaknesses.

Offering Competitive Compensation

Conduct periodic market research to ensure the company’s compensation is competitive regionally and within the industry, including benefits like health insurance, retirement plans, and paid vacation and sick leave. Additionally, implementing performance-based bonuses to reward high achievers can improve the retention of top talent.

Fostering a Positive Work Environment

Create a healthy work culture that values respect, diversity, and inclusion. Implement and enforce a zero-tolerance policy for bullying, harassment, and discrimination. Organize team-building activities to foster a collaborative environment. Consider developing formal recognition programs to celebrate major employee achievements and milestones and incorporate regular, informal acknowledgments of employee efforts and successes.

Promoting Work-Life Balance

Companies can avoid employee burnout by setting reasonable goals, ensuring workloads are manageable, providing the resources staff need to be effective, and regularly checking in on employees’ well-being. Consider offering flexible schedules, work-from-home options, wellness programs that promote physical and mental health, unlimited paid time off, and other perks to improve employee satisfaction and encourage work-life balance.

Providing Career Development Opportunities

Invest in employee growth by offering training and mentorship programs. Conduct regular job reviews to ensure employees' roles align with their skills, interests, and career goals. Create and communicate clear progression paths within the company, and consider implementing job rotation programs to allow employees to experience different roles across the organization.

Combatting Employee Turnover

Employee churn is a complex issue with far-reaching implications for companies. Reducing it requires commitment from leadership, managers, and the HR team to understand what’s causing it and implement effective retention strategies. However, by investing time and effort in tackling this key metric, employers can improve employee satisfaction, reduce staff turnover rates, and build a stable, productive workforce.