What is Employee Turnover and Why is It So Important?

What is employee turnover rate

What is employee turnover and what does it actually mean for an organisation? Turnover has always been a point of concern for companies, but it’s become even more contentious recently. While resignations and redundancies have driven turnover rates for years, the remote work revolution and talent shortages have sent rates soaring.

The job market is now one that favours candidates. While employees may have once suffered under the yoke of bad management or accepted stagnant salaries indefinitely, that’s no longer the case. Armed with more leverage than ever before, employees are resigning in droves, with companies struggling to adapt to skyrocketing rates of turnover.

Employer turnover definition

We can define employee turnover as the percentage of employees who leave a company within a specific period. To be precise, it relates to any employee departure that creates a vacant role that needs to be filled. Otherwise known as staff turnover, this percentage is typically calculated at the end of each month or quarter. Many businesses use annual turnover as their reporting benchmark.

Turnover rates vary considerably between businesses and across industries. As such, there’s no such thing as an ideal score when it comes to turnover. However, most companies strive to keep their turnover rate below 10% to create a sense of job security and deliver consistent service to their customers.

Types of employee turnover

Employee turnover is something that every business will encounter, although some outcomes are more desirable than others. Employees who leave a position for an opportunity elsewhere is just one departure scenario driving turnover rates. Most turnover examples can be classed as voluntary and involuntary, but there’s more to these categories than meets the eye. Below, we’ll explore the most common types of turnover that businesses are likely to encounter.

1. Voluntary turnover

Lucrative salaries and a healthy work-life balance aren’t always enough to keep employees anchored to a role. An employee who’s unhappy with their current career path may choose to pursue development opportunities elsewhere. Others may have been offered a better salary by a competitor, or need to resign from a position due to personal obligations. Voluntary turnover can be disruptive for businesses. Replacing a long-serving employee with someone equally qualified isn’t always feasible. What’s more, the costs involved can be considerable.

2. Involuntary turnover

When we talk about involuntary turnover, it’s businesses, rather than employees, that terminate the terms of employment. This can happen for a multitude of reasons. Sometimes, it’s the consequence of suboptimal performance. In other cases, misconduct or inappropriate workplace behaviour may be the reason. An organisation may also be looking to cut costs by reducing its workforce, with redundancies being another common example of involuntary turnover.

3. Internal transfers

Despite being classed as a type of turnover, internal transfers are generally considered advantageous. For employers, it’s a more desirable outcome than seeing talent poached by a competitor. Internal transfers help create a sense of job security, which can bolster brand credibility and make a business a more attractive prospect to job seekers.

4. Retirement

Even the most loyal employees need to retire eventually. While some may choose to work right up until retirement age or beyond, others may opt for an early departure. Pay attention to these cases of early retirement, as there may be issues driving your most seasoned personnel to down tools prematurely. If employees who left to retire subsequently resumed work elsewhere with a competitor, you may need to rethink your approach to retention.

What factors drive employee turnover rates?

Although it depends on the industry, a high staff turnover rate is rarely good news for an organisation. Poor compensation, bad management, and a lack of work-life balance are just some of the factors that can drive discontent among staff. Any one or a combination of these can lead to increased employee turnover, meaning that hiring teams are left scrambling to respond to staffing shortages.

Not sure which signs you should be looking out for? Below are just a few things that might be contributing to your employee turnover rate.

1. Overworked teams

If your teams aren’t being given the time and resources they need to comfortably manage their workload, you’re asking for trouble. Impossible deadlines and never-ending workloads can leave a stressed employee feeling as though they’re being set up to fail. Some may experience burnout, forcing them to leave their position. Others may have decided to jump ship long before they reach breaking point.

2. No scope for professional development

Professional development and continuous learning are attractive prospects to job seekers. Without a visible career path and accessible training programs, employees can struggle to envision a long-term future with a company. Eventually, they’ll probably look for these opportunities elsewhere.

3. Pay isn’t competitive enough

An increased salary and bolstered benefits package tend to be what tempts most employees from one company to another. If you’re offering a starting salary that’s below the industry average, you’re making it easy for competitors to ensnare your talent with more lucrative terms.

4. Poor management

Forcing an employee to work under a bad manager is a surefire way to sour them against the idea of a long-term arrangement with your company. Inept managers can complicate projects and add to the workflows of the teams they’re supposed to be leading. A great manager will champion their team, offer actionable insights, and enable career development. If employees aren’t experiencing this in their current role, they’ll look for one where they can.

5. Problems in the hiring process

Having a new hire hand in their resignation only months after accepting a job offer can be frustrating. There are many reasons why a fresh recruit may be looking to leave prematurely, but you can reduce the chance of this happening by rethinking your recruitment strategy. Ensure you’re being upfront about job expectations and performance levels. If it’s a compatibility issue, think about incorporating skills tests into future recruitment campaigns so you can find someone more suitable.

How to calculate employee turnover

It’s relatively easy to calculate the turnover rate of a company. First, decide what period you want to focus on, whether that’s a month or an entire year. Next, take the total number of employees who’ve left your organisation in that time, then divide that by the average number of employees.

Unsure about this? Calculating the average number of employees is simple enough. Look at the number of active employees at the start of the period you’re looking at. Now check to see how many employees were active at the end of that period. Add these numbers together and dive by two.

Once you’ve divided the number of employees who left by the average number of employees, multiply it by a hundred. The result is your turnover rate percentage.

So, the formula to calculate the employee turnover rate for a specific period of time is: 

Employee Turnover Rate = (total number of employees who have left your organisation in that period / average number of employees in that period) x 100

For a more detailed explanation and examples of employee turnover rate calculations, check our dedicated post on how to calculate employee turnover rate.

Employee turnover rate calculation

The impact of high employee turnover

While high turnover rates don’t necessarily sound like a death knell for a business, they can be a sign that something is fundamentally wrong with your organisation. Even involuntary turnover caused by mass layoffs can have serious implications.

Reduced productivity and compromised workflows

High turnover rates can have a dramatic impact on workplace productivity. Sweeping redundancies and high annual turnover mean that your remaining workforce will be spread thin. While a reduced team can potentially cover the shortfall, this won’t happen straight away. Hiring replacements for employees who’ve resigned? The recruitment and onboarding process takes time, and it can be many months before new hires are up to speed and performing optimally.

Cost implications

Never underestimate the cost of turnover, with financial losses a common consequence of a sustained high turnover rate. The reason for this? It’s far cheaper to retain staff than to recruit talent to replace outgoing employees. Securing new hires quickly can help plug staffing gaps, but there’s no guarantee that they’ll be able to match the performance levels of their predecessors.

Reduced output also results in a smaller profit margin. Replacing someone in a customer service or client-facing role? If they fail to deliver the same service levels as the people they’re replacing, client satisfaction and long-standing relationships can suffer, resulting in substantial losses.

Bid farewell to your best employees

When you fire many employees at once, there’s a strong chance you’ll end up losing some of your most valuable assets. Some employees might already be established and excelling in their roles, while others may have yet to reveal their true potential.

It’s not just involuntary turnover you have to worry about here. Create a culture of job insecurity and even the longest-serving members of your team will start to feel uncertain in their roles. In no time at all, they’ll be looking elsewhere for new opportunities or be more open to accepting offers from competitors.

Workplace morale suffers

If you’re diverting additional workloads to employees after mass redundancies or a streak of resignations, morale can start to suffer. Employees experience stress and even burnout when they’re tasked with a workload that far extends the scope of their original remit. If you’ve fired employees, those who remain may be anxious about their long-term prospects with you as an employer. As well as impacting productivity, it can trigger a spate of resignations, resulting in an even higher turnover rate.

Damaged brand reputation

What is an employee turnover rate that’s higher than the industry average going to say about your business? Nowadays, job seekers are pretty savvy when it comes to carrying out due diligence. A quick search of your business online should provide them with a treasure trove of employee reviews and ratings. If high turnover has been a recurrent issue within your organisation, it’s almost bound to get a mention here.

High-quality candidates simply aren’t going to engage with opportunities if a company can’t offer something as relatively simple as job security. A tarnished reputation can also impair employee engagement within your existing workforce. Offering job stability is one of the most effective tools for maintaining optimal engagement and consistent productivity.

Are employee turnover and attrition the same thing?

Employee turnover and attrition are regularly spoken about in the same breath. While both refer to when an employee leaves an organisation, they’re in fact two distinct metrics.

Turnover is the broader of the two, with many potential reasons behind the departure of an employee. An individual’s employment contract might be terminated, they may choose to resign, or they could simply abandon their role. In the case of turnover, such a departure creates a vacant role, with companies forced to source a replacement.

Attrition is applied to specific scenarios, such as when an individual retires, and an employer avoids finding a replacement. An organisation may choose to leave a position vacant indefinitely or opt to remove the role entirely.

Reduce employee turnover rates and improve retention with recruitment software

Turnover isn’t always a bad thing, with involuntary turnover allowing you to sift out undesirable employees and economise your operation with downsized teams. Voluntary turnover, on the other hand, presents all manner of complications. If you’ve invested precious time and resources into hiring campaigns, there’s nothing worse than losing a new hire to a competitor mere months after they signed their contract. Voluntary turnover also leaves your hiring teams with a vacant role to fill, with remaining employees forced to pick up the slack until a replacement is found.

The good news is that overcoming the consequences of employee turnover is surprisingly simple when you tap into the potential of recruitment software. With a customisable applicant tracking system like Teamdash, you can transform the recruitment process to improve the quality of hire and boost retention.

Appeal to the most suitable candidates with tailored job descriptions and pre-screening application questions. Use automation to refine candidate experience and enhance your brand reputation. You can also centralise candidate data, creating an invaluable talent pool for more responsive hiring.

Eager to bring your employee turnover rates down? With Teamdash, you have all the tools you need. Why not book a demo today?

Marie Evart

Co-founder & Community Manager

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