It’s in every organization’s best interest to ensure that your top-performing employees stick around. Most businesses have some sort of initiatives in place that exist to mitigate turnover; however, as employee expectations continue to evolve in today’s workplace, the tried-and-true tactics of the past are due for a much-needed upgrade. Despite the threat of economic uncertainty, data shows that people are still leaving their jobs in record numbers. It’s a critical time for people leaders to take a look at turnover rates through a new lens and strategize what actions are necessary to better retain top talent going forward.
In this article, we’ll review the meaning of employee turnover, discuss the business implications of high turnover and share actionable ways you can mitigate it in the long term.
What is employee turnover?
Employee turnover is a measure of the number of workers that leave an organization within a specified period of time. This includes workers who voluntarily leave, as well as employees who were terminated, got laid off, retired or died.
As your business progresses, employees will come and go — you will always experience some turnover. This is a natural part of the employee lifecycle and is largely inevitable.
Where turnover becomes problematic is when you experience a high turnover rate, which means that you’re losing employees faster than you can replace them. High turnover is expensive and can significantly slow down organizational growth since you have to continuously funnel resources and time into hiring and training replacements.
Additionally, high turnover can be indicative of greater issues within the workplace such as poor management, lack of learning opportunities or a toxic work environment. Looking at turnover also:
Exposes opportunities for improvement within the organization
Allows you to re-evaluate your talent needs
Acts as a catalyst for greater change within your company culture
If your company is experiencing high turnover, it’s critical to understand what’s going on below the surface.
Attrition vs. turnover
Although workforce attrition and workforce turnover are often used interchangeably, these are two distinct concepts.
When turnover happens, the organization seeks to fill whatever role was recently vacated. In contrast, when attrition happens, the role is made redundant and unavailable — meaning the organization does not try to refill the position. Attrition often occurs due to purposeful downsizing or because a shift in technology or business needs has eliminated the need for the position.
How to calculate employee turnover rate
Here’s a straightforward formula you can use to calculate employee turnover rate for the business as a whole or individual departments for any given timeframe:
Divide the number of employees who left within a chosen time frame by the average number of employees working during that same time frame, then multiply the quotient by 100 to get a percentage value.
For example, let’s say you had 500 employees at your company over the past year. Of those 500 employees, 50 of them left. So your formula would look like:
50/500 = 0.1 X 100 = 10%
In this example, the turnover rate would equate to 10%.
As with most metrics, what constitutes a “good” or “bad” turnover rate largely fluctuates by industry and company. Some industries, such as food service and hospitality, tend to have higher turnover rates than others. A general rule of thumb is that anything below 10% is considered a healthy turnover rate. While this is a useful benchmark, be sure to leverage your organization’s historic turnover data to determine what is standard across roles and departments and set your own custom benchmarks.
Why turnover matters
Staff turnover is inevitable, but this does not mean it’s something your organization can afford to ignore. High turnover can negatively impact a business when:
You lose talent to competitors
Your employer brand gets a bad reputation that makes you less appealing to prospective hires
You spend outside of your budget to try to even out staffing levels.
Increased workloads and a chaotic environment take their toll on team morale.
It’s important to keep an eye on turnover rates within your company and to understand why turnover is happening so you can quickly address the causes.
Why staff turnover happens
There are countless reasons why turnover happens. In fact, it’s likely that there are multiple influential factors that lead a worker to quit, rather than just one driving reason. To effectively address turnover, be prepared to investigate all of the possible causes at the individual, team-wide and even organizational level that may play a part in it. Here are some of the most common causes of turnover:
Poor work/life balance
Many employees leave an organization if the workload is too demanding and takes away from their personal time. Especially now, when many industries are experiencing labor shortages, workers are often expected to do the job equivalent of multiple people and may leave their employers if a healthier work/life balance is not restored. This is a growing trend among younger generations in the workforce, with both Millennials and Gen Z’ers identifying better work/life balance as a top priority after compensation.
Not surprisingly, pay is an influential factor when it comes to turnover. Employees that feel that they aren’t being adequately compensated for their work or if their earning rate is never increased over the course of their time at the company are at risk of leaving to find another employer that pays more.
While pay has always been an important factor, it’s even more important now as employees grapple with the rising cost of living. A recent KPMG report found that 73% of CEOs are concerned about their ability to retain talent with inflation and higher living costs.
Lack of purpose or fulfillment
Now more than ever, employees are looking for an “emotional salary” — they want to feel confident about the work that they do and feel connected to their jobs in a way that goes beyond financial compensation. The concept of emotional salary can look different based on the individual, but it can include things such as a flexible work schedule, corporate social responsibility and access to professional development opportunities.
Limited access to learning and development opportunities
Data shows that lack of growth opportunities is a top reason why employees leave their jobs. People look for employers that provide them with ample opportunities to learn and enhance their skill sets — especially in the wake of widening skills gaps and rapid digital transformation. Without adequate and accessible training and education initiatives in place, your organization is at risk of losing talent.