Employee turnover is a critical metric that extends beyond departures, serving as a barometer for organizational health, and even more so in 2024. As a business owner or manager, we must keep a finger on evolving trends and prioritize factors that hold significance for employees. Explore further to gain insights into turnover dynamics and discover actionable strategies to either embrace it or enhance the overall employee experience.
What is turnover?
Generally, “turnover” refers to voluntary employment termination. Employers often track all employment terminations, however, to evaluate whether a pattern of resignations or firings points to a need for change in the organization.
Why Should an Employer Care?
An employer’s rate of turnover is almost always a clue to organizational health—and the news may not be all bad. Depending on when, where, and why employees are leaving their jobs, employers may want to make adjustments in management strategies, benefits, or compensation. Tracking turnover is critical to early discovery of trends, both positive and negative, that impact the productivity and vitality of an organization.
Of course, some degree of turnover is to be expected and is, in fact, necessary, because it opens the way for new workers and deserved promotions for experienced employees. Bringing in new employees can invigorate an organization with new ideas, fresh perspectives, and unique talents. In addition, it is healthy for a company to lose poor performers to turnover. On the other hand, high turnover with lots of satisfactory but dissatisfied employees leaving, generally means a specific or general unhappiness with the job. While pay is one driving force, there are many other important issues: benefits (especially newer benefits such as flexible hours), scheduling practices, poor job fit, inadequate training, management philosophy, harmful supervisory behavior, lack of recognition, or better career opportunities.
Depending on the level of the employee, turnover costs can run anywhere from 50 percent to 200 percent of an employee’s annual pay. Therefore, it is important for an employer to seek more information as to why employees are leaving, via exit interviews, focus groups, and employee attitude surveys.
Direct Costs
How much does employee flight cost an employer in dollars? Direct costs for turnover include:
Separation costs. These include the cost of any severance payment, the increased cost of unemployment insurance premiums, and the costs incurred for administrative functions related to termination (e.g., generating final paycheck and terminating payroll, providing Consolidated Omnibus Budge Reconciliation Act (COBRA) notices, completing exit forms).
Vacancy costs. These include the net cost related to increased overtime or use of temporary employees.
Exit interview. This includes the cost in time of an exit interview with each employee who is leaving, including the time spent by Human Resources (HR) personnel and by the employee’s manager who also will need time to review the departing employee’s workload and manage the distribution of the work until a replacement is found.
Replacement costs. These include the cost of advertising or otherwise attracting applicants, time spent by the HR department and the hiring manager in reviewing resumes, making decisions regarding whom to interview, interviewing applicants, testing applicants, drug screenings, moving expenses if applicable, and administrative expenses of new employees.
Training costs. These include expenses invested in the departing employee during his or her tenure. It also includes expenses required to bring the new worker up to speed. These costs may include time required for management, coworkers, and HR staff to help the new employee, orientation, classroom time or on-the-job time for training, and costs associated with pay and benefits until the employee is completely productive. As the annual salary increases, so does the amount of costs to replace the employees.
Indirect Costs
In addition to the direct costs of turnover, there are many indirect costs, including the following:
Loss of experience and skill. When an experienced employee leaves, the employee takes with him or her the training, skill, inventiveness, and productivity that has been gained through years on the job. Moreover, there is almost always some negative impact on other employees, and on productivity, when a good worker leaves for what is seen as a “better opportunity.” It makes other good workers wonder what might be out there for them as well. If the departing employee is a manager, there may be a drop in employee morale and a decrease in productivity as employees adjust to a successor’s new leadership style.
Special attention. New employees, even exceptional ones, need special attention; they have many questions, and need lots of help. Onboarding the average new employee can take hours of time from HR, supervisors, and other employees. Also, if a new employee arrives from another city or state it often takes time for the employee and his or her family members to acclimate to the new location, and often the worker is distracted until the family is comfortably settled.
Customer or client loss. In some cases, customer loyalty is to the person they dealt with, the salesperson, trainer, accountant, attorney, mechanic, etc. Often, when that person leaves, so does the customer.
Moving costs. These costs include any relocation expenses paid for the previous employee’s move to the employer’s location as well as any expenses paid for the new worker to move.
How to Utilize Turnover Statistics
An important principle to recognize is that not all turnover is necessarily bad. The reality for many organizations is that a certain number of employee separations are healthy. However, an employer may become legitimately concerned when industry turnover data reveal a correspondingly high rate of turnover or a significant amount of “flight” to competing employers. In this case, the employer should seek more information as to why employees are leaving via exit interviews, focus groups, and employee attitude surveys. In this way, the employer may begin to piece together the turnover puzzle and respond accordingly.
Calculating turnover rates. Employers may also wish to calculate voluntary turnover, when employees leave by choice, versus involuntary turnover rates, when the employer terminates employees. Average rates of turnover depend upon industry and location.
Why Are They Leaving?
When a high rate of turnover does exist in an organization, the employer must be concerned with the underlying reasons. Compensation is rarely the sole motivating factor. There are a number of ways to discover some of the issues involved in turnover.
Conduct thorough exit interviews covering:
- Reason for leaving
- Attitudes toward the company
- Attitudes toward immediate supervisor
- Satisfaction with career path
The departing employee should have an opportunity to discuss any of these topics with a superior within the organization or with HR.
Additionally, the employer may conduct a survey of existing employees about:
- Job fit
- Job challenges
- Job satisfaction
- Tools, equipment, and facilities
- Career path at company
- Employer/supervisor fairness
- Employer policies concerning employees
- Benefits
- Employee’s individual goals
- Wage structures
- Work/life balance
When Are They Leaving?
The timing of an employee’s departure may give an employer insight into which processes or practices are working well and which ones it needs to change. For example, if many newly hired employees are leaving voluntarily within the first year of employment, it’s likely that there’s a disconnect in one of the hiring processes. Perhaps job descriptions need to be reviewed to ensure that they accurately reflect job duties; or it may be that applicants are not being adequately tested for required skills.
On the other hand, if employees are leaving later in their careers, an employer’s retention strategies may be in need of review. Employees may leave because they see no opportunity for advancement, even though such opportunities may exist. Or employees may feel that their contributions are being taken for granted, or that they are otherwise unappreciated or undervalued. Examining retention practices and encouraging ongoing feedback from employees may help an employer avoid losing valuable employees. Using employee surveys to gauge employee satisfaction and using exit interviews to gather data on why employees are leaving will help employers identify strengths and weaknesses in their hiring and retention practices.
The results of surveys or exit interviews should be reviewed, considered, and used as a platform for change.
Retention Strategies
Here are some past blog posts that can help you retain employees:
Employee Benefits: The Secret to Long-Term Employee Loyalty
The Power of Team Member Retention
What is an Inclusive Environment?
15 Effective Employee Retention Strategies in 2024 by Forbes
In conclusion, understanding and addressing employee turnover is paramount for organizational success, especially in the dynamic landscape of 2024. Beyond being a metric, turnover unveils a narrative of organizational health, reflecting the need for continuous adaptation and improvement. As employers navigate the complexities of departures, recognizing the direct and indirect costs involved, utilizing turnover statistics, and delving into the reasons and timing of employee exits become critical. By conducting thorough exit interviews, surveys, and strategic analyses, businesses can develop effective retention strategies to foster a positive work environment. The journey to enhance the overall employee experience is ongoing, and proactive measures can transform turnover challenges into opportunities for growth and resilience.
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