How well a business recruits onboards, supervises and rewards its employees is crucial to its achievement. These are essential aspects to be left to chance, which is why the most successful companies utilize statistics to ensure that they perform at their best. They assess their attrition rate against industry-specific and national benchmarks. Managers are held accountable for ensuring that the channels of communication are open by submitting their reports. They manage their career development plans and evaluate employees’ total compensation in terms of the costs associated with replacing the top employees.

What Is Employee Turnover?

Employee turnover is the total amount of employees who quit a company within an extended period. This includes employees who leave involuntarily, and employees who are dismissed or laid off, also known as involuntary turnover.

Turnover is distinct from attrition when calculating attrition reductions, and terminations aren’t included in the calculation.

Key Takeaways

Turnover measures separations–employees who leave a company–within a certain period. The term “separations” refers to anyone no longer employed by the company, no matter the reasons.

Turnover can be broken down into two categories: voluntary when people decide to leave on their own and involuntary when the people were terminated or in the course of a layoff during the season or reduction in the force.

People who quit their jobs usually seek more money, more benefits, advancement in their careers or a more balanced work/life balance, or even to avoid an unproductive or toxic boss.

It is costly to replace employees: Gallup pegs the cost at anywhere from one-half to two times the amount of the person being replaced.

Employee Turnover Explained

The turnover, especially the voluntary kind, affects the company’s ability to reach goals and is a significant problem for the executive. The reasons for leaving vary, and organizations aren’t always able to stop the flow.

One factor that causes attrition is demographics. Retirements of baby boomers topped an all-time high of 28.6 million during the 3rd quarter of 2020, and Pew Research shows 3.2 million more boomers were retired than in the Q3 of 2019.

However, millennials, who comprise nearly 40 percent of the U.S. workforce, don’t remain in their jobs for longer than earlier generations. The U.S. Bureau of Labor Statistics states that the median duration for those aged 55- 64 is 9.9 years. This is more than three times that of those aged between 25 and 34, which is only 2.8 years.

Also, there’s the problem of demand and supply. In certain positions and regions, there’s a shortage of individuals with the appropriate skills to fill the vacant positions. We’ve witnessed a continuous lack of doctors, mathematicians, scientists, skilled tradespeople, engineers, and many other IT-specific areas. There is consensus that many the shortages continue even in the face of higher than normal levels of unemployment.

In the end, employees need more from their employers – and that’s not only about money. Remember that guaranteed lifetime employment is off the table for many occupations. Baby boomers, too, are looking for more than a steady income and believe having a job at a firm with an underlying mission is their top goal. LinkedIn’s Talent Trends 2020 survey generally shows that people are looking to work for organizations and people who motivate them. People today are also looking for flexibility and flexibility as well as an established career path with the proper training to grow and stay competitive.

What Do Turnover Rates Tell Us About a Business?

Turnover rates need to be considered in sectors like retail and hospitality, which tend to be more prone to turnover. An organization can and must compare its turnover rate against similar companies in its field to determine how effective it is in retaining employees.

Let’s take a look at the possibility of a restaurant. Personal managers face challenges such as hiring many first-time, part-time students, seasonal workers, and even student employees. Furthermore, the upward mobility of restaurant employees typically occurs through taking up positions in a new location. However, even restaurants can create robust “people plans” to lower the turnover rate, boost their employees’ morale, and boost cohesion, all of which result in the best guest experience.

In general, high turnover rates indicate issues with the recruitment process and culture, a system of compensation and rewards, individuals employees, their training, and career development pathways,

What Are the Top Reasons for High or Low Employee Turnover?

Many studies of the reasons for high voluntary turnover concur that more money, more time off, better benefits, an opportunity for promotion, and the promise of having a more supportive boss are among the top 5 factors that make employees move to new roles.

This reality proves that the majority of turnover can be avoided If a company is willing to invest in general compensation, create opportunities for career advancement, concentrate on flexibility, and look for managers who are ineffective and take swift actions when they observe an increase in the rate of attrition than is typical for one department.

What factors drive the intense loyalty of employees? The online retailer Zappos is often mentioned in the context of a research study on how to keep workers. The company publishes the “Zappos Culture Book” that highlights how it consistently has at least an 85% retention rate. It’s all about an atmosphere that promotes the creative spirit and values the happiness of its employees.

Closing the loop, the things that keep employees satisfied are Benefits and reasonable compensation, and positive workplace culture is driven mainly by managers who are directly responsible for the employees.

Types of Employee Turnover

Turnover is the basis for all separations, including those who leave the firm of their own volition and those who are terminated or as part of an effort to reduce the force or a round of layoffs. Also, it includes the separations due to a worker’s death, retirement, or disability. The distinction between turnover and attrition is because it is the sole reason for every departure from the company in contrast to attrition which only accounts for voluntary turnover.

Voluntary Turnover Vs. Involuntary Turnover

Voluntary turnover is when employees have decided to leave the company, accept an opportunity at a different firm, pursue higher education due to personal reasons, or retire. Involuntary turnover is the removal of employees because they have not met the standards of performance and expectations, are in breach of the law, are an element of a seasonal layoff, and have been part of an overall layoff.

A study released by the analyst firm Mercer estimated the average U.S. annual turnover at around 20%, with about two-thirds being voluntary.

Desirable vs. Undesirable Turnover

The employees who are dismissed from their jobs and not including the inevitable layoffs belong to the group of desirable turnover as younger, more efficient, and competent employees can replace them. In the case of voluntary turnover, the departure of employees who have left the organization to take on new positions and not retirees are regarded as undesirable.

Cost of Turnover

It is an essential driving factor in businesses’ efforts to decrease involuntary and voluntary turnover. Gallup reports that the price of replacing an employee ranges between one and two times the employee’s wage.

Calculating the cost and losing an employee earning an average salary of $80,000 per year could cost an organization up to $160,000. A company of 100 employees with an average pay of $50,000 and a 20% turnover can be spending $2 million a year replacing 20 workers at the cost of $100,000 per.

The turnover resulting from being hired by the wrong person and being forced to search for a replacement is expensive financially and through reduced productivity, morale, and work quality.

This raises the question what is a fair amount of attrition?

Like all metrics, they must be evaluated as a function of the industry. What’s suitable for one sector may be typical for other drives. According to the Mercer study, wholesale and retail are the industries with the highest voluntary turnover rate of 37%. This is in contrast to the national average is around 20%. Mercer states that the job roles that have the highest voluntary turnover are customer service (17 percent), production and operation (15 percent), and sales (14 percent).).

Industries usually determine their turnover monthly. HR teams must look at analysts and sources from the industry for information on trends in their industries. In addition, the U.S. Department of Labor monitors job openings and turnover statistics regularly.

How to Calculate Employee Turnover

Estimating your turnover rate may appear straightforward; however, numerous factors can cause results to be distorted. Businesses with Human capital management (HCM) specialists must seek those specialists involved in analyzing the reasons for attrition and how it occurs. Other companies can get information from analysts, such as the Society for Human Resources Management (SHRM).

SHRM recommends calculating your employee turnover by dividing the number of days of separation per month by the number of average paid workers, then multiplying by 100. To calculate the rate of employee turnover, you must figure out the following:

  • Total headcount: This comprises all employees on the payroll, direct-hire temp employees, and those on a temporary layoff or leave of absence furlough. Including employees on temporary contracts or those on the payroll of a separate company is not necessary.
  • Employees’ average number: from that, you can calculate the average number of employees in a month by taking the monthly total and then dividing it by the number of months or total headcount of every report that is run more than once per month or the number of words that are used.
  • Total Separations: The number of separates that occur in a given month is comprised of involuntary and voluntary dismissals. However, employees who are laid off, on layoffs, or absence leave are omitted.

Other ways to measure the employee turnover

Another less specific method to determine the turnover rate is to determine the number of employees who quit during a particular period and divide it by the number of employees employed on the first day.

What method does The Bureau of Labor Statistics calculate turnover?

The Bureau of Labor Statistics releases the “Job Openings and Labor Turnover” (JOLTs) report every month. The report categorizes information according to job openings, hirings, and separations. Total separations encompass layoffs, quits, discharges and retirements, death, disability, and separations resulting from a transfer to another location within the same company.

The quit rate indicates whether employees are willing or able to quit their jobs. For instance, the rate of quits in September 2020 was 2.1 percent. The sample size is around 8 million establishments from the Bureau of Labor Statistics quarterly ES-202 Survey of Employment and Wages file.

What Is a Healthy Employee Turnover Rate?

As we’ve discussed, turnover rates differ widely across industries and must be evaluated within this context. HR managers can calculate the national average annual turnover between 20% and 20%, with an average monthly rate of 3.2 percent. Then, they have to integrate information from their human resource management systems. These are combined with financial systems, allowing them to give insight into salary and the associated complex worker expenses.

Monitoring general turnover rates will help companies determine the extent to which turnover is at a level that causes concern and also allows companies to investigate particulars. Are turnover rates comparable by gender, age, or ethnicity? What is the situation about job, position, department, and manager? Are the people management team up to date on the trends that may signal a shortage of critical places?

Employee Turnover Prevention

The good news is The problem with excessive turnover can be fixed. The solution usually is a matter of departmental managers.

Here are some of the best practices for HR teams.

Make it easier for people managers to codify their requirements. Please do not leave it to the possibility that supervisors in front of you check their reports regularly or discuss the causes that trigger individuals to quit, such as pay, career paths, and a better work-life balance. Remember that what is crucial to one top performer might not be necessary to someone else. Managers must understand their motivations and comprehend what drives an individual to remain productive and be deeply involved in implementing the vision of the business.

Be proactive in communicating opportunities within the organization. In the case of advancement opportunities, employees who leave look for ways to expand their skills and acquire new skills they feel aren’t available within the organization. By announcing options for moving to new roles and ensuring there aren’t any adverse consequences in applying, HR can help reduce the cost of recruitment and help with retention.

Examine attrition statistics in depth. If one department loses people more often than others, dig into the reasons. It could be due to the nature of the team’s jobs or the employees leaving require more communication and support from their bosses, who expect to provide them with respect.

Communicate, share, and communicate. Increase the communication between employees through town halls and surveys. HR can communicate company goals and practical and crucial items such as initiatives to recognize employees, opportunities for professional development, and the introduction of new benefits.

Improve Tracking and Employee Turnover Reduction With HR Software

Human capital management software that is fully featured plays an essential role in reducing employee turnover for various reasons.

It allows HR to gather and analyze data and monitor KPIs that aid in reducing attrition, including turnover metrics. HCM Software makes it simple for HRIS analysts to provide managers and managers solutions instead of spreadsheets packed with numbers and leaving them on their own to analyze.

When you are choosing the tools to manage your workforce, be sure to select tools that are:

  • Let organizations spot issues caused by absenteeism and then establish more accessible and more consistent scheduling employees expect.
  • Alarms should be raised when triggers are defined. Incredibly, research shows that the one-year mark is a critical moment. Employees might buy into the notion that they should keep their jobs for at least one year, lest they be viewed in the eyes of employers as “job hoppers.” Something like automating the process of sending an alert to managers on the anniversary of a one-year employee’s birthday, and the HR department can send a reminder to log in.
  • Connects performance metrics with clearly specific goals like sales targets within your CRM software, so success is recognized immediately. Tools for succession planning allow the company to assess the strength of its bench and train top performers to assume critical roles through training opportunities and clearly defined career pathways.
  • Facilitate transactions that make the employee’s work simple and accurate. Simple things like receiving a good salary in time and timely, keeping track of precise time off, seamless onboarding making sure that benefits enrollment is easy, and getting HR answers when required are crucial to the overall employees’ experience.
  • The software can enhance the experiences that are the basis of employee engagement, resulting in lower turnover rates.

Employee Turnover FAQ

Who is accountable for the turnover of employees?

Although a variety of factors can be the reason for an employee to quit the job involuntarily or involuntarily, the latter is more closely tied to the manager. Managers who are not in good standing are the primary reason why employees quit. Good managers create workplaces that encourage employees to remain. HR is accountable for monitoring employee turnover and providing information on trends; however, when it comes to the people in the organization, the manager is the best person to stop the voluntary departure of employees.

Why should I be concerned about the retention of employees?

The turnover of employees can cost companies millions of dollars every year. Rates of employee turnover that are not consistent with industry norms could indicate significant issues with management, culture, or compensation and benefits and adversely impact customers.

What is the return on investment of retention?

In addition to avoiding the cost of retraining employees and the possibility of losing sales, businesses must realize that everything has become subject to public reviews. As a bad Yelp review could directly impact a restaurant’s profits, if employees take to slamming your business on social media and job sites such as Glassdoor and Glassdoor, you’ll need to make more investments to attract the best talent.

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