In the recruitment dream world, every candidate is an ideal hire and new recruits work together in harmony. In reality, this doesn’t happen. Instead, various types of employee turnover occur and you need to recruit new people to replace the ones who leave.
Some types of employee turnover are desirable. When enthusiastic new recruits replace unproductive members of staff, for instance, staff morale often improves. Other types of employee turnover are undesirable. When productive employees quit because they’re unhappy, your business can suffer.
The good news is that you can control employee turnover to some extent. We’ll reveal three useful retention strategies at the end of this post; first, we’ll explore employee turnover in general terms and then we’ll show you how to calculate two distinct types of employee turnover.
what is employee turnover?
In simple terms, employee turnover is a measurement of the number of people who leave your company over a specific time period. The higher your employee turnover rate, the more you’ll need to recruit — and recruitment costs add up.
Increased recruitment costs aren’t the only side effect of high turnover. Productivity decreases, and new employees aren’t as efficient as existing staff for quite a while after they’re hired. Employee morale also suffers when people leave — especially if they seem happier in pastures new. Occasionally, the resignation of a key person can cause a turnover exodus as other staff members also leave.
Most companies measure staff turnover on a quarterly or annual basis. Some businesses stick to company-wide rates, while others segment by department or location to gain maximum insight. When it comes to employee turnover, like other employee metrics, the more data you have, the more you learn.
types of employee turnover
Several types of employee turnover exist. In this section, we’ll go over desirable, undesirable, voluntary and involuntary turnover — and we’ll also talk about redundancies.
desirable versus undesirable turnover
Can employee turnover ever be desirable? In a word, yes. When unproductive workers or employees with negative attitudes leave your organisation, morale can actually improve. Workers who don’t work are expensive to maintain and can reduce productivity. When they leave and you replace them with fresh, enthusiastic talent, productivity levels almost invariably go up.
If you work in a seasonal marketplace, you might need to reduce your workforce during the off season. In that case, turnover is necessary because it’s expensive to keep employees on the payroll when they’re not needed.
Trailblazing employees, on the other hand, leave big shoes behind when they depart. When they’re disenchanted, frustrated or bored, top performers seek out new pastures. After they leave, former colleagues feel adrift and demoralised. Perhaps unsurprisingly, this type of turnover is undesirable.
Voluntary resignations can be desirable or undesirable. Sometimes, workers who don’t perform well leave instead of implementing constructive feedback. Many human resources professionals categorise that phenomenon as a form of desirable turnover.
Most of the time, however, people quit jobs because they find other positions that better match their skills or their long-term plans — or because they move. Those types of voluntary resignations are undesirable. Thankfully, they’re also the type you can most easily control.
Workers who violate company policies, fail to perform well over an extended period of time or get tangled up in misconduct face involuntary termination. Also known as dismissal or firing, involuntary termination is usually a last resort.
Terminations don’t always go smoothly — in fact, they carry a certain level of risk. If you don’t follow employment laws to the letter, seemingly straightforward dismissals become more complex. Make sure you comply with labour laws in your area, including rules about final payments, notice periods and outstanding holiday pay.
Involuntary terminations can be difficult for other members of staff to deal with. When people are fired — especially if dismissals happen frequently — other employees feel less secure. If you do have to terminate someone, reassure your remaining staff members, be transparent and praise them for work done well.
Redundancies happen when companies reduce the number of people they employ to stay solvent during tough economic times. Redundancies also occur when seasonal projects end, or for other business reasons. The coronavirus pandemic, for instance, caused redundancies in various sectors. In spite of widespread government subsidies, workers lost their jobs and had to claim unemployment funds en masse.
Redundancies are generally seen as a type of ‘fair’ dismissal — providing employers don’t use unfair selection criteria to pick the workers they let go. When people are made redundant, they are often entitled to paid redundancy packages, so do research employment laws in your area before you proceed.
Employee turnover isn’t hard to calculate. Before you begin, determine the timeframe for your turnover — most organisations calculate quarterly or annual turnover. Then, find out how many employees you had at the beginning of that period, and how many employees were present at the end. Add these two figures together and divide them by two to determine an average number of employees.
Then, add up the number of people who left your company during the time period. You can use the following equation to come up with a turnover percentage:
(Workers who left ÷ average number of workers) x 100 = employee turnover percentage
Imagine you employ 200 people on January 1st and 196 people on December 31st:
(200 + 196) ÷ 2 = 198 average employees
Between January 1st and December 31st, 20 people left your company. With that figure in mind, here’s how you’d calculate your employee turnover percentage:
(20 ÷ 198) x 100 = 10.1% employee turnover
If you employ temporary or seasonal workers, calculate turnover for this group separately to full-time and part-time permanent staff turnover. That way, you can track staff-related expenses more accurately.
Actual turnover refers to the number of employees you lose over a set, short period of time. Most companies calculate this figure monthly. One of the best reasons to calculate actual turnover is to keep tabs on resignations, terminations and redundancies as they happen.
To come up with an actual turnover percentage, simply use the general turnover equation above — but use a monthly, instead of a yearly, average for employees.
With figures for actual turnover in hand, you can calculate annualised turnover. Annualised turnover is projected turnover per month or per year, and you can use that figure to plan ahead for recruitment costs.
Simply add up the average number of employees for each month. Then, divide the total by 12 to come up with an average monthly figure. After that, add up the number of employees you lost each month; again, divide that total by 12 to calculate a monthly average. Finally, insert your figures into the general turnover equation to produce an average monthly turnover percentage.
what is a good employee turnover rate?
A zero percent employee turnover rate simply isn’t realistic. What is a realistic turnover percentage, then? The answer depends on industry.
Turnover rates in the manufacturing industry, for instance, vary from country to country: some electronics manufacturers in China have turnover rates as high as 300%. Meanwhile in the US, four in ten manufacturing companies lose more than 20% of workers annually. According to Make UK, the British manufacturing industry employee turnover rate in 2020 was 17.6%, up from 14.4% in 2018.
According to the SHRM Human Capital Benchmarking Report, the average staff turnover rate across all industries is 18%. Most survey respondents reported rates between 12% and 20%; according to the SHRM, organisations in non-seasonal sectors should try to aim for a 10% staff turnover rate.
why does employee turnover matter?
One of the most important reasons to analyse turnover is cost — it’s expensive to keep hiring new employees. According to a recent Gallup poll, the costs associated with replacing an employee add up to as much as twice that employee’s annual salary.
According to the same Gallup poll, 52% of voluntary resignations are avoidable. In other words, people leave because of fixable issues. A thorough staff turnover analysis presents an opportunity to change your business for the better: if you find out why people leave, you can implement changes to improve morale and reduce turnover.
why does employee turnover happen?
Employee turnover happens for a wide range of reasons. Some people switch careers, while others move on because their work environments are toxic. Still others leave because their family situations change, or because they receive better employment offers elsewhere.
Most voluntary resignations happen because of management problems, lack of opportunity or burnout. Let’s dive deeper into each of those top turnover triggers.
When managers constantly berate employees, work environments turn hostile and people resign. Supervisors who micromanage — or who take the opposite tack and leave employees completely to their own devices — also increase staff turnover. People who find their line managers difficult to work with feel disengaged and dread coming into the office; after a while, they find different jobs.
lack of opportunity
When opportunities for progression don’t present themselves, people move on. Dead-end logistics jobs aren’t very appealing; training programs and promotions, on the other hand, are pretty enticing. To keep your best and brightest workers happy, create job-centric courses to help them advance within your organisation.
High-pressure working environments and too little downtime invariably cause employee burnout. When people feel overworked and overcommitted, they begin to feel overwhelmed. Unless they’re given opportunities to restructure their schedules, overwhelmed workers seek new jobs.
reducing employee turnover
Employees leave for many different reasons. Thankfully, there are things you can do to reduce your turnover rate and improve your company culture. Here are three actionable steps you can take to boost employee retention.
create training opportunities
When training abounds, employee turnover plummets. According to a recent study, companies that provide employees with lots of educational opportunities reduced turnover by 53%. Well-trained workers in the manufacturing sector report feeling more confident in their abilities. Ideally, training should start right at the on-boarding stage, and it should continue throughout the worker’s tenure.
offer flexible scheduling
Many employees benefit from flexible schedules. Parents who need to pick kids up from school, people who feel more efficient in the afternoons and employees whose commutes take a long time appreciate opportunities to work remotely or vary their schedule. Other individuals prefer to work on a per-project basis, rather than a per-hour basis.
In the manufacturing industry, multi-shift days lend themselves well to flexible scheduling. Many companies in the logistics sector operate 24 hours a day, seven days a week, making them well-suited to flex scheduling.
implement a recognition program
Well-designed employee recognition programs give workers a lift and help to improve retention rates. Traditional awards like Employee of the Month still work well — and so do bonus checks and project-based awards. To make the most of your recognition program, recognise achievements promptly and provide meaningful feedback.
manage employee turnover with Randstad
Whether voluntary, involuntary, desirable or undesirable, employee turnover costs money and changes your office dynamic. Management issues, burnout and a general lack of opportunity all make a dent in retention rates and affect productivity.
Perhaps surprisingly, over half of all voluntary redundancies are avoidable. You can reduce your turnover rate with enhanced training programs, flexible scheduling opportunities and recognition programs.
If you’d like to learn more about the top causes of employee turnover, click on the link below to download our handy guide.