Employee Turnover: Meaning And How To Reduce It
Looking for a new position while employed often serves a benefit simply because employers favor applicants with jobs. They see…
January 5, 2022 | 7 mins read
Looking for a new position while employed often serves a benefit simply because employers favor applicants with jobs. They see this as an opportunity to attract experienced talent employed by a competitor, which becomes especially easy when the rival doesn’t have sound strategies to reduce employee turnover. Unsurprisingly, talent retention seems to always be a major focus of business leaders and HR teams who constantly struggle with employee turnover in competitive markets.
Businesses didn’t take long to understand that acquiring new clients or customers is a lot more difficult than keeping the current ones happy. That’s why they have customer loyalty programs so that they keep them happy and make sure they keep coming back. It’s true in the case of employees as well, and leaders need to address it similarly when they want to help organizations reduce employee turnover and absenteeism. Organizations don’t always find star performers and the top employees they have are also difficult to retain. No matter what, leaders always try to retain top performers to keep business from being disrupted and get the most from their recruits for as long as possible. Most organizations aren’t unaware of these facts and they can retain talent even with modest investments. Still they struggle to hold on to top employees, no matter which industry they belong to, simply because they ignore to delve deep into the meaning of employee turnover and thus fall short while developing strategies to reduce employee turnover.
We’ll further discuss employee turnover meaning, its causes and types, how to reduce it and employee turnover vs attrition. By understanding the causes of employee dissatisfaction and controlling its rate of occurrence, business leaders can help organizations reduce employee turnover and absenteeism and aid strategic development. They can ensure talent retention, unhindered processes and growth of their organizations.
Employee turnover is the number or percentage of employees who either leave an organization or are fired and replaced by new ones. Employee turnover rate uses data to gauge how many employees are leaving the organization and the circumstances that led to their release. No matter why an employee leaves, their absence reflects on team performance and profits. Paying for severances and continuing benefits, along with the added cost of hiring a new employee, results in low productivity and a loss in revenue.
High employee turnover is viewed as an unfavorable key performance indicator, especially if it’s voluntary. It means an organization is losing too many good employees, mostly to industry rivals. It may be indicative of inadequate growth opportunities, bad hiring, a disengaged workforce or workplace culture—factors that we’ll discuss later.
High employee turnover massively impacts business profitability and customer satisfaction. Tangibly, it costs a business quite a lot of money to pay multiple benefits to ex-employees and hire new people. We can only estimate what businesses pay if we consider the fact that in the United States, employee turnover rate is between 12% and 15% annually.
Generally employee turnover occurs when an employment relationship ends. That can be said about attrition as well. When describing an employee’s departure, people use these two terms interchangeably or together quite often. But they’re different. The meaning of employee turnover is the measurement of the rate at which employees, voluntarily or involuntarily, leave an organization. These employees have to be replaced. Attrition refers to the end of an employment relationship when an employee leaves and management doesn’t replace them. This happens in scenarios such as job elimination, employee retirement or when they go back to college. Since restructuring and layoffs aren’t voluntary, they cannot be considered attrition.
This is the formula for calculating employee turnover:
Turnover rate= (Total employee departures/Average headcount of organization) X 100
There is disruption from losing an employee and a significant cost of hiring and training a replacement but losing an experienced employee also means losing important customers and institutional knowledge. That’s why businesses must develop strategies to reduce or control employee turnover.
There are primarily four types of employee turnover. They are:
Voluntary turnover is the situation when an employee leaves an organization on their own volition. They choose to disassociate from the firm that employs them without any external influences or pressure. There can be several reasons for voluntary turnover such as relocation, accepting employment in a rival organization or personal matters that make it difficult to continue working there.
Firing an employee, terminating their contract or discharging them due to poor performance, policy violation or absenteeism are classified as involuntary turnover. It’s involuntary because management makes this decision to end the employment relationship and not the employee.
Turnover is usually considered desirable when an organization replaces underperforming employees with new ones. It’s a cut-throat approach to maintain an organization’s momentum and position in the market.
If an organization loses top performers or star employees and fails to replace them, it’s called undesirable turnover. Top, experienced employees have a deep impact on a business and when they leave they disrupt the business.
While it’s important to infuse new skills and talent by adding or replacing employees, managers must look out for inadequate qualifications, insufficient skills and underperforming employees that affect businesses adversely.
Let’s discuss the causes of employee turnover:
Apart from better pay and development, today, employee turnover is heavily attributed to poor work-life balance, low morale and boredom.
Managers have to first analyze the three most critical aspects of employee turnover.
Once they have analyzed these aspects, they can reduce employee turnover by following these steps:
Even though employee turnover is inevitable, organizations can be well-prepared to handle this surmountable task. As long as employee satisfaction is treated as a crucial aspect of teamwork, leaders will find that turnover rates can diminish.
With that in mind, Harappa has introduced the Managing Teamwork program for leaders who want to help organizations reduce employee turnover and absenteeism. Learn the GRIN Framework that will strengthen your ability to handle the four essential characteristics of teamwork—shared Goals, clear Roles, strong Independence and established Norms. Get accustomed with the four stages of team formation using the Bruce Tuckman Model and use the Skill-Will Matrix to assess team skills and their willingness to perform tasks. Sign up if you want to leverage individual skills in a team using people and team management skills.