Employee turnover tends to have ugly connotations to it, mainly because replacing lost talent is costly in terms of employee compensation and business profitability.
On the one hand, excessive turnover can cost an organisation about 33% of its employees’ compensation package, which includes wages and benefits. On the other hand, companies with high turnover rates can be outdone by offices with low employee turnover up to four times profits-wise.
On top of these losses, companies also have to keep employee morale in check, as poor morale is deemed unhealthy for organisations overall.
What is Employee Turnover?
Staff turnover is the number of employees that leave your business in a set amount of time.
If you have a high staff turnover, it means that many employees leave your business in a given amount of time. A low staff turnover means that your workforce is comparatively stable, and that employees in your business tend to stick around.
According to Monster, the average staff turnover rate in the UK is 15% – though the figure varies between industries.
It’s worth knowing your business’s staff turnover. It’s also worth understanding that a high staff turnover is not necessarily a bad thing, while a low staff turnover is not necessarily a good thing.
Before we explain how to calculate your staff turnover, let’s take a quick look at what a turnover rate says about a business.
Why Employees Leave
Employees leave for a variety of reasons such as lack of culture fit, an unhealthy work environment, or below-average compensation especially for top performers or achievers. However, it takes objectivity for your HR team to understand that poor people management is also a major culprit in most turnover cases.
One of the ways this could be demonstrated is how managers coach employees. Without proper coaching, employees maintain a status quo with no improvement in their work performance, which may eventually result in employees becoming unproductive or feeling inadequate. Either way, it could have a negative impact on the growth and success of individual employees, as well as on teams within an organisation.
It’s also possible for employees to feel that the responsibilities given to them do not match their expectations, no thanks to indistinct discussions of what exactly the job is all about during the interview stage.
Uncertainties and mistrust may then get in the way of employee relations causing another stumbling block in talent retention. In extreme cases, there could be an unjust treatment of employees such as playing favourites or playing the blaming game happening in the workplace, which could antagonise members of the organisation.
These are just some of the scenarios that explain why having good managers in your workforce makes unnecessary turnover a little less common—if not totally avoidable. Whether or not this holds true for your organisation, what’s certain is that excessive turnover is detrimental for your business in more ways than one.
The cost of high staff turnover
We’ve already established the fact that exiting employees can cost your business, given that you had to invest resources into hiring, training, and certifying them in the course of their employment. Those investments immediately vanish into thin air once an employee resigns, while replacing old employees can make you expend additional resources yet again on job posting and other recruitment activities.
Unfortunately, your company’s turnover woes don’t stop there. The following areas also suffer negative impacts when there’s a high rate of employee attrition in your office:
1. Overall business performance
There’s a perceived deterioration in profit margin and customer service attributed to employee turnover, according to a study about the impact of employee turnover on performance.
The premise is that when good employees quit and less experienced workers are retained, the quality of business solutions and service provided to customers decreases, as customers tend to get attached to certain employees in the organisation. Once customer relationship is compromised, overall business conditions might be put at risk as well.
2. Daily task management
Apart from quality issues, employee turnover also affects the quantity of work finished. The Encyclopedia of Business asserts that it may be a struggle for teams where employee turnover is high to complete their daily tasks or functions, especially when there is no proper coordination or exchange of information between former employees and current ones.
3. Company image
A high attrition rate can result in a negative reputation for companies as potential employees may find it alarming that people are choosing to leave the organisation.
Recruiters attest that it is challenging for them to map qualified candidates to any organisation where there is history of beyond-normal turnover.
4. Team dynamics
Frequent changes in employee line-up can have serious consequences on a team’s ability to establish rapport among its members. It can be extremely difficult and might take a long time for teams to adjust to the work habits of a new employee who has been hired to replace someone from their own bunch, especially if it’s an outsider that’s brought into the organisation.
5. Productivity and continuity
Individual and team productivity may slow down due to employees leaving the company. For one, the new employee has to go through a period of adjustment in the workplace, which means tasks may take longer to finish as far as the new hire is concerned. Consequently, there might also be delays within teams who are relying on their newbie member to help them get things done.
Further down business operations, the continuity of service to clients may likewise be affected by a high turnover rate, especially for companies in customer-oriented industries. When your most experienced employees leave, they take with them their expertise and other internal mechanisms that are necessary for someone to perform well.
This could pose a concern on customer loyalty, which could be at risk when you have customers who might find it difficult to communicate their usual concerns to a new customer service staff every time. Not to mention that a new employee might not be as capable as your former, more experienced employees.
Turnover as a result of top employees getting transferred to a different assignment or department can also be harmful for productivity and continuity, especially when the managers who are supposed to handle them are not quite ready for such change.
Why not all staff turnover is bad
Considering all the drawbacks that workforce attrition presents to the organisation, you might be surprised to learn that some types or amount of turnover can be good for business, too. For example, internal turnover – which is the movement of personnel from one project or function to another – can be positive since you’re able to retain your highly skilled and trained employees within your company.
The key is to use it employee turnover as an opportunity to improve your recruitment and management policies and turn it into a means to further grow and develop your organisation.
Here’s how you can take advantage of your company’s fair share of turnover:
1. Improve your talent
A bit of turnover can be healthy if it allows you to get rid of undesirable employees in favour of someone who can add value to your business. It’s a strategy that worked well for General Electric and its former CEO, Jack Welch, who made it part of the company’s annual performance policy to replace employees who were at the bottom 10% of the workforce. In effect, GE became an industry leader and a profitable enterprise for years.
Today, more organisations are following suit, engaging in employee ranking to further identify the top 20% and middle 70% of their workforce which they use as basis in giving out employee compensation and training benefits.
2. Prevent complacency
This has also something to do with the mindset of certain employees, who don’t work hard enough to be able to keep up with the company’s vision to always try to innovate its products or services.
Such employees are hesitant to take things to a higher level because they’re too comfortable with their current status or position. It goes without saying though that a stagnant company and workforce can be a bad recipe for business success.
3. Review your manpower costs and incentive allocations
You might be incurring high manpower costs without you realising it, and dealing with employee turnover can give you an opportunity to revisit your compensation or retention policies. An appraisal system that evaluates your employees’ performance is primarily aimed at helping you identify which of your employees is deserving of salary increases or bonuses or which ones need mentoring.
Employee appraisal and ranking can even assist your managers in addressing performance issues among unproductive workers and coming up with appropriate interventions to help someone improve before the need for termination of employment arises.
4. Broaden your perspective
Bringing new employees on board gives you a chance to discover a new breed of thinkers and doers who may have a different set of perspectives that are unconventional with your current workforce.
A diverse set of employees can provide the balance that you need to honestly evaluate which ideas can drive growth for your business. Your new hires might also have relevant experience learned elsewhere that can help shape new directions for your company.
5. Stay competitive
In today’s era, where technological innovations are becoming the norm, you need employees who can adapt to changes that are taking place in real time. Otherwise, you might find yourself stuck with employees with no understanding of how important it is to readily grab the opportunity to learn new ways of doing things in the workplace, so you could be a game changer in your industry.
Industry Comparison of Turnover Rates
Here are the 2017 average turnover rates in the UK by occupational group according to XpertHR:
|Occupational Group||Average Turnover Rate (%)|
|General Management and Admin Staff||3.1|
|Publishing and Events Staff||17.7|
|Sales and Marketing Staff||9.2|
|Education Staff (Academic)||11.5|
|Education Staff (Non-Academic)||10.2|
|Housing Sector Staff||11.6|
|Voluntary Sector Staff||10.9|
In the UK, we can see that Publishing and Events is the sector with the highest turnover, by a fair margin. Perhaps this is down to the project-based nature of the work in this sector – employees stick around to complete particular projects, build up their portfolio and move on.
HR also has a relatively high turnover rate, along with Distribution and Education (Academic).The sector with the lowest turnover is General Management and Admin – maybe because this is less career-motivated work, and employees are more likely to stay with one particular company and work their way up rather than looking around for new opportunities.
Here are the 2017 average turnover rates in the US by industry according to the Bureau of Labor Statistics:
|Sector||Average Turnover Rate (%)|
|Mining and Logging||3.7|
|Trade, Transportation and Utilities||3.7|
|Professional Business Services||5.1|
|Education and Health Services||2.7|
|Leisure and Hospitality||6.2|
The following gives you a glimpse of average rates of employee turnover among U.S. technology companies as of Q1 2017:
|Sector||Average Turnover Rate (%)|
By comparison, in the US, although we see different sector breakdowns, it’s interesting to see a lower turnover rate in general.
The sector with the highest turnover rate in the US was Leisure and Hospitality at 6.2%, closely followed by Professional Business Services at 5.1%.
This doesn’t necessarily correlate with the trends in the UK, with sectors like Sales and Marketing having turnover rates at the lower end of the spectrum.
In the US, the sector with the lowest turnover rate is Government at 1.5%, which isn’t necessarily surprising. Public sector jobs often come with clear career paths and attractive pension plans.
Specifically in the US technology sector, we can see higher turnover rates – given the entrepreneurial nature of Silicon valley style start-ups, where professionals may hop from project to project, company to company, this isn’t particularly surprising.
The sub-sector with the highest turnover rate is Software at 22.4%.
These are the sectors with the highest turnover rates in the US today:
|Sector||Average Turnover Rate (%)|
|Fast Food (or QSR)||100|
These are the industries which see the highest turnover rates in the US. The higher numbers here are most likely down to temporary and contract work – particularly in the Staffing and Hotels sector.
In Supermarkets and Fast Food, which share the same average turnover rate of 100%, this could again be down to temporary staff used to cover holidays (Christmas staff for example) as well as a tendency for those sectors to attract younger staff who move on after high school or college.
How to Calculate Employee Turnover Rate
Don’t worry – even if you’re not a numbers person, it’s quite simple to calculate your business’s staff turnover rate.
First, let’s look at how to calculate your monthly turnover rate:
Number of separations during the month
_____________________________________ x 100
Average number of employees during the month
The figure you get should be expressed as a percentage. So if you have a workforce of 100, and you lose five employees in a month, your monthly turnover rate would be 5%.
It’s a slightly more complicated formula to calculate your annual turnover rate. First you need to count how many employees you have at the start of the year, and add this figure to the number of employees you have at the end of the year. Then you need to divide this figure by two to get your average number of employees for the year. Let’s call the resulting figure Y.
So to calculate your annual turnover rate:
Number of employees who left
_________________________ x 100
For example: Let’s say you start the year with 100 employees and end the year with 110 employees, and you lose 10 employees over the course of the year. Your annual turnover rate would be as follows:
___________ x 100
That gives an annual turnover rate of around 9.5%.
Employee Turnover: Key Takeaways
- In the UK, the occupational group with the highest turnover rate is Publishing and Events at 17.7%. The group with the lowest turnover rate is General Management and Admin, at 3.1%.
- In the US, the industries with the highest turnover rates include Staffing (352%) and Hotels (up to 300%), largely as a result of temporary staff and contract work.
- Within the US Technology sector, Software has the highest turnover rate at 22.4%.
- The sector in the US with the lowest turnover rate is Government, at 1.5%.
Staff turnover – what you can do
- Don’t be alarmed by high employee turnover rates – double check your figures against your industry’s and you might be surprised to learn it’s pretty typical. Continue to monitor it against the industry average and if it starts to creep up, review why this might be.
- High employee turnover rate can have a negative impact on a business in a number of ways, including business performance, overall image, productivity and morale.
- Employee turnover can be an opportunity – to find new talent, stay competitive and keep on top of costs.
- If your average turnover rate is around 15% or less, then that’s pretty healthy.
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