What Is Employee Turnover, Why It Matters, And How To Reduce It

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Employee turnover rates have become a hot topic in business. The rate at which employees leave a company can tell you a lot about a company and that company’s culture. It also opens the door for that company to improvements and cost-saving measures.

Key Takeaways

• Employee turnover is a financial problem for many companies, negatively impacting their bottom line.

• Turnover reflects poorly on a company and not just the finances as it can set off morale problems and trigger unease.

• Employees leave for a number of reasons, but bad management is routinely one of the top reasons.

• There are some steps managers can take to improve their performance and prevent employee turnover.

• The company also needs to step up and find out how to address high employee turnover.

What Is Employee Turnover?

There are two types of employee turnover, voluntary and involuntary. Voluntary turnover is when employees leave a company. Involuntary turnover is when employees are fired or laid off. Both can be a very negative reflection on the company and can cost a lot of money.

The Expenses of Employee Turnover

According to an article by the Society for Human Resource Management (SHRM), the costs of employee turnover are roughly one-third of that employee’s annual salary. Some of that cost is obvious and includes solid expenses like recruiting, background checks, drug screening, temporary staff, and time spent interviewing.

Other expenses aren’t as easy to quantify, but they show up in reduced productivity, lost knowledge, and potential morale drop among remaining employees.

Then there are the additional expenses of onboarding a new employee and the time spent getting them up to speed. It depends on the company and the environment, but these other expenses can be incrementally more.

When you add it up, one-third of the annual salary for every person lost and replaced puts a huge financial burden on a company. It can also be a big indicator that somewhere along the line, something is not working.

Why Employees Leave

Involuntary turnover is a bit different because the employee is not choosing to leave. Sometimes this type of turnover is very good for a company, like removing a toxic employee. But having to remove a lot of employees signals there’s trouble ahead for the remaining staff.

Voluntary turnover is where a deep dive and more thorough understanding is necessary. Why are employees leaving their employer, and what does that say about the company?

• No incentive to stay. Companies used to think of their employees as a permanent fixtures and offered them paid benefits, ample vacation, a pension, employee-matched savings accounts, and an atmosphere that felt like family. That’s no longer the situation in many businesses, and to get that, employees have to job hop.

• Poor management. An overwhelming number of people who quit have cited management as the reason for their departure. This number varies across different study groups, but it’s routinely the highest percentage of those surveyed.

• Corporate culture. This is a shift in thinking from previous employees, but today’s worker wants a company that has a belief structure that they stand behind, and they want an environment where they feel valued and included.

• Bad morale and/or unhappiness. Bad morale is draining for anyone, and there can be a number of reasons for it, from an individual to the entire company. Similarly, there are many reasons someone can be unhappy at their job, and they all might lead to a new job search.

• No room to grow. Many employees are looking to move up in the company and advance their careers. When they feel like they’ve hit the highest position possible, they’re likely to quit and move where the opportunity is.

• Bad hire. Some people were never meant for the job they have, and eventually, they feel uncomfortable in that position and will seek something else.

• Rethinking career/life. The great resignation is something that shook up the business world and employees alike. Suddenly, people were seeing their lives in a new way and wanted a change.

What Can Management Do to Prevent Turnover

Because management is a huge part of the equation, the first thing to look at is how they can stop attrition and hold onto their employees.

• Be proactive. Most managers notice when someone is no longer engaged and might even sense that they’re looking for a new job. This is when it’s time to step up and ask that employee what they need to be happy in their job. Is this something that can be managed, and how?

• Be even more proactive. Why wait until employee dissatisfaction is sensed? Step ahead of the curve and continually check in on employees to see if they’re happy and what management can do to make their job better.

• Open communication. The best managers are people that don’t betray the trust of employees; they work to build trust so an open dialogue can happen. Listening to your staff and managing problems is just as much a part of a good manager’s job as checking productivity goals.

• Don’t micromanage. An article by the American Society for Public Administration (ASPA) took a deep look at micromanagement and how it negatively impacts employees and the overall workplace.

  Of the respondents, 79% said they’d been micromanaged, 69% of those people said they considered changing jobs because of it, and 36% actually did. In addition, 71% said micromanagement interfered with their job performance, and 85% said morale was greatly impacted.

• Inspire, recognize and encourage. Good managers consistently shine a spotlight on positive employee behavior and recognize accomplishments. This sets the bar, and it lets everyone know that management is paying attention.

• Take a coaching attitude. It’s not just about doing the job today; great managers set their employees up for future success as well.

What Companies Can Do to Prevent Turnover

While management is often cited as the problem, not all the blame for employee turnover can fall squarely on their shoulders. Companies, as a whole, need to step up and see where the problem lies and why they’re losing employees. Some common approaches to reducing turnover include the following.

• Better hiring decisions. Approaching hiring as putting someone in the position rather than finding the best person consistently backfires and winds up costing more than it would have to spend time finding the right candidate in the first place.

• Focus on retention. When retention is the goal at the outset, better choices are made with the employee’s long-term satisfaction in mind. This can make a big difference in turnover and sets the tone for a more engaged workforce.

• Recognition programs. Recognizing and rewarding outstanding performance is a great way to encourage the entire team to work harder and be more engaged, especially if those rewards have meaning to the individual.

• Establish a career path trajectory and training. If employees want to advance, then give them the training necessary and help set up a path for them to get to where they want to be within the company. Why lose a great employee when you can nurture and promote them?

• Work/Life balance. This is more important than ever, and it can take a variety of different forms for employees. Finding out what matters to the individual and what they see as their work-life balance will help ensure the company isn’t seen as heartless and one that puts profit over employees.

• Take a look at management. As mentioned, management can be the problem, and if a company is letting bad managers continue to force out good people, then the problem is with the company for not putting a stop to it. Management training is critical in every business and should be an ongoing part of the position.

Employee Turnover FAQ

1. How much does employee turnover cost companies?

   It’s estimated that each employee who leaves the company costs them approximately a third of their annual salary. That amount can be significantly higher if the person has specialized skills, holds an upper management level position, or if that person’s dismissal has deeper repercussions within the company.

2. Why do employees quit companies?

   The reasons employees quit or leave their job are varied and personal, but studies have shown that management is a problem more than half of the time.

   Other reasons for quitting include poor company culture, no room for advancement, pay, benefits, poor morale, unhappiness at their job, don’t like what they’re doing, moving, or a better offer came along. For many people, it’s not one factor that prompts them to quit their job but many different ones.

3. Is management to blame when there’s high employee turnover?

   Sometimes management is to blame for high turnover in the workplace, but ultimately the company needs to take responsibility for not recognizing bad managers. Whether the employee cites management as the problem or not, there is a lot that managers can do to ensure that their employees are happy and thriving in their jobs.

4. Does high employee turnover make a company look bad to prospective employees?

   Yes, high turnover makes prospective employees shy away from a company. This is a digital world with social information everywhere, and high turnover rates aren’t a secret.

   Anyone researching a new job can see if a company has a high turnover rate and what the company’s satisfaction is. This can play a critical role in attracting top talent and getting a good workforce, which is why turnover is so important.

Author

Kristin Kizer

Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.