Perhaps you’ve noticed a recent uptick in employee turnover or seen news stories about mass resignations. If so, you may be concerned about your turnover rates skyrocketing and harming your business.
It’s time to be proactive! Learning why employees quit their jobs will help you create effective retention strategies. That means you can protect your company while creating a nurturing environment for your people.
This guide covers everything you need to know about reducing employee turnover. Here, you’ll learn how to calculate your turnover rate, the root causes of employee resignations, and tips for maintaining high retention levels.
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What is employee turnover?
Employee turnover is the rate at which employees leave your organization within a specific timeframe. It includes both voluntary and involuntary exits.
The word turnover has a negative connotation, but it isn’t inherently bad. Some turnover is healthy for an organization because departures make room for new talent with fresh perspectives and diverse skill sets. Plus, some resignations can be mutually beneficial if an employee’s priorities no longer align with your business, and encouraging them to stay would hinder both their growth and yours. Turnover only becomes a problem when your retention rate drops lower than your industry’s average or starts harming your work environment and bottom line.
So, the key to reducing employee turnover is working to facilitate a desirable retention rate rather than stopping resignations altogether. The optimal turnover rate varies between industries. For instance, government jobs have a much lower turnover rate (18.6%) than those in hospitality (79%).
The impact high turnover can have on your business
Too many people leaving their positions over a short period can have far-reaching and long-lasting adverse effects on your company. That’s why employee retention is so important for creating a dynamic and resilient workplace.
Here are some symptoms of an organization with a turnover problem:
- A weak and unstable company culture — Culture is the bedrock of an organization, but it’s also a major indicator of its health. When employees leave, it can cause their colleagues to question whether they’re happy with their jobs. They may wonder what’s going on behind the scenes if lots of people are moving on to other opportunities, which could result in them displaying behavior that doesn’t align with your culture. For instance, a business that encourages radical candor may notice that staff stops openly sharing their concerns.
- Mounting hiring and onboarding costs — Experts say replacing an employee can cost three or four times their salary. And if you have high turnover, you have to keep allocating your budget toward expenses like job advertising, interviewing, and onboarding instead of investing in your people’s growth and development.
- Lower-than-usual productivity levels — When teams can’t work at regular capacity, they find it harder to match their usual output. For example, if your programming department loses two or three people, even if everyone works just as hard as before, the entire team will still write less code. Staff is also at a much higher risk of burnout if they’re forced to work over capacity.
- Dissatisfied customers and clients — When capacity and productivity levels are lower, companies might struggle to meet their usual standards of service. Customers may feel disappointed, give you negative feedback, or even turn to your competitors.
- A breakdown in employee relationships — Rapidly changing teams make it difficult for people to build strong, lasting connections. That means they’ll be less likely to notice and be able to respond when a team member needs professional or emotional support.
- More cases of burnout and stress — Fluctuating staff levels make it harder for managers to stay on top of everyone’s workloads. They may feel unsure about how many people they need to complete a task before its deadline and over-delegate. If these oversights keep happening, it can lead to burnout and more employee absences.
- An escalating number of resignations — As staff leaves, they may inspire their coworkers to quit, too. A recent Visier study found that people are 9.1% more likely to quit when a colleague does, and that number can be even higher for smaller, more close-knit teams.
- Poor employee morale — All the factors above can contribute to a negative atmosphere and lower morale as people watch their teammates resign, worry about the company struggling, and receive less-than-optimal results despite their usual hard work.
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How to calculate turnover rate
Before looking at retention strategies, it’s important to confirm whether you have a turnover problem and, if so, investigate how serious it is.
To calculate your turnover rate, collect the following data:
- The number of employees your company had at the beginning of a specific period (perhaps a quarter or a year)
- The number of employees your company had at the end of that period
- The number of employee departures during that time
- The average turnover rate for your industry (be sure to use the most recent data)
For the first equation, add your starting number of employees to your end number of employees and divide that total by two. This gives you the average number of people you employed within the specified period.
Then, take the number of employee departures (both voluntary and involuntary) and divide it by your average number of employees. Multiply the total by 100, and that’s your employee turnover rate.
Now, check your employee turnover rate against the industry standard.
Let’s look at how this works in practice. Imagine you work for a manufacturing company and want to check your turnover rate for the last quarter of the year (Q4). You had 250 employees at the start of October 2022 and were down to 198 by the end of December 2022. You calculate:
250 + 198 / 2 = 224
224 is the average number of employees you had in Q4 2022. Your records show you that 60 people left during that time, so now you calculate:
60 / 224 x 100 = 26.7%
Your employee turnover rate is 26.7%.
That number might seem high, but some online research shows the average turnover rate for the manufacturing industry is around 39.9%. So, your company actually has a higher-than-usual retention rate.
What causes employee turnover
If you did the calculation above and found your company has a high turnover rate for your industry, your next step is to look at the root causes. This will let you know which areas to target when planning your retention strategies.
1. Underwhelming salaries
38% of professionals are dissatisfied with their current salary. Not only that, but compensation is the area of the employee experience with the highest reported levels of discontent.
A critical aim of compensation is to reflect your staff’s contributions to your organization. When employees believe their pay doesn’t match the value they provide through their work, they start looking for jobs with more generous compensation. And if your company is paying below the industry standard, it’s easy for competitors to lure your top talent away with better offers.
2. A lack of career advancement opportunities
Hays says that 24% of employees would leave their current role for a promotion with a different company. Most people want to advance in their careers, whether they’d prefer a vertical or a lateral move across the company. And when their employer doesn’t meet their expectations or show them a clear path toward their goals, they can become frustrated and look elsewhere for opportunities.
3. Ineffective learning & development programs
Some companies prioritize compensation and benefits to the detriment of their learning and development (L&D) programs. But today’s professionals are moving away from traditional work norms where salary, benefits, and status dominate.
The modern workforce wants a more well-rounded employee experience that includes development and growth. This mismatch in values is probably driving the fact that 40% of professionals changing jobs in 2022 did so due to a lack of development opportunities.
4. Insufficient benefits
19% of employees would consider leaving their job for better benefits. Some of the top perks they’re asking for are:
- Extra annual leave
- Funds or stipends for learning and development
- Well-being programs
- Dental and vision insurance
- Company-sponsored pensions
But according to research, employers are underdelivering on most of these.
5. Lackluster onboarding processes
New hires frequently report that onboarding processes are inadequate. A recent survey discovered many new hires didn’t think their employers had fully integrated them into the company culture or properly trained them on their tech stack. Problems like that are likely responsible for 40% of recently hired professionals actively searching for a new job.
6. Poor relationships with leaders
There’s a saying about turnover that goes, “employees don’t leave companies, they leave managers.” It’s true — research shows managers can contribute to a company’s turnover problem with the following bad habits:
- Giving feedback too frequently or infrequently
- Not showing any interest in team development
- Setting unclear expectations
- Appearing to show a preference toward certain employees
All of the above can frustrate your staff, make them feel unsupported, and prevent them from realizing their full potential. This may ultimately push your employees to look for work elsewhere.
7. Toxic company culture
Many factors characterize an unsupportive working environment. Clashing values may lead to constant conflict or an us-versus-them mentality between management and staff. Some companies lose focus on worthwhile initiatives like development and career advancement in favor of profits and their bottom line. And when workplaces turn toxic, a massive 90% of workers think about quitting.
8. Life changes
Many employees resign because major life events change their situation or priorities, and they don’t get sufficient support or accommodation from their employers.
For example, new parents may quit their jobs when they can’t reconcile their schedules with childcare needs. Or someone who’s struggling with a new health condition might not be able to come into the office regularly, and might resign if they can’t set up a remote or flexible work arrangement.
However, professionals going through changes in personal circumstances may be able to stay in their positions if their employers are empathetic and flexible about their working conditions.
Tips for reducing employee turnover
Once you understand the causes of high employee turnover in your organization, you can explore solutions. Trying using employee retention incentives or attending HR conferences to find the most innovative strategies. Here are some popular ideas:
- Offer competitive salaries — Show your people you value their work with generous compensation packages. If your budget restricts your compensation management, aim to offer above the industry average at least.
- Build a fair and transparent promotion process — Show your staff what they can achieve at your company with clear career paths. Once they know what opportunities exist, they’ll be more likely to pursue them with you than look for them externally.
- Focus on learning and development — 71% of employees say they’d like more opportunities to upskill. Meet their needs and reduce turnover by offering career development opportunities like training, mentoring, and seminars.
- Provide generous benefits packages that target staff needs — Similar to salaries, offering a competitive benefits package is a great retention strategy. To make the most out of this approach and keep to your budget, investigate which benefits your people need or desire most and prioritize those.
- Recognize and reward excellent employee performance — Companies with effective recognition programs have staff members who are 56% less likely to be actively job hunting. Employee recognition can be a cost-effective way to reduce turnover and build a more positive work environment for everyone to enjoy. These can be simple initiatives like bulletins about employee achievements or a praise wall.
- Foster a feedback culture — Consistent feedback is vital to organizational health. And when you normalize exchanging feedback, you create a work environment where your team feels comfortable sharing their opinions and receiving constructive criticism. That means employees feel like they have a voice and problems get solved faster.
- Invest in the onboarding process — Set new hires up for success. Create a comprehensive onboarding plan and schedule regular meetings and feedback sessions, so managers can tailor training to each individual.
- Introduce flexible work schedules — Make your business more accommodating by letting staff work from home and choose their hours. It shows you understand their needs and helps those juggling other responsibilities stay at your company.
- Boost employee engagement — Companies with engaged staff have up to 43% less turnover. Using engagement surveys to discover what motivates your team and acting on those findings can be a cost-effective way to reduce turnover. Don’t forget to check your employee NPS (eNPS) score to see whether your engagement levels are low.
- Ensure a healthy work-life balance — Protect your people from burnout and show you recognize the importance of their lives outside work by encouraging them to take regular breaks and leave the office on time. Also, check in with your reports frequently to verify whether you’ve given them realistic workloads and deadlines.
- Finetune your hiring process — Hiring candidates for cultural fit over skills and experience increases the likelihood that they’ll integrate well into your company and stay. Be intentional about asking the right questions to see whether their values align with yours. Also, communicate those values so candidates can make a fully informed decision about whether they’d enjoy working with your company. And once you’ve offered someone a position, connecting with your new hire frequently before their start date can increase their willingness to commit to your organization by up to 87%.
The impact of HR software
Given the damage high turnover rates can cause, it’s natural to be concerned about your company’s retention rate. But with the right knowledge and close monitoring of the situation, you can reduce employee turnover and keep it low.
HR software solutions like Leapsome can help you maintain high retention rates. Our platform automates the repetitive, time-consuming parts of performance reviews and onboarding. That leaves you more time to focus on supporting your people and helping them grow.
We also provide a flexible Competency Framework and Compensation module, so you can build fair, consistent, and transparent processes that put your employees first. Overall, our tools give you all the support you need to launch retention strategies without a struggle.
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