Employee turnover is something that all companies should be concerned about, as it is one of the clearest indicators of whether a work environment is thriving or not.
In general, most companies will want to keep their employee turnover rate low. Having a “high” turnover rate could indicate that there is something severely wrong with the way the company is currently operating. In this article we will cover everything related to employee turnover, including defining what it is, how to calculate it, and how companies can successfully lower their turnover rate.
What is Employee Turnover?
Employee turnover, or “employee churn”, is a measurement of the rate at which employees leave a company and are replaced by new hires. To measure employee turnover you can use the following calculation:
Employee Turnover Rate = (# of Separations / Avg. # of Employees) x 100
While this equation may appear simple on the surface, defining these variables can actually be quite challenging. For example, defining the average number of workers at a company requires careful consideration, especially when the workforce is comprised of a mixture of full-time, part-time, and temporary employees.
Additionally, you will want to know what qualifies as a “departure”. Some companies may or may not want to include employees who have been terminated for poor performance as part of their calculation
Why is Understanding Employee Turnover Important
For most companies, the goal is to hire as many “perfect” candidates as possible, foster a productive and creative workgroup, and keep everyone happy so they stick around for the long run.
Companies with a high turnover rate typically get all of these elements wrong and are subjected to damaging consequences such as decreased productivity, high recruitment costs and poor company morale.
This isn’t to say that companies should strive for a turnover rate of zero. The pursuit of such a goal would require fulfilling the wants of every employee, which is unrealistic and could end up being detrimental to the company.
What is a healthy turnover rate?
A healthy turnover rate will vary from company to company, but essentially, a turnover rate can be considered “healthy” so long as the company can maintain both growth and productivity on an annual basis. To gauge the health of your company, compare your average turnover rate to that of the industry you operate in. This will help you decide whether you are on track or need to take steps towards improvement.
Why Do Employees Leave?
Employees leave for a variety of reasons, like changing industries or pursuing higher paying work. In many cases, this is largely out of a company’s control. Career changes are highly personal decisions, and as far as pay goes, it’s quite possible that your company simply cannot afford to increase the pay of an employee indefinitely.
However, there are reasons why employees leave their current job that you do have some control over:
- Poor Relationship with Management
- Hostile Company Culture
- Misuse of Skillset
- Poor Recognition Program
- Poor Working Condition
- Poor Feedback & Coaching
To identify trends and pinpoint areas where you can work to reduce turnover, it’s important to track why employees are leaving. To do so, we recommend asking employees their reason for leaving during the exit interview process. On a quarterly basis, this information can be aggregated and reviewed to see if there are recurring themes leading to a higher turnover rate. If employees’ reasons for leaving are within your company’s control, steps can be taken for improvement.
How to Reduce Employee Turnover
Reducing employee turnover takes careful consideration, patience, and self-evaluation.
The key to improving company turnover is to identify the factors causing it and determine if your company has control over them
Ask the Important Questions
Most investigations begin with a round of questioning. Discovering the reasons for your company’s high turnover rate should be no different.
Below are some good starting questions to ask when investigating why the company’s turnover rate is out of control:
- Is the company hiring the wrong people?
- Is the management team effective?
- Is the company culture toxic?
- Are employees properly motivated?
- Are employees given career advancement opportunities?
- Is the employee compensation package competitive?
While asking these questions can prove to be quite informative, sometimes the best way to evaluate your current environment is to observe the workplace firsthand. In the case of evaluating the effectiveness of the management team, it’s important to pay close attention to how supervisors interact with their employees.
- Are they respectful?
- Are they building a team that fosters comradery?
- Are the employees responding to the supervisor’s instructions and feedback?
In many cases, it would also be helpful to examine the performance reviews of everyone on the management team to see if any member has a history of poor leadership. Observing the workforce can also reveal other issues, such as hostility between employees.
As many of us already know, most work groups are not perfect, and there’s almost always one or two employees who make things uncomfortable for everyone else. In these instances, it’s important that all disruptive employees are dealt with in a fashion that is fair and provides them the opportunity to correct their behavior.
Develop a Plan of Action
Once the above questions have been answered and observations have been conducted, it’s time to develop a plan of action. This plan doesn’t necessarily have to be complex, but because multiple individuals are likely to be involved, it’s pertinent to keep everyone on the same page and working towards the same goals.
A proper plan to reduce a company’s turnover rate should include the answers to the above questions, turnover rates (i.e., current, goal, industry average, etc.) and what the company can afford in terms of making changes.
For example, many employees leave their current employer because they’ve found a higher paying job and/or a better compensation package. It’s important to examine if your company has the resources to expand its employee compensation package (e.g., actual pay, more vacation time, company perks like profit sharing, work from home privileges, etc.) to make it more appealing for current employees to stay within the organization.
Final Thoughts on Employee Turnover Rate
Keeping your company’s turnover rate low can have many positive effects on things like employee retention, employee satisfaction, and overall company productivity. Even if your company has a relatively low employee turnover, it may still be useful to develop a plan of action for making incremental improvements. This will reduce the risk of sliding backwards. No company wants to be caught flat-footed, and improving your turnover rate is one of the best ways to stay proactive. Still looking for more? Get a granular look at employee turnover metrics.
Lower Your Turnover Rate by Onboarding Correctly
Hiring the right candidates goes a long way toward reducing employee turnover. Newton’s Applicant Tracking System comes equipped with the tools you need to make the right hire every time. Loaded with Pre-Hire Assessments, Interview Scorecards, Background Checks and more, Newton also comes with an onboarding module that allows you to automate work and guarantee that new hires are set up for success on (or even before) their first day.
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