What is Employee Turnover?

Ensuring your business has the best talent available is important for long-term success. To do this, employers often think investing in the recruitment stage is the most vital.

However, you need to ensure you keep talented staff for long periods of time. If you have a lot of employees leaving and new ones coming in, this can damage morale and your profits.

This is where the term employee turnover comes in, but what exactly is employee turnover? We’ll look at what this term means and how it affects employees and business owners alike.

What is turnover in business?

The term turnover is likely already familiar to businesses across the UK referring to the amount of money they have taken in a particular business, not the net profit.

However, it is also used to describe another area that is also equally important – staff turnover.

What is staff turnover?

Staff turnover is the number of employees leaving their roles in a company who need replacing with a new employee. Whether it be through external or internal candidates.

The parting of the employee and the company can happen in several ways, but there are two key terms:

• Voluntary turnover: When an employee willingly chooses to leave their position.
• Involuntary turnover: When an employee leaves, and it is not their choice. Usually a termination for things such as poor performance.

The ways an employee may leave the company are:

• Termination
• Retirement
• Death
• Transfers
• Resignations
• Redundancy

It can be frustrating when you have spent time, money and resources training up an employee, only to have them hand in their notice and take everything they have learned elsewhere.

If this happens all the time, it is not just annoying but potentially damaging to the business because of turnover costs.

Calculating the annual turnover rate

Start your turnover calculation by dividing the total number of leavers in a year by your average number of employees in a year. Then times the number by 100. The total is your annual staff turnover rate as a percentage.

There are no real hard and fast rules for determining if your rate is high or low, as it depends on the industry. However, you can use the following as a rule of thumb: 

• Low turnover rate: Lower than 15%, the national average.
• High turnover rate: Higher than 15%, the national average.

Use this as a benchmark and do some research on what’s the average labour turnover rate within your industry—as some will have a higher average turnover rate than others.

For example, stores that typically use younger staff may have frequent turnover because of studying and university commitments.

Consequences of a high employee turnover rate

While the prospect of high staff turnover will not concern some companies, it is important not to be too complacent. The amount it takes to recruit when you lose employees is surprisingly high.

According to research by Oxford Economics and Unum, the average cost of turnover per employee (earning £25,000 a year or more) is £30,614.

Not only could it mean you are losing out on money and valuable members of staff, but it could also damage employee morale.

For example, every time someone leaves an organisation, another person will need to pick up their work, which could affect their workload. They could also have been friends with that co-worker, leading to a less enjoyable working environment for that employee.

There is also your external reputation to consider. A company with a high turnover of staff may put off otherwise promising candidates from applying. If a company can’t retain its employees, then why should they work for you?

What is staff retention?

Staff retention is the opposite of the staff turnover meaning. Essentially, this is where staff stay in a company, choosing to build up their career where they are instead of going elsewhere.

Companies that have a high employee retention rate can make the most of the perks this brings. Namely, a minimum cost recruitment process, a happier workforce and working with familiar individuals who have proven themselves and remain loyal to the business.

Arguably, an employee who has worked for you for ten years, and helped build the business up, is more likely to go that extra mile than one who has been there for ten days. They will question if the company culture is one they want to stay in, whereas an existing employee knows this already.

Reasons for employee turnover

It may be that they felt underappreciated in their role due to poor company perks or too few salary reviews. It could be that workloads are being poorly distributed, leaving them feeling particularly stressed and unsupported, despite raising the issue with management previously.

Their resignation could even relate to the company’s response to the 2020 coronavirus pandemic; how they were treated during the lockdown, or when they were asked to return to the workplace, may have damaged the working relationship beyond repair if not managed carefully.

In the modern working world, employees are continually prioritising progression opportunities within a company; if your business is falling short in this area, maybe you need to take further action.

What can you do to reduce staff turnover?

If you’re seeing high levels of employee turnover, the first thing you should do is find out why staff keep leaving you.

This is where exit interviews come in. You should invite all departing staff to outline why they have left; as they have nothing to lose, it is more likely they will be honest about the reasons.

Use this information to improve how employees feel about the company and drive up employee engagement. More engaged employees are less likely to leave.

From now on, consider new areas you could explore to encourage staff retention. Here are some suggestions:

1. Listen to your employees: Let your staff talk about their concerns and give you feedback. You could suggest that they form a committee that meets with you every month or put out a suggestion box. Listen to their comments and make changes where you can.
2. Set up regular one-to-one meetings: Hold meetings with your staff to discuss their performance, how they can progress in their role, and what training is available to them. Your staff are less likely to look for another job if they know you have a clear plan for them.
3. Celebrate your staff’s hard work: Set up an “employee of the month” scheme to praise members of your team. Pick a new employee every month and explain why you have chosen them. You could reward winners with a voucher or an extra day’s annual leave.
4. Offer flexible working hours: If it is possible for your business, think about offering flexible working hours to your staff. Your employees will probably be happier if they can work from home or adjust their hours to fit around home life, such as child caring commitments.
5. Plan social events for your team: Help your staff bond by taking them out regularly or organising virtual meetings and quizzes.
6. Offer competitive salaries: Do some research and find out what your closest competitors pay their staff. If it is higher than what you pay, plan to increase your staff’s wages.

COVID and staff turnover

2020 has been a tough year for businesses, and you may not feel you can make major changes to how you run yours.

Listen to staff to consider ways you can make working life easier. They too will understand the difficult situation the company may face and reach a compromise may be easier than you think.

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