The Guide to Employee Turnover: Definition, Causes, Calculation

“Why do employees leave?” This question has puzzled researchers, HR leaders, managers, and executives for over 100 years.

In the last few years, the question has gained even more importance as millions worldwide — as many as 24 million Americans between April and September 2021— quit their jobs. 

Furthermore, more than 40% of the global workforce considered leaving their employer in 2021. As the Great Resignation continues, organizations are scrambling to understand what’s driving it and, more importantly, understand how to retain their employees. 

What is Employee Turnover?

Employee turnover broadly refers to people leaving your company. It encompasses voluntary and involuntary leavers, including resignations, retirees, or those laid off due to poor performance or organizational shake-up. 

Employee turnover is unavoidable, as people will always leave at some point due to circumstances that may or may not have anything to do with your organization. 

However, depending on the circumstances, losing employees can negatively affect organizational performance, cause low morale among staff remaining, and even lead some customers to leave. 

Turnover is the opposite of retention, which refers to how a company retains its people. 

Therefore, it’s essential to keep an eye on turnover and know all that’s needed to keep it to a manageable level that won’t affect your company. 

Types of Employee Turnover

To understand turnover, it’s vital to know the types of turnover. It’s further essential to differentiate between the different types because each has its unique effect on an organization. 

Here are the different types of turnover that might affect your organization.

Voluntary Turnover

As the name implies, voluntary turnover refers to employees who leave the organization of their own accord. 

It includes new employees who didn’t turn up for work, hires who leave for another employer, those who leave due to personal circumstances, those who retired, or workers who quit because of a disliked manager or differences with a colleague. 

Involuntary turnover

Involuntary turnover occurs when an organization asks an employee to leave. 

Several justifiable reasons why an organization might decide to part with a worker. Some reasons include, but aren’t limited to:

• Poor performance
• Change in organization structure
• New business needs
• Budget reallocation
• Behavioral problems
• Poor fit to company culture

Voluntary or involuntary turnover can also be desirable or undesirable. 

Desirable Turnover

Turnover is desirable when a poor performer leaves; because the organization is sure it can replace them with a better and more competent alternative. It’s also sometimes referred to as functional turnover. 

Undesirable Turnover

Here, the company definitely doesn’t want the worker to leave. 

For example, it’s undesirable when a competitor poaches a valuable and skilled employee or if a great worker decides to switch careers and quit their job. This type of turnover is sometimes referred to as dysfunctional turnover. 

As you can see, these four types of turnover can be combined depending on the circumstances. 

There has been plenty of research into what causes turnover, which makes sense considering its impact on an organizations’ processes and survival. However, turnover is quite costly too, and even worse than the direct financial cost of replacing a lost worker are the less tangible costs. 

Let’s see why turnover is so essential to every single organization.

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Effects of Employee Turnover

1. Productivity

Several factors can affect an organization’s productivity, and turnover is, unsurprisingly, one of them.

When your organization has a revolving door — with employees joining and leaving frequently — you’ll find it extremely challenging to maintain productivity. And the reason is quite simple.

When new hires come in, they usually receive training to do their job efficiently. They’ll also need time to get used to the position before reaching full productivity. But if they leave just after becoming proficient, you’ll have to start from the bottom again, which sucks.

2. Morale

Turnover can also lead to a massive drop in workplace morale. When workers leave, they leave behind friends who’ll miss working with them. And this matters a lot. 

Up to 70% of workers reported that having a friendly face at work is essential to enjoying their work. And half of the workers with a friend at work reported feeling more aligned with the organization. 

Furthermore, high turnover can leave remaining staff fretting over their long-term future at the company. They feel threatened, worried that they’ll be next out of the door, which in turn will affect their engagement and productivity. 

So if your workers leave, it deals a blow to the commitment, company culture, and engagement of the remaining employees. 

3. Financial Costs

Turnover burdens your company financially. You spend more than $1500 trying to replace an hourly worker, and this amount rises the higher the position and salary you’re trying to replace. Here’s why it’s so expensive:

Training Costs

Training costs time, money, and other resources. Managers and other employees are tasked with helping new hires, which doesn’t directly relate to the business, services, or sales: you have to pay them for their time.

So, if you have high turnover, you’ll be caught in a circle of constantly training new people and spending training expenses that could be used for more important things. 

Advertising

Replacing a worker will involve advertising the vacancy, interviewing several candidates, screening candidates, and hiring the right person. 

Onboarding costs

The cost of onboarding incorporates the costs we’ve mentioned earlier. In addition, you have to consider how much managers will spend training new employees, office supplies like laptops, paper, printing, the software they’ll need, etc. 

4. Institutional knowledge

Every time someone walks out the door, they leave a piece of institutional knowledge with them — which they could apply somewhere else.

In addition, when employees leave, their colleagues might have a hard time replicating their efficiency.

New hires will spend hours working inefficiently (asking questions, waiting for a response, making mistakes). These can result in frustration, delays, and a drop in productivity. 

And unshared or permanently lost knowledge has a tangible effect on the company — companies can expect to lose up to $2.4 million in productivity — because of loss of institutional knowledge.

5. Ability to Attract Top Talent

If your company has a high turnover rate, it can also affect its ability to attract top talent. 

When potential employees observe how people leave often, they might not consider the organization as somewhere they can build a future; instead, they’ll view it as a mere stepping stone to better options. 

What Causes Employee Turnover?

Having defined what turnover is and its effects, we now turn our attention to what causes employee turnover. There has been plenty of research into what causes turnover, which makes sense considering its impact on an organizations’ processes and survival. Turnover is quite financially costly, and the intangible effects even worse than the direct financial cost of replacing a lost worker.

It'll be easier to reduce turnover when you know what causes turnover. So let’s dig in.  

The Top Causes of Employee Turnover

Several reasons cause undesirable turnover. First, much has been made about wages; obviously, people want to get adequate financial compensation for their work and will always be on the lookout for better-paying jobs. However, wages aren’t the biggest reason why workers leave. 

Research indicates compensation ranked relatively low among the predictors of employee turnover during the Great Resignation. 

Let’s consider these reasons. 

1. A Toxic Work Culture

Toxic work culture will drive your workers away — there’s simply no way around it. In fact, before the emergence of Covid-19 and the Great Resignation, toxic work cultures cost US companies almost $50 billion annually.

All HR managers and executives agree that a toxic culture causes worker attrition; however, there isn’t a concrete definition of what a toxic culture means. 

As do the authors of this in-depth report, we believe a toxic workplace for most workers is one that’s:

• Disrespectful
• Non-inclusive
• Unethical
• Cutthroat
• Abusive

High undesirable turnover is guaranteed if an organization displays these characteristics. In such an environment, workers work in an atmosphere of fear, are afraid to give their honest opinions, and feel undervalued at work. 

2. Failure to Recognize Employee Performance

Recognition and rewards are some of the biggest motivators in the workplace. If an organization fails to recognize good work or places high performers and poor performers on the same level regarding recognition and rewards, then these high performers will likely walk away. 

Employees feed on feedback, and positive feedback leaves workers feeling positive and can significantly increase their engagement at work. 

While many companies claim to offer recognition and rewards, employees are not impressed by the type of feedback or recognition they get. 

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3. Job Insecurity and Reorganization

Frequent restructuring and reorganization can leave workers worried and concerned about their future at your organization. 

If an organization’s future isn’t looking great, employees are more likely to start looking for a way to jump ship. And you certainly can’t blame them; after all, workers are usually the first resource employers reduce when the company’s facing difficult times. 

And when workers leave, the surviving employees are left with handling their work plus the responsibilities of those that left. This heavier workload leaves most people stressed and can even lead to burnout. 

4. High Levels of Innovation

A company that runs on a high level of innovation can be an exciting place to work in. Therefore, it’s strange to discover that such companies have a rather high voluntary turnover rate. But upon reflection, it’s not hard to see why more people leave. 

While workers are usually very engaged, at the very beginning, the high standards of work, long hours of work required, and the higher levels of stress can get to even the most dedicated workers. 

5. Managers

There are several reasons for voluntary turnover. But one of the biggest reasons for this phenomenon is that no manager is trying to keep the worker. Gallup’s workplace analysis reveals that 52% of leaving workers say that their manager could have done something to prevent them from going. 

Your workers interact most with their managers, so it’s only logical that the relationship between both parties affects engagement and turnover. 

Managers are crucial to an organization’s work positive culture because workers have certain expectations. If workers don’t trust managers and leadership, confidence will erode, and they’ll look elsewhere for guidance.   

6. Poor Response to Covid-19

Many workers watched how their company responded to Covid-19 closely. Those that talked about their company’s response in a negative light were more likely to leave than those whose companies reacted positively. 

7. Poor Hiring

According to the Havard Business Review, 80% of turnover can be attributed to poor hiring decisions. If you observe people leaving your company almost as soon as they join and leave for similar roles elsewhere, it’s time to take a good, long, hard look at your recruitment process. 

While having the right skills for the job is important, your employees must be a culture fit for your company. If they aren’t, they’ll be disengaged, purposeless, and leave you high and dry at the end. 

8. Overworking Good Workers

Recognizing good workers by entrusting them with more responsibilities is an excellent way to keep them feeling valued. However, if you pile on their work and responsibilities for a sustained period, it can lead to disenchantment and burnout. 

If a balance isn’t struck, you might be poised to lose a valuable worker. 

9. Poor Work-Life Balance

Perhaps more than before, workers are demanding their employers help with work-life balance. Up to 39% of knowledge workers list work-life balance as the most critical factor of their job, indicating that they want less stress levels. 

If your company doesn’t adapt to these new needs, it should be prepared to lose more workers. 

10. Poor Compensation

While we’ve talked about how some things are more important to your workers than money, financial compensation is still a big factor determining whether your workers will stay or leave. 

A good salary will cover several flaws, especially if you’re paying more than your competition. Paying well indicates that you value your employees' work and reduces the chances of your competition poaching top talent. 

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11. Lack of Professional Growth Opportunities

A lack of professional development is another predictor of turnover. If there’s a lack of opportunity for growth in your organization, you’ll lose ambitious top performers. 

According to a survey of 10,000 US-based respondents, more than 37% of them said they’ll readily take a pay cut for an opportunity to learn new skills!

How to Calculate Employee Turnover

Knowing how to calculate your employee turnover rate will reduce the impact of workers that leave. In addition, a projection will help you plan for recruitment and all its attendant processes. 

To calculate the annual turnover rate, divide the total number of leavers within a time period by your average number of employees in that period of time, then multiply by 100. 

How to Reduce Employee Turnover

So how can you reduce the turnover rate at your organization? We’ve created this list of solutions for you. 

Communicate With Your Employees

Frequent communication is a superpower that can solve so many problems. Communicating with your people will help you grasp why they stay or leave. 

Get frequent input from your people, whether through pulse checks, training programs, 360-degree feedback, or direct communication between HR managers and staff.

No matter how you capture feedback and communicate with workers, your goal should be to understand where they’re coming from and then find a way to align their feelings with your business goals. 

When your people see that management truly listens, they’ll feel valued, which goes a long way towards making them stay. 

Communication also involves being accessible to employees. Make it easy for them to reach you. Thankfully, there are text, video, and conferencing platforms that make it easy for them to reach management and resolve any issues. 

Use Stay and Exit Interviews

An exit interview is an excellent way for management to understand better why a worker are leaving the company. With this knowledge, employers know the factors contributing to turnover and work on them. 

However, stay interviews can be a better way to reduce turnover. These interviews during the employee’s time with the company will help employers be proactive and make changes before troubles arise. 

Furthermore, such interviews make it easier for your people to buy into ideas and keep them engaged.

Act on Feedback

Listening to your people is great, but it’s futile if you don’t act on their feedback. When you make inaction a pattern, employees will hesitate to give genuine feedback since they believe it’s worthless anyway.

However, if you actively listen and act on feedback, your people will be more satisfied and trust you. 

Establish Good Onboarding 

Your entire onboarding process should be geared towards improving retention and reducing turnover. 

New hires don’t have strong ties to your company, so it’s very easy for them to leave. It’s up to you to assist them in making connections as soon as possible.

So, at the start of the employee journey, associate these newbies with the company values and help them feel among within their teams. Staff that have spent a long time at the company can be assigned to help them through these first few months. 

Communication is also key at this stage. So, engage with them often and early, which will likely set a good tone for your relationship. 

Use Job Simulations

Job simulations are tests given to job seekers where they carry out tasks they’ll usually do on the job. 

Turnover is high among new hires for several reasons, but one of the biggest reasons is that the job doesn’t match their expectations. Once they experience the tedious side of a job, they might feel disenchanted and start looking for a way out.

However, by using job simulations in the hiring process, you can ensure potential employees experience what they’ll most likely experience when they get the job. This way, anyone that’s not satisfied can exit the process. 

Furthermore, don’t just test for skills but also test for whether they’ll be a culture fit. By using these tests, you can ease new hires into the company with reduced risk of turnover. 

Provide Opportunities for Growth

Many people now look beyond compensation to consider whether a role offers opportunities for growth. 

So offer continuous training and development by integrating a training and development program. 

If it’s too hard to create new departments in your company, you can liaise with third-party body organizations that can help your employees gain new skills. 

It’s also crucial to understand your employee’s career expectations. If it’s not possible to promote them, offer lateral job moves that let them gain different skills and development experiences. Such lateral job moves offer a change of pace and reduces the chances of your people leaving. 

Recognize Your People

Consistently rewarding and recognizing your people leads to them feeling cared for and valued at work. Although it’s low-cost, recognition drives engagement, and this engagement leads to improved productivity and an overall better work environment. 

So, increase the frequency of recognizing and rewarding your people. Recognition can be done using tools like Nectar HR. You can use Nectar HR to publicly acknowledge great employee performance and give rewards to good workers. 

Sponsor Corporate Social Events

Sponsoring corporate social events like work parties, happy hour, excursions, dinners, and other out-of-work activities can go a long way towards building a great work culture and retain as many people as possible. 

These events also lead to better bonding between your staff, and the friendships that develop can be the difference between a person staying and leaving. 

Be Flexible

Covid-19 has shown that you don’t have to be in the office before you can get work done and several companies have moved towards a hybrid work culture. Although this flexibility hasn’t been proven to greatly impact retention, you need to use all the tools you have, right?

Conclusion

The Great Resignation has many organizations running around in panic, but you can weather the storm. 

The cost of turnover goes beyond an empty stall. It can prompt others to leave, cost your organization institutional knowledge and experience, reduce productivity, and more.  But by communicating with your staff, providing opportunities for growth, and using tools like NectarHR to recognize and reward employees, you can reduce undesirable turnover.