What’s it: Employee turnover is a metric to measure what percentage of employees leave your company. We calculate it by comparing the number of employees who leave to the total number of employees, expressed as a percentage. It is useful for exploring how effective your resource management is.
A high ratio is usually not preferred because it increases costs and decreases productivity. Yet, there is no definitive guide for translating it. Therefore, you have to explore why the percentage goes up or down. For example, high turnover can result from poor job satisfaction. Or, it’s because you’re removing more incompetent employees.
What are the types of employee turnover?
In general, we can classify employee turnover into two categories based on why employees leave the company. They are voluntary turnover and involuntary turnover.
Voluntary turnover is when your employees intend to leave your company. Various reasons happened. For example, it could be because they are looking for better opportunities elsewhere. Or, they decide to quit because they don’t fit into your company’s culture and work environment.
Meanwhile, involuntary turnover occurs when you ask employees to leave your company. The reason may be due to incompetence in carrying out daily tasks. Or they violate your company’s rules and policies.
How to calculate employee turnover?
We calculate employee turnover by dividing the total number of employees who left your company by the average number of employees who worked during a given period, expressed as a percent. The following is the employee turnover formula:
- Employee turnover = (Number of employees leaving during the period / Average number employed during the period ) x 100
For example, your number of employees is 1,000 people for a week, and the number of employees who leave is 50 people. We get a 5% turnover rate = 50 /1,000.
If you relate it to productivity, you need to exclude those taking time off from the calculation. That’s because they don’t work and don’t contribute to your company’s output. Also, the turnover rate you get will be lower because you use a higher denominator. Thus, including them could result in a bias in inferring the percentages.
What causes employee turnover?
Turnover is normal in companies. Some people leave the company for personal reasons or for other reasons. To explain further, let’s use the classifications above – voluntary and involuntary turnover – to detail the possible reasons.
Causes of voluntary turnover
When leaving your company voluntarily, your employees have personal reasons. That may be because they don’t fit into the management at your company or because they really want to pursue more opportunities in other companies.
Incompatibility. Unsupportive work culture and environment can be why your employees leave the company. For example, some employees may prefer a more democratic culture and environment in which they can actively participate. As a result, they feel safe to express their opinion. But, otherwise, it can be frustrating for them.
Compensation. Your employees work for income, from salary or bonus packages. If your employees feel it’s not worth it, that’s the reason they leave your company. Or, the salary that your company offers is not competitive enough, and they find another company with a higher salary offer.
Career. Another reason why people voluntarily quit is career uncertainty. Your employees work to pursue professional careers and higher positions. If the opportunity doesn’t exist, there’s no reason to stay at your company. So, a clear career path – along with adequate training and development – is one way to retain employees.
Management style. Rigid and toxic managers make the work environment uncomfortable. For example, they abuse their authority or engage in bad office politics. Or they do not give positive feedback to subordinates. As a result, it can make your employees uncomfortable.
Work-life balance. Your employees want to pursue a higher quality of life than just chasing money. They may look for another place that provides a work-life balance. Or, they decide to become freelancers or start a small business, which offers more flexibility in managing work-family time.
Fatigue. Heavy workloads make your employees tired and stressed. It gets worse if it is not balanced with adequate resources and compensation.
Causes of involuntary turnover
Involuntary turnover occurs because you ask your employees to leave the company. It is probably because they were incompetent. Even though you have given them a chance, they don’t have the passion for improving themselves. In the end, dismissal is a final decision.
Other reasons may be:
- Violation. They violate your company policies and regulations. For example, they engage in criminal acts and get punished. Or, they personally bribe officials to get the project, even though your company forbids it.
- Toxic behavior. They exhibit inappropriate attitudes and behavior towards other colleagues. Thus, they become toxic in the work environment. In the end, you choose to fire them before they affect and demoralize others.
- Reorganization. For example, say you are trying to save money during difficult times. Or, you change your company’s strategy to be more adaptive to the business environment. As a result, you streamline the organization and eliminate some positions to make the company more flexible and efficient.
What is the impact of high employee turnover?
In general, high turnover hurts profitability. As a result, your company can lose revenue and, at the same time, incur higher expenses.
- Competitiveness. Suppose your former key employees leave and choose to work for your competitors. In that case, they could be the key to weakening your company’s competitiveness.
- Business process. For example, key employees exit. It can interrupt business processes because your company highly depends on them.
- Productivity. Existing employees bear more burdens and responsibilities to replace the jobs left. If they are poorly trained, it increases their stress. As a result, their productivity also decreases.
- Work environment. Those who leave may play an important role in creating a positive work environment. So, if they leave, it can disrupt the morale and morale of existing employees.
- Recruitment and training costs. You will have to spend more money recruiting and training new employees to work effectively in the new place. In addition, your company may find it difficult to find candidates with the same competencies.
- Customer satisfaction. For example, those who leave are marketing employees. They have established good relationships with customers. And, if your new hires are not of the same quality, it could lead to decreased customer satisfaction.
But, in some cases, high turnover does not have such a bad impact as above. For example, when you fire some underperforming and toxic employees, it could be the right decision. You then replace them with motivated candidates and excel at their jobs. As a result, your company’s productivity can increase.
In other cases, you may need to reorganize your business to make your company more flexible in responding to a changing business environment. So, eliminating several positions and employees is a choice you have to take. As a result, your business processes are more efficient, and your company can be more competitive.