What Is Employee Turnover? A Complete Overview

Perhaps the most vexing of all people management challenges, high employee turnover quietly drives every company’s costs up and their productivity down. The “quiet” part is because turnover is generally referred to as just a statistic, a percentage of employees who leave their jobs, which is then compared to other companies’ turnover percentages. Good news is thought to be when our company’s turnover percentage is better, even if by just one percent, as we now have an indicator that we have “overcome” the turnover challenge. Yet the high cost of losing and replacing productive employees over the long term carries on as companies invest time and money to hire people and train new employees rather than search out and implement the best ways to retain them.

Calculating Employee Turnover

Most companies calculate employee turnover with the following formula:

            # employees lost ÷ by average number of employees on board X 100

So for example, if an organization loses 25 employees in one year and the average number of employees on the payroll for that year is 100, then 25 divided by 100 equals .25, and .25 times 100 equals 20…so that organization’s annual turnover rate is 25 percent. Some organizations reverse this number to say their retention rate is 75 percent

This calculation results in an effective, first look at turnover rates, and can be applied to specific jobs, departments, or even for calculating the turnover for those employees who report to a specific manager. Some organizations then apply this formula to learn the rate of turnover for designated high-performing employees who could be those above a certain performance-level rating. Others might have identified a specific, small group of high-potential employees and would then measure turnover for that group.

An equally-strong metric results from measuring turnover by length of service. This metric is usually applied for specific jobs, for example call center agents often times leave during or soon after training which costs their organizations thousands of dollars per exit based on the training invested with no resulting return on those dollars. High early employee turnover is usually a sign of inadequate recruiting, selecting, or training.

Employee Turnover Statistics

Organizations seek out many ways and sources to learn how their employee turnover compares to others. Some participate in industry surveys while small companies might assign someone from human resources to call surrounding organizations to share employee turnover percentage information.

One reliable way to learn this data is through the online reports of our federal government’s Bureau of Labor Statistics, commonly referred to as the BLS. The BLS provides periodic updates on both total employee separations and also voluntary quits, published by industry groups and regions of the country. For example, in the industry category of “Healthcare and Social Assistance” 33.2% of employees separated last year and monthly quits are averaging 1.9%.

The best value for comparing one’s turnover percentages to others doing so provides a benchmark for how our retention performance compares. The shortcoming of these benchmarks is they tend to make executives complacent, perhaps by signaling that being average or near-average is acceptable because they are reluctant to spend more dollars on pay and competitive benefits to improve retention, believing compensation is the primary reason employees leave.

Types of Employee Turnover

Many organizations classify their turnover by reasons for leaving, both to find solutions and also to identify which turnover matters most. Chief among these sub-categories are voluntary/involuntary and controllable/uncontrollable. The primary thought is “if we fire them or couldn’t have kept them, that turnover doesn’t count”.

The counter to this thinking and perhaps smarter approach is (1) more often than not we really don’t know why an employee leaves and (2) all turnover causes disruption and cost. For example, the number one reason employees leave according to aggregated exit surveys is “better opportunity”. Some organizations dedicate “turnover committees” to solve this by identifying all possible components of “better” such as pay, benefits, careers, and commute, and then recommend related improvements. Yet all of this digging can be more easily solved by asking the key follow-up questions, “Why did you look? And what could we have done to keep you?”

Likewise, all would agree that terminating a non-productive employee is the right thing to do. But while productivity is then likely improved in the long run, the dollars spent on hiring, training, and coaching that poor-producing employee have been lost. And companies never know if that employee could have been successful with better coaching and overall help.

The Cost of Employee Turnover

Perhaps the most important turnover data is turnover’s actual dollar cost. While executives see value in benchmark data, their everyday business language is dollars so turnover’s actual dollar cost motivates them to act.

Our own research has resulted in the invention of the most comprehensive turnover cost calculator, that measures both the direct costs to find and train a replacement as well as the lost productivity while that job is open and the new hire ramps up. And this lost productivity is usually the greater cost.

By implementing our turnover cost calculator with client teams from human resources, finance, and managers, these are just a few of the examples we’ve calculated for client companies:

• Physician…$225,808
• Software engineer…$131,000
• Call center representative…$29,447
• Truck loader/unloader…$4,955

When learning that losing a software engineer cost his company $131,000, the technology company CEO declared, “Now I know that making our annual profit plan requires me to retain our software engineers”.

Causes of Employee Turnover

Low pay, non-competitive benefits packages, bad company culture, poor work/life balance, lack of recognition, no cross training, poor communication, no employee development, zero career opportunities, poor work environment, and bad schedules top the list of why employees quit their jobs. At least that’s how employees feel according to employee surveys. The common, hamster-on-wheel approach to reducing employee turnover is this:

• Conduct exit surveys to see why employees leave
• Conduct engagement surveys to learn what we must do to keep our employees and engage them more
• Ask human resources to develop solutions based on survey results
• Ask managers to do the same to engage and retain their teams
• Then offer employees the resulting one-size-fits-all solutions
• Continue re-surveying to measure improvement

This solution sequence is as likely to happen in China or Europe as it is in the United States. Yet using United States’ data, it is clear that this approach brings failure. Turnover in the U.S. has reached its all-time high and employee engagement hasn’t changed this century…despite our investing $1.53 billion each year to “fix” it.

“Finnegan moves the lever for engagement and retention to first-line managers where it belongs and gives them a solid tool for continuous improvement.”

– SARAH KING, SENIOR VICE PRESIDENT & CHIEF HUMAN RESOURCES OFFICER, DARDEN RESTAURANTS

How to Reduce Employee Turnover

The #1 reason employees quit their jobs is because they don’t trust their immediate managers. Employees leave for many reasons, both voluntary and involuntary, but lack of trust tops this list. Trust shortcomings manifest themselves in many ways such as no recognition, poor communication, or unfairly favoring one employee over another. The result is that two employees in the same organization could have very different views of that organization as an employer because the employee with a trustworthy boss thinks the organization is top-notch, while the colleague down the hall with a different, untrustworthy manager see that same company as terrible place to work.

So true and effective employee retention solutions must start with immediate, first-line managers building trust with their teams. This approach conflicts with the commonly-applied “solutions” referenced above that result in one-size-fits-all programs like recognition or communication, because those attempts work around first-line supervisors rather than through them.

While momentarily enjoyable, most one-size-fits-all programs are soon forgotten because after leaving them employees must return to their jobs…and it is there that the employee retention and engagement challenge is won or lost. First-line managers then have the daily, most powerful impact on how much those employees trust their managers, respect their colleagues, and like what they do.

“Retaining top employees is a constant challenge. Stay Interviews is the answer!”

– WILLIS TISDALE, SHRM-CP, CHR, PHR, DIRECTOR OF HUMAN RESOURCES, SHRINERS HOSPITALS FOR CHILDREN, GREENVILLE

Our research has proven the single best way to improve supervisor trust is for those supervisors to be trained to conduct Stay Interviews. Building trust is both professional and personal because employees bring their entire selves to work each day. The impact, then, of being invited to a meeting that is focused on their needs versus the company’s needs is invigorating because until that point every meeting has been about either checking their work or assigning them more work.

“I want to have a meeting with you to learn what I can do to make working here better for you.”

Stay Interviews provide each supervisor the opportunity to ask 5 specific, highly-researched questions, probe to gather detailed answers, listen to capture both information and emotion, and write down key points so their employees keep sharing. The result is employees disclose their absolute most important needs and supervisors now have the clear opportunity to address them. And while executives might think compensation tops the employee needs list as referenced above, the top subject employees reference during Stay Interviews is better work processes…things like whether obsolete reports must be continued, equipment can be repaired, or other employees or departments can be rightly held accountable for their work.  Employees’ greatest concerns are usually about being even more productive.   Stay Interviews enable leaders to build trust and reduce turnover.