Even during these unprecedented times, the number of people quitting their jobs in the United States has been steadily rising since April 2020. Back then, 1.9 million people quit in that month. In August, the number increased to 2.8 million, the Bureau of Labor Statistics (BLS) reports. Along with rising turnover rates, the cost of employee turnover has risen, as well.
Millennials in particular are prone to job-hopping, as 6 out of 10 millennials are open to new job opportunities, and the millennial generation is the most likely to switch jobs, Gallup reports. A lack of employee engagement is hurting people’s loyalty to their companies. Gallup reports only 15% of employees worldwide are engaged at work, and 51% of employees are actively looking for new jobs.
High turnover trends are hurting businesses—not just in terms of money and time lost, but in decreased morale and productivity. Here’s a look at the true cost of employee turnover and strategies your business can use to improve retention.
For information on how TERRA Staffing Group can help you reduce turnover, request more information.
What is Employee Turnover?
Employee turnover happens two ways: voluntarily and involuntarily. Voluntary turnover is when an employee decides to leave an organization. Involuntary turnover is when an employer terminates an employee. Both are incredibly expensive.
What causes employee turnover?
A few common reasons for voluntary turnover include:
- The employee is approached by a company and is offered a better job.
- The employee no longer wants to work for their current company.
- The employee has been actively searching for a new opportunity and gets a job offer.
Some causes for involuntary turnover include:
- Poor performance, due to being the wrong hire or a lack of training
- Violating employee guidelines
- Creating conflict in the workplace
Your organization should always strive to lower your turnover rate. Ways to decrease employee turnover include improving your workplace and investing in better hiring and training processes.
How to calculate employee turnover
One way to calculate employee turnover is to take a cue from the BLS, which defines the quits rate as the number of quits in a month as a percent of total employment. You can use this type of formula to measure both voluntary and involuntary turnover.
Note that for some industries, turnover is expected to be higher. Retail, leisure and hospitality, and accommodations and food service are the industries with the highest amount of quit rates, according to the BLS.
Some reasons for higher turnover might be that your business is primarily seasonal, or you tend to employ younger, entry-level workers.
The Cost of Employee Turnover
If your business has high turnover compared to your competitors, that means you’re spending more money, time, and energy to maintain a functional staff. High turnover can have a ripple effect and negatively impact your current employees.
Here are some of the costs to be aware of.
The average cost of losing one employee
Turnover costs include advertising for an open job position, how much time it takes to recruit and interview candidates, costs related to background checks and drug screenings, and costs to administer pre-employment assessment tests. There’s also an impact on productivity while a replacement is being recruited and hired, as well as a potential negative effect on company culture and team morale.
According to Employee Benefit News, employers spend around 33% of a worker’s annual salary during the replacement process. Let’s put that into perspective:
- It will cost $12,000 to replace an entry-level employee making $36,000 a year.
- It will cost $20,000 to replace a manager making $60,000 a year.
- It will cost $50,000 to replace an executive making $150,000 a year.
It’s expensive to replace even hourly employees, as Investopedia reports the turnover of an $8/hour employee can cost a business around $3,500. Companies spend an average of $1,886 and 47.6 hours a year on training for each employee. For companies to reach a break-even point on managers they hire, it takes an average of 6.2 months due to costs incurred.
That’s if the manager even stays at the company that long. Bamboo HR reports 31% of people have left a job within the first 6 months, and 68% of those people left within 3 months.
The cost of high turnover
Now you have an idea of the cost of turnover, which Investopedia reports can reach up to three times the salary of an employee when factors like benefits, taxes, rent, and training are considered. When your turnover rate is high, you also have to pay for things like:
- Damage to your company’s reputation, which makes it harder to attract top talent
- Resentment and burnout, as workers scramble to make up the work of the person they’ve lost
- Internal rumblings, as current employees wonder if they should jump ship, too, which can negatively impact productivity as your current workers start job-searching
High turnover can be extremely expensive for companies and can create a chaotic situation for HR professionals. Staff, reputation management, training costs, and HR hours are all factors in high turnover consideration.
How does turnover affect a company?
A study published by the European Journal of Business and Management illustrated some of the negative effects of high turnover on employee morale, productivity, and company culture. For example:
- Turnover can harm customer service and quality, which are direct expressions of the company, and cause the company to lose a competitive advantage
- Turnover typically causes lack of motivation and low morale
- A lack of employee confidence and low morale is correlated with lower profits
When an employee leaves involuntarily, other employees might speculate that they’re next on the chopping block, which can heighten anxiety and motivate job searches. They might fear that new hires might outperform them, which can also lead to tension and new challenges among coworkers.
Employees still working for you won’t want to do extra work without being compensated. Employees who see their peers voluntarily leaving may wonder if there are better opportunities out there for them, too. These are all concerns you should be aware of regarding high turnover.
How to Reduce Employee Turnover
Reducing employee turnover will help your business save money. Turnover reduction can help you keep employee morale high and can improve your business reputation for talent considering your company.
Fostering a positive company culture, keeping employees engaged and helping employees develop with your company benefits your business in the long run. Here are some tips to reduce employee turnover.
Offer competitive pay and benefits to your employees
A 2018 survey of 16,500 job switchers found 30% of leaving employees mentioned pay as a reason for leaving, Fortune reports. Industry averages are publicly available, so if your employees know you’re shorting them, they might start looking elsewhere for work.
You also need to be aware of recruiters who are going after your top talent. According to a report by professional networking site LinkedIn, 87% of all workers are open to new job opportunities. If your employees are approached and offered better pay and benefits, they might bolt.
Another LinkedIn report revealed how important benefits are: 44% of employees say benefits like paid time off, healthcare and parental leave make up one of the top factors keeping professionals at a job for more than 5 years. Benefits are more important to workers than perks like a gym or free food.
Low unemployment levels mean employees can be more selective in how they compare companies. Pay and benefits can be differentiating factors.
Improve company culture at your organization
The LinkedIn report also shows how influential an organization’s culture is. According to LinkedIn:
- 51% of professionals say they’re proudest to work at companies that promote flexibility and work-life balance.
- 47% say they value companies that foster a welcoming culture.
- 46% of professionals want to work for a company where they can make a positive impact on society.
Your culture should be reflected in everything from your branding and website to recruitment and hiring practices. Survey your employees about what they want out of a company culture, and start implementing positive change.
Commit to employee development
Your employees want the opportunity to grow on the job. According to LinkedIn’s 2018 Workforce Learning report, 94% of employees stay at their jobs longer if they received employee development opportunities. A 2018 report by Gartner echoed that – 40% of voluntarily leaving employees said a lack of career development was a reason why they left.
Create employee development plans with employees when they’re hired. They can share how they want to grow in their positions, and their managers can help facilitate the tasks needed to develop.
Listen to your employees
You won’t know what your employees value if you don’t ask them. Regularly check in with surveys. You can do these anonymously to encourage honest feedback and use a tool like Google Forms to gather feedback.
Share feedback results company-wide, and explain what you’re doing to listen to your employees. As employees see their ideas in action, they’ll feel more valued at your company.
Staffing Solutions for Your Organization
Employee retention efforts should be at the forefront of your business strategy. You want to keep your best talent, make your organization an attractive place to work for, keep employee morale high, and cut down on costs, wasted time and productivity losses due to turnover.
Download our eBook: How to Increase Productivity in the Workplace
Productivity matters for your business and its employees because profit increases can lead to increased wages, innovation, improved morale, and beyond. Download our eBook, “How to Increase Productivity in the Workplace” for proven strategies for driving productivity.
If your organization would benefit from some help in decreasing employee turnover, contact TERRA Staffing Group today. We can provide market insight, competitive compensation data, and staffing solutions that can help your business.
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