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The Causes, Consequences and Control of Employee Turnover

Employee turnover, we've all heard of it and we all know its a problem. Find out what causes turnover and how you can take control!

Employee Turnover has been an expensive and stressful issue for organizations for decades. According to research by the Gallup Group, U.S businesses lose a trillion dollars every year due to voluntary employee turnover. With new generations of workers coming into the workforce, career habits are changing. Consequently, employers are faced with new challenges in reducing employee turnover every day. Unlike most resources, people are ‘appreciating assets’, meaning the longer they are with the company, the more valuable they are. The sooner employers realize this, the better. As Richard Branson once said; “Look after your employees, and they will look after your business. It’s that simple.”

According to research by the Gallup Group, U.S businesses lose a trillion dollars every year due to voluntary employee turnover.

What is Employee Turnover?

Employee turnover is the term used to describe the number or percentage of workers that leave a company and need to be replaced within a certain period of time. In other words, it is the loss of talent in the workforce over time. Everything from resignations to terminations fall under employee turnover, and should be considered when calculating your own employee turnover rate.

High employee turnover is expensive in more ways than one. Losing any member of your staff can be detrimental to how your organization works; internally, it can affect team morale. It can also impact customer relationships and affect your brand and reputation. These all have attached financial loss for an organization.

It’s important to remember that some level of employee turnover is inevitable. There are two types of employee turnover;

INVOLUNTARY EMPLOYEE TURNOVER

Involuntary turnover is used for any situation where the decision to leave is not in the hands of the employee. In other words, the employer makes the decision to let an employee go. It is typically the result of many different factors; poor performance, company cutbacks, company restructuring, or a violation of company policies for example.

VOLUNTARY EMPLOYEE TURNOVER

Voluntary turnover, on the other hand, is when the employee leaves their job on their own terms. This is usually the result of the employee securing a new position, relocating, or choosing to look for work elsewhere. As you can imagine, voluntary turnover is often more costly to employers. They are generally losing a highly-skilled worker that now needs to be replaced. More often than not, employers don’t have a replacement already in the works.

What Causes Employee Turnover?

Although some level of employee turnover cannot be avoided, it is important to recognize it. You also need to understand why employees would choose to leave your company. Keeping track of employee turnover and knowing the causes will allow you to make changes within your organization that will lead to a reduced rate of voluntary turnover. In essence, employee engagement is directly linked to employee turnover, but here are some of the main causes;

  • Performance Recognition & Feedback
  • Lack of Opportunities for Progression
  • Workload & Work-Life Balance
  • Poor Staff Selection

PERFORMANCE RECOGNITION & FEEDBACK

Believe it or not, simply failing to recognize your employees’ work efforts can lead to increased employee turnover. In fact, 79% of people who quit their jobs cite “lack of appreciation” as their reason for leaving. Giving employees feedback is often overlooked, particularly when employees are doing well. A lack of feedback is often viewed as a lack of appreciation. This can create feelings of hostility from high-achieving employees. Appreciating your staff may seem like a mundane task, but it can make a huge difference in their workplace satisfaction and their desire to stay longer.

79% of people who quit their jobs cite ‘lack of appreciation as their reason for leaving.

O.C Tanner learning group

LACK OF OPPORTUNITIES FOR PROGRESSION

Research shows that career progression and opportunities for advancement is important to majority of employees. A recent study on the attitudes of employees towards career advancement noted that 37.55% of respondents said that it would “very much” affect their decision to leave. Another 23.21% said it would “somewhat” affect theirs. Giving opportunity for growth within the company gives employees less need to look elsewhere.

WORKLOAD AND WORK-LIFE BALANCE

Work life balance is considered a very important factor in employees’ intentions to quit. Generally, no amount of pay will outweigh the negative impact from an increased workload or a poor work-life balance. In fact, employees who perceive higher levels of balance in their work and life have lower intention to quit their jobs at all.

POOR STAFF SELECTION

Most hiring managers would say they are great at their jobs, and know exactly what to look for while hiring. However, 74% of employers say that they have hired the wrong person for a position. Of course, this will sometimes result in the employee being let go, but oftentimes the employee will realize they are a poor fit themselves and leave of their own accord.

JUST THE TIP OF THE ICEBERG

There are so many other factors that contribute to employee turnover, such as low pay, being denied a pay rise or promotion, poor leadership, poor benefits, and changing career goals. As an employer, it’s crucial to communicate with employees who decide to leave their role and discover the issues within your own organization.

The Consequences of High Employee Turnover

We’ve mentioned and we all know that employee turnover is extremely costly to employers. In order to get the full picture of the consequences and costs of the issue, we need to look at both direct and indirect costs. Indirect costs are often completely overlooked and are the most costly and time consuming.

Replacing a highly educated C-Suite employee earning $100,000 per year could cost you over $21,000.

DIRECT COSTS

There are quite a few costs that are directly linked to employee turnover. First, there are separation costs that might come from severance pay, exit interviews, and everything else involved in any involuntary turnover. Next, and often the largest, there are the replacement costs that cover advertising the position and conducting interviews to fill the role. In addition to that, there are also the costs of training which cover things like orientation, induction, and on-the-job training. These replacement costs are often the highest of the process of turnover and often go uncalculated.

To further illustrate the direct costs of replacing employees, we can look at it as a percentage of the salary for the role that is being filled. Research indicates that the direct cost of replacing an employee depends on their position. These costs range from 16% to 213% of the salary, and continue to increase as the salary and skill level increases. The average costs falls around the 21% mark. In other words, replacing a highly educated C-Suite employee earning $100,000 per year could cost you over $21,000. This often-uncalculated cost of replacement can cost organizations substantially taking away from their bottom line.

INDIRECT COSTS

As we know, indirect costs are much more difficult to measure. However, they are very real and can be more expensive than necessary if they are overlooked. First, let’s consider the lost productivity from employee turnover. As soon as an employee decides they might leave their role, they will become disengaged and less productive. Time will be spent looking for new positions and time off may be taken for interviews. All of this time is at the cost of the employer.

Not only will indirect costs come from the departing employee, but high rates of turnover might cause existing employees to question their own position at the organization. This, along with a loss of organizational knowledge, reduced morale and increased gossip will have a serious impact on your businesses productivity and customer relations.

How to Prevent High Employee Turnover

Having examined the potential reasons for employee turnover, you should be able to create a tailored plan to improve turnover rates in your organization.  Although this will look different for each unique business, there are steps that all employers should be taking to avoid high rates of employee turnover.

SHOW RECOGNITION AND APPRECIATION

There is countless research that has been carried out to prove that regular, simple displays of appreciation is all it takes to satisfy employee needs. One study shows that 50% of employees believe simply being thanked by managers would not only improve their relationship but also build trust with their higher-ups. Whether it’s 1:1 interactions or companywide initiatives, it is crucial to ensure that employees feel appreciated. A simple but effective way to show appreciation and also discourage turnover is to offer incentives to employees based on years of service. That way, employees are more likely to remain in their position, and will feel a sense of appreciation after working there for a long time. Everybody wins!

INVEST IN EMPLOYEES AND PROMOTE INTERNALLY

Now that we know that employees consider career opportunities in their decision to leave or not, you can take advantage of the opportunities that come from this. One way to ensure that your employees know you care about their career is to invest in them, and their training and education. By playing an active part in their professional development to demonstrate you are invested in their success, you will see an increase in their company loyalty. The 2021 Workplace Learning Report from LinkedIn backs this up, noting that 94% of employees would stay with a company longer if there was an investment in learning.

ENCOURAGE & FACILITATE WORK-LIFE BALANCE

Creating a workspace that facilitates a positive work-life balance is beneficial in more ways than one. While also working to discourage voluntary turnover, encouraging work-life balance can also improve employee engagement and productivity. 68% of employees say poor work-life balance negatively impacts their morale and motivation at work. This number is only likely to increase as there is a greater emphasis on work-life balance around the world.

Fortunately, for now and the future, there are a variety of ways to encourage and facilitate a positive work-life balance;

Flexible scheduling;

Depending on your industry, offering flexible scheduling is a great way to give employees autonomy. Look at methods such as self-scheduling and shift bidding as means to facilitate this!

Work from home;

Again, this will depend on your industry, but consider giving your employees the option to work from home. Even offering a combination of in-office and work from home is sufficient.

Personal time off;

Although this seems life an obvious step, it’s important for employees to know that they are allowed to take personal time off when they need it. A lot of employers discourage the use of personal days, but trends are changing and employees expect more paid time off for personal use.

Restrict work communications;

Although this is a newer idea, some companies are adapting to restrict work-related communications outside of work hours. This helps employees create a better sense of a work-life divide and avoid feeling like they are working all of the time. This also makes it more likely that in case of emergencies, your staff will be more willing to help out after hours since they feel their time is being appreciated.

Review workloads;

How often do you check in on your employees to ensure they’re not drowning in their workload? Probably not enough. Ensuring your employees have a manageable workload and aren’t being forced to start early or stay late is very effective in ensuring they feel balanced and productive.

Social outings on work time;

Reward your employees with social outings and team building activities on work time! While some employers do these activities outside of work hours, this eats into the personal time of employees, and they often end up not attending or resenting the fact that they have to attend.

PERFECT YOUR SELECTION PROCESS  

Another great way to avoid turnover is hiring the best staff member not only for the role but also for the company’s culture. In order to avoid wrong-fit employees departing and forcing you to go through the costly hiring process again, take time to review and refine your employee selection process. This won’t be easy, but the time and effort you put into this will pay off in the long run. A cheap and effective way to improve your process is to welcome employee referrals; 48% of businesses say that their top quality hires come from them. It is also important to ensure that candidates fit your company culture, ask open ended questions that prompt the candidate to reveal what they’re truly looking for. This will help you eliminate any employees that don’t share the values of your organization.

There is no guarantee employee turnover will disappear if you take all of these steps. It is a reality that despite every effort, people will come and go as is human nature. However, the goal should not be to eliminate employee turnover altogether. Work to understand why employees are leaving and what you can do to encourage employees to stay. Simply being aware of these issues allows you to prepare and adapt your organization to foster long-lasting employee relationships. Celayix is a leader in workforce management and can facilitate your efforts to create a balanced, employee-centric workplace. If you’d like to learn more about how we can help, get in touch with a Solutions Advisor today.

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