Many companies have some key characteristics, which makes them believe that they’re different. It may include the mission, business model, and the product or service.
Successfully establishing such a business and running it is a daunting task and is fraught with challenges. When observed deeply, as the organizations’ diversification continues, the opportunities for workplace problems are witnessed to be intensifying.
Despite the differences in strategies and execution, there are a few most common yet too difficult problems that affect the business. Among many such issues, employee turnover is gradually increasing in the organizations and posing a dire circumstance concerning the organization’s costs incurred in employee replacement or productivity.
In this article, let’s try to understand the employee turnover concept in detail and what causes the turnover and its impact on the business.
- What Does Employee Turnover Mean?
- What is Employee Turnover Ratio?
- 4 Different Kinds of Employee Turnover
- Is It Crucial to Measure Your Organization’s Turnover Rate?
- How to Analyze Your Organization’s Employee Turnover Ratio?
- 10 Critical Reasons for High Employee Turnover
- How to Calculate Employee Turnover Ratio?
- How to Reduce Employee Turnover?
- What Do Employees Typically Look for?
What Does Employee Turnover Mean?
During a specified time, the number of employees who leave an organization is called employee turnover. In other words, the loss of talent, typically for one year in the workforce, is defined as employee turnover.
The loss may include the employee’s departure due to resignations, terminations, layoffs, transfers, retirements, or even due to death.
What is Employee Turnover Ratio?
The figure that gives the organization an idea of how well the strategies for employee retention are working is referred to employee turnover ratio. This ratio reflects the number of employees who have left your organization in a given time.
However, it typically does not include the employees who have been transferred, promoted, or retired. The lower the turnover ratio, the better it is for any company.
The ultimate purpose of calculating the employee turnover rate is to predict the impact of employees’ loss on productivity, customer service, and morale.
4 Different Kinds of Employee Turnover
Basically, employee turnover can be categorized into four types. They are as follows:
1. Voluntary Turnover
A situation wherein an employee decides to leave the organization on his own, maybe for a better career opportunity, is considered as a voluntary turnover. The recent survey statistics show that voluntary turnover is likely to rise by 20% towards the end of 2023.
2. Involuntary Turnover
A situation wherein the organization’s management decides to terminate the employee (either for unproductivity or misbehaving) is called an involuntary turnover.
3. Desirable Turnover
The turnover becomes desirable when an employee who leaves the organization is nearly just an expense. In that case, a replacement could be a better option, paving the way for an efficient employee.
4. Non-Desirable Turnover
When a “good” employee, who is productive, efficient, committed and dedicated, leaves the organization, it is considered a non-desirable turnover for the company.
However, the type of turnover the organization faces is comparatively irrelevant. The turnover by itself or the employee’s absence will definitely take a toll on the organization’s overall productivity.
Is It Crucial to Measure Your Organization’s Turnover Rate?
Measuring employee turnover gives the organization the data and insights to understand its hiring practices and an opportunity to fill the necessary gaps that the company is unaware of. Apart from this, with the measurement of staff turnover, one can easily understand the organization’s workplace culture, policies, compensation practices, and procedures, etc.
In a way, the turnover calculation acts as the window in knowing the employee experience and average tenure within the organization.
Above all, the awareness of the employee turnover ratio, causes, and the ways to overcome them will drastically cut down the costs that are unnecessarily spent by the organization on the following aspects-
- Replacement hiring.
Hence, it is the need for the companies to identify the causes and understand the importance of a desirable call to action to ensure the company’s progress through employee retention.
How to Analyze Your Organization’s EmployeeTurnover Ratio?
The analysis of the employee turnover ratio in an organization can be understood better if the three following aspects are taken into proper consideration.
1. Who Is Leaving?
Companies must identify and recognize which employees are leaving. An analysis is to be undertaken to determine if it is high performing or the low-performing employees that are exiting the organization. Once the companies are aware of this, then necessary remedial actions can be determined according to the situation, either to retain the employees or to let them go.
2. When Are They Leaving?
To understand the employee’s churn, identifying the time in which the employee leaves is crucial. For instance, if the employee leaves within a few days of joining, it may be understood that the organization’s recruiting processes or the job descriptions are to be re-evaluated.
On the other hand, if the employee leaves the organization despite working for many years, it could be due to the lack of employee engagement, absence of benefits, unclear career path, etc. This realization can help the organization in reforming and updating the policies or refurbishing the people processes.
3. Why Are They Leaving?
To identify and understand the reason for employee exit and its statistics, to conduct a proper exit interview is better. Because there may be several reasons for the employee’s choice of leaving the organization, and it may differ from person to person.
However, everything cannot be fixed overnight, but it may help organizations alter certain essential criteria.
10 Critical Reasons for High Employee Turnover
As discussed earlier, there are several reasons for the employees to quit their current job voluntarily. However, a study has revealed certain common yet most undeniable causes for the employee’s turnover choice.
The following are a few reasons that are at the top list. Let’s try to discuss them one by one.
1. Lack of Manager’s Empathy
Have you heard of the saying, “Employees leave the managers and not the bosses?”
Believe it or not, workplace empathy is the priority and is supported by over 90% of employees. The situation is so because the employees feel that the managers lack empathy, which leads to the management’s mishappenings.
Consider the image below, which shows the manager’s behavior on the employee’s turnover choice.
Empathy is a crucial requisite for leaders, especially for managers in charge of a team consisting of employees. The managers are expected to look at their subordinates as “people” and just as employees. By doing so, the employees would find themselves engaged and surely wouldn’t hesitate to go the extra mile.
Therefore, if the organization is looking for employee retention, the managers’ positive role and acceptable behavior play a significant role.
2. Lack of New Opportunities
Growth and development are always a concern of the organization. And so are the needs of the employees. It is observed that the employees also look for new and competitive opportunities to keep themselves engaged.
Today’s employees have a lot of potential in not just accomplishing the tasks, but also in the way they do it. Isn’t it an advantage for the organization too?
Therefore, the more challenging the tasks are assigned to them, the more they feel valued. Unlike the employees of earlier generations, many employees today are not just looking for a job to earn money or to keep themselves occupied.
But then the motive is to build their career in what they are willing to do. Hence, if they don’t find a way to achieve this motive in your organization, it’s evident that they quit.
The WHO (World Health Organization) has defined “Occupational Burnout” as a syndrome caused due to work-related stress. The symptoms of burnout are energy exhaustion or depletion, increased mental stress resulting in the cognitive distancing from one’s job, feelings of negativism, and a drastic reduction in professional efficacy.
Especially in this competitive environment of business, employees are always expected to be at work. And because of this, they find themselves taking up additional projects, working overtime, and making and answering the calls off the clock. This behavior of the employees might seem like good characteristics of a hard-working and committed workforce.
4. Employee Disengagement
The employees’ engagement has been observed to be steadily increasing in the last 15 years, as its importance in the workplace and its influence on the businesses has gradually been understood by the employers. More than 69% of the employees are less likely to seek a new job opportunity elsewhere if they are genuinely engaged with the organization.
Similarly, the organizations are aware that even if they assume that the employees are engaged, about 51% of the employees remain in the so-called engagement purgatory. These are generally satisfied but connected to their work and the workplace neither cognitively nor emotionally.
This attitude towards work may lead to a situation where the employees almost regularly show up to work. Still, then they only do the minimum work required and will instantly leave or quit your company even for a slightly better offer.
5. Lack of Technological Updates
Often, the companies overlook that today’s almost 75% of the employees are Millennial workers. Their demands, attitude towards work, approach are all very different from what was earlier. Especially when it comes to technology, it’s their primary demand concerning efficiency, accuracy, and speed of the task, and overall independence in many ways.
For instance, preparing a month-end or year-end balance sheet, pay or salary slip, etc., with all manual calculations is far gone. And imagine an employee needs his/ her payslip. He has to depend on the HR manager or the concerned person until he is free to do the needful.
With the growth of technology and the various software available, such as employee payroll management software, the growth of technology reduces the dependency on the one hand, and on the other, enhances productivity and efficiency. Similarly, if the technology and its tools are taken advantage of and if its utilization is updated and implemented, it contributes to employee engagement and productivity.
Technology plays a significant role in enhancing the potential employees for the most appropriate outcome. Thus, if you are equipped with the proper technology and its implementation, it becomes one way of helping you keep your employees from quitting your organization.
6. Undesired Work-Life Balance
It was once said that “When your employees don’t sleep, eat crap, don’t exercise, and are living off adrenaline for too long, their performance suffers. And because of this, your organizational decisions suffer. And on the whole, your company suffers.”
Balancing the professional and personal life of the employee is essential. If your workforce is bogged down with work, they are going to be dissatisfied and unhappy.
Motivate and encourage your employees to take short breaks, and make sure their workload is manageable enough. Apart from this, ensure that they aren’t forced to start early or stay late all the time. Social outings can be practiced and work because it’s crucial to promote a good working environment and positivity between colleagues.
Thus, providing a platform for the employees to create a balance between personal and professional life is an essential criterion to ensure your employees’ retention.
The employers’ effort towards the employees shows that the workforce is cared for and fills them with satisfaction. Happy and satisfied employees mean they are engaged with the organization. Once they are engaged, obviously, they wouldn’t want to leave the organization.
7. Uninspiring Company Culture
The organization’s culture also plays a significant role in influencing the employees’ decision to stay or quit in an organization. Research shows that about 47% of the employees are ready to quit the company because of its lack of a positive environment, despite the many perks and rewards offered.
It is quite understandable that there are many stresses and strains involved in running a business, but then, taking out such frustrations on the employees is not the right thing to do. In fact, the employees are the ones who are trying to help you, and it would be better if you could meet them at least halfway through. And a toxic environment is obvious to cause mental stress to the employees and their outlook on their jobs.
Continuous stress and frustration may lead to a situation where the employees themselves start questioning their job security and worth. Instead of encouraging the employees, if the managers’ approach is negative, even the employees might shift their focus from “how they can do the job“ to “how not to do a bad job,” which will cause mistakes and disengagement.
The other undesirable practices in the company can be partiality in treating the employees differently, gossip and groupies, etc. These can all lead to employee disengagement and burnout, and good employees quit the organization. Overall, the company’s culture shouldn’t make the employee feel dreaded as soon as they wake up about the environment to spend the next 8-9 hours of their lives.
8. Lack of Respect, Appreciation, and Recognition
As discussed earlier in the article, there is a lot of difference and shift in the employees’ approach towards work. It is not that all the employees are looking for only the monetary benefits from the companies. The competitiveness is not just among the businesses, but also the workforce of the organization. Therefore, the employees expect recognition and appreciation for their work more than money-based benefits.
When an employee is appreciated even for his small contribution, it gives him a lot of satisfaction and contentment. This also makes him feel motivated and contribute even more. Unfortunately, it is observed that the employees’ success is least recognized, but the mistakes are highlighted the most.
This situation has led to no space for the employee’s growth in the workplace. Added to this, they start feeling undervalued and unutilized. Hence, the lack of recognition, respect, and appreciation is gradually becoming one of the crucial reasons for the employees quitting the company.
9. Lack of Flexible Work Arrangements
Among the various shifts in the work attitudes, one of the recent concerns and demand of the employees is flexible or remote working. Especially after the lockdown due to Covid-19, which led to one of the most significant experiments of working from home, the employees are more comfortable and productive.
Although the experience was quite sudden and unplanned, almost 70% of the overall employees accepted and embraced the situation very well. Despite the health crisis gradually subsiding and getting back to normal with slight differences from what was before, the employees’ preference is still remote working. Statistics reveal that the employees are ready to quit and shift to the companies that provide them with more flexible working arrangements.
According to the statistics, 37% of the employees are willing to quit their current position for a job that offers them to work at least a part of their work period remotely. And about 82% of the employees are found to be more loyal and committed to the current employer who is willing to offer more flexibility in working.
10. Personal Life of the Employee
The causes discussed above were all related to the company, wherein companies have played an influential role in the employees’ choice of quitting. However, certain aspects are inevitable, and the organization has no stand or say, but has to deal with and accept the choice.
One such influential aspect is the personal life of the employee. It may include relocating himself and the family geographically, career development, and many more, which may or may not be agreed upon by the company.
Employees quit the organizations for different reasons, be it voluntary or involuntary. However, the employee’s turnover is not considered good or suitable for the organization’s overall growth. It indeed is a painful process of losing some of the best talents of your company.
Overall, the causes and the percentage of the employees quitting the organization can be pictorially observed in the following image. Have a look for a better understanding.
How to Calculate Employee Turnover Ratio?
We have already tried to understand the effect of employee turnover on the company and the need to be aware of it. Now let’s’ attempt to understand how to calculate the turnover ratio.
Generally, organizations calculate the ratio based on two specific periods. Namely:
- Monthly Employee Turnover Ratio.
- Yearly Employee Turnover Ratio.
Let’s see the calculation.
Monthly Employee Turnover Ratio
To calculate the ratio of monthly turnover, we need 3 variables. They are:
- No. of active employees in the month’s beginning.
- No. of active employees in the month’s end.
- No. of employees who left during the month.
Once defined the variables, you need to find the average number of the employees using the following formula-
The average number of employees = employees in the beginning + employees at the end / 2
When the average employees are calculated, you can find the monthly employee turnover ratio using the following formula-
Monthly Employee Turnover Ratio = Employees left / Average Employees x 100
Yearly Employee Turnover Ratio
However, many organizations prefer calculating employee turnover on an annual basis.
The variables needed are:
- No. of active employees in the year’s beginning.
- No. of active employees in the year’s end.
- No. of employees who left during the year.
The formula to calculate the yearly employee turnover ratio is:
Annual Turnover%=No. of employees left / (Beginning + Ending No. of employees) /2×100
For example: Imagine you have 100 employees at the start of the year and 170 at the end of the year. And 7 employees have left during that year. Your annual turnover rate would be calculated as:
Annual Turnover Ratio = 7 / (100+170) / 2 X 100
= 7 / (270/2) X 100
= 7 / 135 X 100
= 0.05 X 100
Therefore, according to the calculation, the annual employee turnover ratio is 5%.
How to Reduce Employee Turnover?
When we talk about employee turnover in an organization, practically, turnover by itself is inevitable. However, organizations can make an effort to reduce it.
But then, “HOW?” is always the concern. Here are a few tips that can be considered in terms of turnover reduction.
- Firstly, identify the right candidates.
- Offer competitive compensation.
- Recognize, appreciate, and reward the employees for their achievements.
- Invest in training and development.
- Develop strategies to engage the employees.
What Do Employees Typically Look for?
The organizations have taken the initiative to reduce the turnover ratio in many ways. However, there has always been a gap in understanding what employees need precisely.
At times it becomes so difficult to understand things from their perspective. Therefore, a survey conducted reveals the following statistics presented to you, hoping it would help the organizations.
There is a massive talent shortage, and the organizations are expected to give in a little to retain their top talent. It’s not necessary to be a billionaire to give luxurious perks. But then, what matters is the opportunity given to people to grow and evolve.
Therefore, identify the employees’ current needs and align the same with the organization’s policies and functioning to ensure your workforce’s retention for the company’s growth and progress.