A certain amount of employee turnover is a normal part of running a business. Change is inevitable but if it is happening too much, it is time to examine retention policies and appropriate skills/training to keep hold of your top performers.
The high cost of high employee turnover
The costs of employee turnover will be felt financially in recruitment expenditure. Each time an employee leaves your organisation you will need to find the time and money to recruit their replacement.
A less obvious operational cost is the loss of key skills and information. When a departing employee walks out the door for the last time it is not just the capacity to fulfil the duties of the job that are lost. Your business loses key skills and knowledge learned through training, positive client and colleague relationships and inside knowledge of how your organisation works when an employee leaves. The time it takes to bring a new employee up to the same standard will vary depending on the seniority of the role.
With so much at stake it is vital to examine your rates of employee turnover and to resolve any issues by implementing best practice HR policies. Read on to find out more.
Distinguish employee turnover from retention
Turnover is effectively the opposite of retention. Employee turnover is measured by identifying the proportion of your employees that leave during the course of a certain period (typically a year).
Retention represents the proportion of employees who remain with your organisation during the same period.
Measure employee turnover and retention
The reason for distinguishing turnover from retention is that both sets of data should be collected for analysis. Measuring data from both perspectives will help to identify issues to resolve and targets for improvement.
How to measure employee turnover?
The most common way to track employee turnover is to measure the churn rate on an annual basis. A typical percentage calculation involves dividing total departed employees by total employees and multiplying the figure by 100. The lower the percentage the better your organisation is at retaining staff.
One glitch with the above method is that it includes departing employees that leave for reasons that are outside your control. Retiring employees or relocating employees for instance will be included in the above calculation. To make a more accurate assessment of staff turnover, replace total departing employees with total dismissals or total voluntary resignations. This will narrow the focus of your measurement and provide a more accurate turnover calculation.
Calculate an employee ‘stability index’
A useful way to measure staff retention is to identify the number of employees with more than one year’s service and the number of employees one year prior. Dividing total employees with over 1 year’s service by total employees 1 year prior and multiplying the figure by 100 represents your organisation’s stability index. A high stability index indicates that employee retention is not an area of concern for your organisation.
Calculate what you lose from employee turnover
Identifying the cost of employee turnover helps you make the business case for devoting management time to reducing staff turnover. Calculating the costs of staff turnover and demonstrating how those costs can be reduced is likely to get management’s attention.
The principal cost of employee turnover is the financial cost of replacing the departing employee. Administrative costs are equally significant. The financial and administrative costs can include:
- hiring costs to include advertising and selection
- temp cover while the post is vacant
- training time and costs for the replacement employee
To calculate the annual cost of staff turnover, multiply the total leavers by the cost per leaver.
In general, the costs of employee turnover are higher if the skills required to do the job are in high demand.
Identify the reasons why employees leave
It is possible there is a common reason why employees are leaving. Understanding the reasons your employees are leaving is vital to begin taking action to reduce turnover and improve retention.
Some policies to identify reasons employees are leaving include:
- analysis of HR data on resignations, reference requests, dismissals, retirements, redundancies and any other relevant HR data
- holding exit interviews to discuss the reasons for leaving directly with the departing employee
- conduct regular employee surveys to gauge the satisfaction levels of employees and identify potential leavers
It is important to exercise discretion when conducting exit interviews or employee surveys. Employees may not always provide genuine reasons for leaving!
Implement policies to increase employee retention
Once you have identified your organisation’s level of employee turnover and the factors influencing employee turnover it is time to begin implementing policies to address any areas of weakness.
Depending on the results of your staff turnover assessment, it may be necessary to offer employees better career progression, conduct direct consultations with employees to identify ways to make their role more engaging or review job roles to place employees in more suitable positions.