Employee turnover has never been a bigger issue than it is today. After phenomena like the Great Resignation, it is essential for organizations to minimize ‘quits’ as much as possible. And a crucial element of any employee retention plan is a high-quality, effective L&D program.

What Is Employee Turnover?

Employee turnover is the rate at which workers leave a company (“separations”) over a certain time period. A company’s employee turnover rate includes both voluntary and involuntary separations. In the language of employment officials, voluntary turnover is called ‘quits’. 

Involuntary turnover results from firing and layoffs. No organization wants to let go of too many workers (except seasonal ones), because this reflects a problem with the business and/or the hiring process. 

But voluntary separations are more of an issue because many quits are, in theory, preventable. The rate at which people willingly leave their jobs varies over time. Since December 2000, the lowest quit rate has been 1.2% (August 2009), while the highest has been 3.0% (November 2021 and April 2022). At the end of 2023, separation rates returned to pre-COVID levels, but are still somewhat higher than a decade ago.   

Why Is Employee Turnover Important?

Voluntary separation is often sudden, as some countries (such as the US) do not require prior notice. This increases financial and operational disruption in several ways: 

Time to Hire

There is often a time gap between when an employee quits and when their replacement is fully ready. Unless there is a succession plan in place (which only counts for planned separations in any case), a number of steps need to be taken before this happens, as the human resources department must:

• Advertise the job opening, either internally or externally. In the case of a parting executive, HR might need to contact a headhunting firm. 
• Collect and review resumes and applications. Today, there are artificial intelligence programs that can assist with this process. However paperwork related to the finalists still requires time for HR to go over.
• Arrange interviews with candidates. There are also positions where some form of testing is applied, and these tests need to be graded. For roles higher up in the organization, there are often a series of interviews that can involve executives, and HR needs to coordinate with busy leaders to arrange these interviews.

Once this process is complete, HR must get the opinions of various stakeholders and collectively make a decision. The higher the position in the organizational hierarchy, the longer the process takes. According to Indeed, lower-level positions can be filled within 30 days. But more senior roles might require at least a month. During this time, the role of the separated employee is either vacant or a temporary replacement (who might not have the proper level of skill) is used.     

Productivity

Although turnover is a metric (see below) that accounts for replacing employees who have separated, simply hiring somebody new does not always avoid losses in productivity. It is true that companies in high-turnover industries are geared for constant hiring. But for those where there is a more stable workforce, increasing separations pose significant challenges. 

New hires need to be onboarded, and even then, it takes time for such employees to acclimatize. There is actually a metric that assesses this factor, called Time to Productivity. According to AIHR, it takes an average of ten months for a new worker to reach full productivity. Over the course of that period, employees are not as efficient as possible, and the organization incurs a loss.

This is even more so with managers, who need to learn how to perform their direct tasks, supervise their employees, and fit into the leadership of a new organization (unless HR uses internal recruitment). Somewhat surprisingly, it’s very rare for a company to identify and train a successful manager. Gartner explains that the failure rate for choosing the correct manager is 82%.

Morale

When a large number of employees quit, there evolves a sense of “a sinking ship”. Employees who remain begin to wonder if they should follow suit (and even spend time looking for a new job while at the workplace). They search for the reasons behind the turnover, which can turn into a “blame game” and reduce trust in management. When an important staff member is missing, it can be stressful for the other workers to cover their responsibilities, regardless of overtime rates. Finally, high turnover can damage a company’s reputation and ability to hire new employees. 

Hiring Costs

The cost of turnover is often high. Expenses include recruitment, administrative efforts, background checks, and resources required by the interview process. In addition, companies must factor in the loss of productivity while the replacement is being trained and acclimatized. There are many estimates of how much it costs to replace one employee. The actual expense is related to the position of the worker in the company and the salary they make. Obviously, it costs more to replace a CEO than a part-time, unskilled employee. In any case, according to the Work Institute, a rule of thumb is that it costs about 33% of an employee’s annual salary to replace them. 

Overtime 

When an employee leaves suddenly, a business is often not prepared to cover its output. Instead, workers in the same role must be paid overtime rates until a replacement is hired, trained, and gets up to speed. 

Is Employee Retention the Opposite of Employee Turnover?

Although these terms are closely related, they are not completely opposite. You can’t calculate employee turnover simply by figuring out the retention rate (that is, (1 – retention rate = turnover rate)). 

To understand why, remember the definition of employee retention: “the ability of an organization to retain its employees and ensure sustainability.” When looking at retention, you want to know how many workers you manage to keep on the payroll over a certain period of time. 

In contrast, as a general business term, “turnover” is concerned with replacing something, such as inventory, as a measure of efficiency. Employee turnover examines “the rate at which workers separate from a company over a certain time period.” But, as you will see from the formula, it includes hires as well as separations. 

How to Calculate the Employee Turnover Rate

The difference between turnover and retention can be further illustrated with the turnover rate formula:

Turnover Rate = (Number of Separations / Average Number of Employees) x 100

An important note: a time period must be set for the calculation. For instance, if you want to know the employee turnover rate for a year, you should add the headcount at the beginning of the year and at the end of the year, and then divide by 2. This is how the employee turnover rate reflects both separations and hires.  

To compare, here is the formula for employee retention:

((Total number of employees – Total number of quits) / Total number of employees) x 100

Preventing Voluntary Employee Turnover

In view of the potential damage of employee turnover, it is important to examine its causes and if they can be mitigated. 

Lack of Opportunities

The top reason for employee turnover is a lack of career growth and development opportunities. “Lack of career development” can include many factors, such as no space for advancement and a poor fit between the employee and the organization. However, major aspects of this issue can also be attributed to:

A deficiency of personalized L&D programs

 These days, organizations ‍are spending more on providing new skills training to their staff. In the face of rapidly changing workplace skills, it’s a matter of survival just to keep employees current with the abilities that they need. However, many companies have not discovered the importance of customized learning opportunities. New technologies such as talent development platforms now allow organizations of any size to:

• Define training requirements on an individual basis
• Source development experts (trainers, coaches, and mentors) from a global database
• Administer programs from across the organization through a single interface 

This ability drastically reduces the need for workers to spend time on either hard or soft skills training when they already have those abilities, or when they are not relevant. This is in contrast to the old “one size fits all” model. In this setting, experts had to train large groups because there was no way to understand what skills each worker required, and in addition, there was no medium through which individual training could take place. 

Filling advanced positions by hiring and not promotion

 In recent years, there has been an impressive growth of internal recruiting rates. In 2021, this LinkedIn survey shows an internal mobility rate of 18.7%. In 2023, this had risen to 24.4%. However, the vast majority of such moves are made by managers and directors, while regular employees don’t have as many opportunities. This creates a risky situation where a large number of poorly-engaged workers either stay in the same position for years (along with the same compensation), or move on to other companies. Along with them are expertise, skills, and an understanding of critical organizational functions. Keep in mind that a company invests time and money into building these capabilities. 

Although HR can strongly recommend to senior management that internal hiring rates should increase, this is difficult to do. The reality is, that there is a mindset within most companies that equates an open position with a need to hire externally. 

Poor Leadership

Managers affect the employee experience in untold ways. They are responsible for task allocation and performance evaluation; explaining assignments; dealing with conflict; allowing an employee to follow their chosen career path; and setting a certain tone within the department in accordance with company culture. This is a complex set of roles, and so it is common for managers to have weaknesses in at least one of these areas. 

Through constant monitoring and feedback, HR can keep track of which managers could use some upskilling in leadership and management areas. Through personalized L&D, these managers can boost their skills quickly and without losing too much time for their regular duties. This is especially true for soft skills, which require much more effort to improve, because they are based on deep-seated personality traits. 

Compensation and Benefits

Surprisingly, how much money you make is not the top factor in employee turnover, but it may be the most difficult for HR to address. This is an area where HR might not have much influence. The practice of setting salaries often involves many stakeholders and company policies, making it difficult for HR to push for extensive changes. However, HR can improve the employee experience in ways that offset relatively low compensation levels. A positive company culture, helpful managers, useful L&D programs, and recognition are all low/no-cost moves that can reduce employee turnover. 

Work-Life Balance

Of course, HR can’t really know what’s going on in employees’ personal lives. Especially in large companies, getting to know every person in a department is a challenge, while creating an atmosphere where they feel comfortable talking about non-work problems requires a lot of effort. Still, there are a few ways in which HR can try to maintain their employees’ positive state of mind:

• Involving managers in regular feedback sessions, where employees are asked about personal challenges
• Asking managers if they have noticed any behavior changes among their team members
• Supplying L&D programs that support mental and physical health, time-management abilities, and knowledge of handling personal finances
• Increasing opportunities for remote work and work-from-home

Can HR Do Anything about Involuntary Employee Turnover?

Many involuntary separations are the result of situations beyond the control of HR. Layoffs due to poor profitability, strategic errors, and economic downturns are more in the executive team’s territory. However, there are other circumstances that the HR team can influence. 

Firing

According to Indeed, the top reason for involuntary separation is poor work performance. Among the factors that contribute to this are insufficient skills and a bad attitude. In both of these cases, HR has the ability to make a difference. 

For example, when an employee does not have the right skills, they should not be hired. Secondly, if this deficiency happens over time, then skill gap analyses and upskilling programs should fix the problem.  

In the case of a bad attitude, an efficient interview process should detect a bad match before the worker is hired. And, if personality clashes occur once the employee joins the team, things like managerial reviews and professional development courses (with an emphasis on interpersonal skills) can help.  

Layoffs

A greater challenge is that of preventing or minimizing involuntary separations due to poor organizational performance. However, the ability to both foresee and deal with threats to a company can be enhanced through change management skills. Among the skill elements of change management are:

• Critical thinking allows employees to realize that serious changes are needed
• Problem-solving to enable a change management plan
• Communication to assist with preparing the workforce for a change initiative
• Teamwork as part of the implementation phase

The Need to Do More than Reduce Employee Turnover

Even when a company has a low employee turnover rate, it is not necessarily in good shape. There is a big difference between turning up at your job every day and doing a good job every day. In other words, HR must be concerned about engagement rates as well as a high employee turnover rate.

Present, But Not Participating

Not every employee stays at a company because they are satisfied. When jobs are scarce, and there are not enough opportunities in a particular industry, workers simply cannot depart (unless they have sufficient savings). Similarly, an employment slowdown is often a sign of a worsening economy. In such a situation, workers tend to hang on to the jobs they have rather than starting somewhere new (the new company might fire recent hires if they also experience economic difficulties). Finally, workers who do not have an impressive list of skills, a risk-taking personality, or the energy to look for something different are usually content to stay with their current employer. 

Employee Engagement and Job Satisfaction

In any case, it’s critical to monitor the employee experience at all times and examine two similar issues: engagement rates and job satisfaction levels. Simply stated, engagement can be defined as putting effort into your job, while satisfaction might be described as liking your job. Employees who stay for the long term at a company and still maintain productivity score highly in both categories. 

Let’s clarify this by explaining how one of these factors can be missing. A satisfied worker might feel that way because they put no effort into their job. On the other hand, an engaged employee can enjoy their role but want better conditions at another company. Both issues are a problem for HR, and monitoring them is important for heading off any problems regarding productivity and employee retention.     

Not All Employee Turnover Is Bad

Imagine a company where there is almost no turnover. Would that reflect a healthy organization? Probably not. Instead, such a company would have a low level of innovation, upward mobility, and energy. At some level, turnover means new skills, fresh ideas, and renewed ambition. 

In addition, some industries always involve high rates of turnover, such as hospitality and retail. Many of the jobs in these industries are characterized by low levels of pay, benefits, and skill. However, they also provide an opportunity for young and/or unskilled workers to earn a paycheck. In addition, for the business owner, profit margins in hospitality and retail are usually small, and an expensive workforce is simply not affordable. In an economic sense, the high turnover rate is not a bad sign. 

Additional Employee Turnover Metrics

The problems begin when the rate of turnover for valuable employees starts to rise, or when the company loses too much of its workforce. The latter situation is easy to recognize, but the former requires close attention from HR. For this reason, the HR team can use additional metrics, such as:

• Analysis of turnover expenses
• Turnover in key positions
• Employee engagement rate
• Employee retention rate

Speaking of retention rate, many of the tools used to monitor and improve retention can help to understand turnover as well. For example, employee surveys, effective onboarding, and exit interviews allow the HR team to fill in the blanks as to why valuable employees are choosing to leave. 

Growthspace – A Proven Tool for Employee Retention

Opportunities for advancement, as discussed, often rely on development. But simply enabling L&D programs is often insufficient. Lack of effective learning results in wasted resources and employees who do not have the skills to rise up. Growthspace solves this issue by allowing companies of all sizes to implement personalized L&D programs that succeed. Its multi-experience precision skill development platform provides exact matching of skill requirements to top experts. Growthspace’s L&D solution empowers organizations to follow through on their mission of reducing turnover through training.