In all businesses, staff will come and go. It’s a natural part of a business’s life cycle. Employees will retire, start a family, find a new vocational calling or move away.
Turnover of employees within an organisation is actually a good thing, a trickle of new life into the organisation brings new ideas, fresh energy and challenges bad habits that may have crept in. But if large numbers of staff are leaving regularly then this suggests a problem with the company’s culture. High levels of employee turnover impact negatively on company morale, productivity and, in the end, company performance.
In this 3-minute read, we’ll get you fully up to speed on what employee turnover means, how to measure it, how much you should allow for and its true cost to your business.
What is employee turnover?
Employee turnover is the term used to define the volume of a company’s workforce that leaves the company over a set period, typically a year. Employee turnover is usually communicated as a percentage of the overall workforce. For example, ‘Company Y experienced 8% employee turnover in 2018 and 4% in 2019.’
It is important to give this number context by breaking down how many people have left due to compulsory or voluntary redundancy and how many have made the call to resign.
Measuring your organisation’s rate of employee turnover, tracking it year on year to see if there is an upwards or downwards trend and understanding the reasons behind people’s decision to leave is vital for good people management. Armed with this knowledge you can work towards improving your company culture and reducing employee turnover.
What level of employee turnover is bad?
Employee turnover varies hugely between industries and geographical regions, there is no true benchmark for all business owners to aim for.
Having said that, the average rate of employee turnover in the UK is increasing. Nationally, we saw a rise from 15% in 2013 to 18% in 2017.
Your goal as an employer is to understand the turnover trend within your organisation, are people leaving in increasing numbers year on year or are you retaining staff?
How to measure employee turnover
Measuring your company’s rate of employee turnover is a simple exercise.
Calculate the number of employees who have left the business in a given period, either monthly or annually, and express this as a percentage of your total number of employees.
(The number of employees who have left in a given period x 100) / Total number of employees in the same given period
If you have a workforce of 75 and 5 leave your calculation would look as follows:
(5 x 100) / 75 = 6.6% employee turnover rate
The true cost of employee turnover
Again, the cost of employee turnover varies hugely across different sectors but some studies have calculated the cost of replacing and fully embedding a new member of staff into an organisation at a whopping £30,000 per person.
When you consider the many stages involved in replacing a member of staff in your own organisation it is easy to see how the costs can stack up:
- The cost of recruitment including advertising, agency costs and interviewing time
- The cost of temporary staff to cover the post during the vacancy
- The training and induction costs for new employees
- The drop in productivity while the new staff member is learning how to do the job to the required standard
The costs listed above are only half of the story. It is much harder to calculate the true cost of high employee turnover to a business because it’s hard to quantify the value of the focus that is taken away from achieving the business’s greater goals.
People’s time and resources are finite. Therefore the time and resources required to scout, recruit and onboard new talent is drawing from time and resources that could be utilised on achieving the business’s greater goals. An important question you must ask yourself is how much more productive, profitable and successful would your organisation be if the employee turnover was reduced?
Business leaders must look closely at the reasons why employees leave the business in order to address them and create a more positive company culture which the staff are reluctant to leave.
How to reduce the cost of staff turnover
Aside from finding a cheaper recruitment agency to partner with there is no miraculous way to make recruiting cheaper. Your energy is best spent on tackling the issue of employee turnover head-on and building a long-term workforce.
Everyone is looking for slightly different things from their place of work, some may be scrambling to climb the career ladder and others may be looking for more flexible working hours. Take the time to find out what it is your employees want, open up a feedback loop with a survey or one-to-one meetings and build a picture of how to hold onto your best assets.
For more information on the top 5 causes of employee turnover and how you as an employer can combat them read this article.