What is Employee Turnover and How to Reduce it?

Employee turnover is a significant concern in every industry. According to the U.S. Bureau of Labor Statistics, every month about 4 million US employees quit their jobs. In September 2023, the figure across all industries was 3.7 million, with leisure and hospitality topping the list. In contrast, finance and insurance was the most stable industry.

But what is employee turnover, and what are its effects? 

An understanding of what employee turnover is, as well as various types and causes, its effects, and how to calculate its cost, is crucial for any business. Furthermore, having tools and strategies to effectively reduce it becomes imperative to maintaining a healthy and productive work environment. 

As Gallup has been pointing out for many years, employee engagement is a critical key to reducing turnover in the workplace. Employees establish a more profound connection with their organization’s mission and purpose, enhancing their effectiveness as brand ambassadors. This heightened sense of purpose enables them to cultivate stronger relationships with customers, ultimately contributing to the company’s growth in sales and profitability.

Gallup’s State of the Global Workplace 2023 Report identifies the vital role managers can play when it comes to engaging employees. It states that with the proper training, managers can reduce employee turnover by between 21-28%. This, in turn, leads to 10-22% higher employee engagement, and a 20-28% improved likelihood of high performance.

In this article, we offer a comprehensive overview of employee turnover, with an in-depth examination of its many facets, together with practical solutions for reducing turnover within an organization.

What is Employee Turnover?

Staff or employee turnover refers to the number or percentage of employees who leave an organization and are replaced by new employees during a defined period. High turnover can be harmful to an organization’s productivity if skilled workers leave often and the organization is left with a workforce that needs to be trained frequently.

According to benchmarking data released by the Society for Human Resource Management (SHRM) in 2022, the average cost per hire was $4,683, while the average executive cost per hire was $28,329. Therefore, effective employee management strategies are imperative to control these costs.

According to labor statistics, a high employee turnover rate can also negatively affect employee morale and overall workplace culture. Understanding the concept of employee turnover gives businesses insight into how to minimize employee turnover. 

Types of Turnover

Having answered the question, what is employee turnover, we’re going to examine the different types of turnover. 

You may be surprised to find that there are numerous types of employee turnover in an organization, including voluntary and involuntary turnover, functional and dysfunctional turnover, avoidable and unavoidable turnover, and internal and external turnover. Recognizing the different types can help human resources (HR) departments devise more precise strategies to tackle employee turnover.

Voluntary vs Involuntary Turnover

Voluntary turnover occurs when employees willingly decide to leave the organization. These may be high performers who have found better opportunities elsewhere or maybe dissatisfied employees who are unhappy with the organizational commitment, career path, or employee experience offered by the company. 

The Work Institute’s 2023 Retention Report states that nearly 51 million people voluntarily quit their jobs in 2022 – breaking the 2021 record of 47 million quits.

• Manufacturing experienced a 60% increase in the quit rate
• Healthcare experienced a 30% increase in the quit rate

In contrast, involuntary turnover involves scenarios in which the organization decides to terminate the employment relationship due to poor performance, restructuring, or layoffs.

Functional vs Dysfunctional turnover

Functional turnover occurs when a low-performing employee leaves, making room for a potentially more competent hire. This can boost the overall productivity of an organization. On the other hand, dysfunctional turnover happens when skilled and productive employees leave, forcing the company to replace them with new employees who may not be as effective or skilled.

Avoidable vs Unavoidable turnover

Avoidable turnover happens when employees resign due to reasons that could have been controlled by the organization. These include a negative work environment, lack of growth, or poor management. On the other hand, unavoidable turnover refers to situations outside the control of the organization, like an employee retiring, relocating, or facing health issues.

Internal vs External turnover

Internal turnover refers to within-company movements of employees, like interdepartmental transfers or promotions. This type of turnover doesn’t reduce the total number of employees but disrupts the staff structure. External turnover happens when employees leave the organization altogether.

Causes of High or Low Staff Turnover

The primary factor affecting an organization’s employee turnover rate is employee satisfaction. When an organization pays attention to employee experience (EX), providing clear career paths, opportunities for professional development, and adequate health benefits, it generally witnesses lower turnover. Another contributing factor to voluntary turnover is the lack of clear objectives for employees. People leave organizations when they feel lost and unproductive because their roles aren’t clearly defined. Involuntary turnover also contributes to the overall employee turnover rate.

Reasons for Leaving… or Staying

According to the Work Institute report mentioned above, the 10 top reasons for leaving jobs in 2022 were:

The Work Institute categorizes career goals as opportunities for growth, achievement, promotion, security, or a chance to attend school. If these are lacking, employees may decide to quit. Job-related issues, the second highest reason for leaving, relate to the availability of resources, training, empowerment, stress, job characteristics, and products that are a part of the job. 

Involuntary reasons include internships and contract work coming to an end as well as jobs being eliminated, unsatisfactory performance, and violation of company policy. 

The report also draws attention to the fact that 35% of turnover occurred during the first year of employment. Astoundingly, 37% of those who left did so within the first 30 days of employment. For these employees, the most cited reasons for leaving were:

• Health and family: 15.4%
• Job (other): 14.9%
• Career (school): 13.8%
• Work-life balance (shifts and schedules): 13.3% 

However, as the Qualtrics XM 2023 Employee Experience Trends report points out, when employees’ career goals can be met, they are: 

• 13% more likely to have their expectation exceeded at work
• 13% more likely to have higher employee engagement
• 9% more likely to have lower turnover 

The Harris Poll and Grammarly Business The State of Business Communication 2023 report says knowledge workers maintain that poor communication fuels an environment for resignations. Half (50%) of them say that it increases workplace stress, while 34% it reduces their job satisfaction. Nearly a third (30%) say poor workplace communication lowers their confidence, while 22% admit it made them consider finding another job.

Effect of High Employee Turnover

High turnover can obstruct and block operational efficiency and put a strain on an organization’s human resources. This not only disrupts workflow but also adds a financial burden to the organization.

High employee turnover results in: 

• Increased costs: Recruitment and training new employees is expensive
• Disrupted workflow: Existing employees must cover the work of colleagues who have quit and left
• Employee burnout: Remaining staff tend to experience more stress because they are having to undertake extra work
• Loss of morale: Remaining staff often experience fear of the uncertainty of their positions
• Poor customer service: Customers lose consistency without staff retention

What are Examples of Staff Turnover?

The terminology “staff turnover” or “employee turnover” encapsulates various scenarios that relate to employees leaving a company. The most commonly recognized are voluntary and involuntary turnover. However, understanding staff turnover goes beyond these basic instances. 

Two concepts that are being quoted increasingly more frequently are quiet quitting and quiet cutting. 

Quiet Quitting

Quiet Quitting is an intriguing example of employee turnover. Employees disengage from their work or organization without overtly expressing dissatisfaction or actually resigning. So, the employee remains part of the organization but emotionally or mentally disengages from their duties. Generally, this disengagement is a result of dissatisfaction, lack of an acceptable career path, or insufficient professional development opportunities.

While the concept itself is not entirely new, the terminology may have gained prominence in recent years as organizations and researchers focus more on understanding subtle forms of employee disengagement. 

Gallup author Jim Harter asks, “Is quiet quitting real?” He then goes on to say that at least 50% of the U.S. workforce is quiet quitting. 

“Many quiet quitters fit Gallup’s definition of being ‘not engaged’ at work — people who do the minimum required and are psychologically detached from their job. This describes half of the U.S. workforce.”

Jim Harter

Those who aren’t quiet quitting, says Harter, are either engaged (32%) or actively disengaged (18%) in which case they are loud quitting. The loud quitters spread their dissatisfaction because most of their workplace needs aren’t met and they want to move on to new employment. Many of them have posted on TikTok, generating millions of views and comments. 

Quiet Cutting

Quiet Cutting, on the other hand, is when employers reassign employees to different roles, hoping they will quit voluntarily, in this way saving the company the cost of severance. It’s an old, established practice with a new name, aligning with what is more commonly known as “constructive dismissal” or “constructive discharge.”

Zetwork is a leading global manufacturing platform that simplifies outsourcing for businesses across various sectors. In 2023, they surveyed 414 business owners and 601 employees about quiet cutting. They discovered that close to one in four organizations engage in quiet-cutting practices. However, about 34% end up firing employees who have been reassigned. Additionally, 39% of those who had been quietly cut quit, and the rest planned to quit. More than half (56%) of employees say they’d rather be fired than be quietly cut! 

Most of the employees who were found to be victims of quiet cutting were entry-level (53%), while only 2% were senior-level employees, and 5% had held management positions.

Ultimately, Zetwork highlights that quiet cutting has emerged as a significant concern for both employers and employees. Their research underscores the critical importance of transparent communication and ethical workforce management practices. Prioritizing training, coupled with regular performance reviews to support struggling employees, can enable business owners to retain talent and uphold company morale.

“When termination is unavoidable, owners should be honest and straightforward with employees. Ultimately, the cost of paying out severance will likely be less than the negative impact on employee morale and company reputation.”

Zetwork

How Do I Calculate the Cost of Employee Turnover?

According to the Bureau of Labor Statistics, the average monthly turnover rate (“separations”) for the private sector in September 2023 was 3.5% (compared to 3.8% in September 2022). As for the governmental sector, the rates are lower at 1.3% compared to 1.7% in the last year. But how do you calculate the employee turnover rate and its cost for your organization?

To calculate employee turnover, you’ll first need to understand the annual turnover rate and monthly turnover rate of your business. The employee turnover rate percentage is calculated by dividing the total number of employees who left during a specific period by the total number of employees during the same period multiplied by 100. 

Turnover = (Employees who left ÷ Average number of employees) x 100 

Direct costs comprise severance pay, recruitment costs, and training costs for the new employee. Indirect costs are associated with reduced productivity, overworking of remaining staff, and potential customer dissatisfaction due to disruption in service. It’s also crucial to take into account the cost of losing high performers to other companies.

Employee Turnover Rate Per Industry

Employee turnover rates tend to vary significantly across different industries, as the labor statistics show. While some sectors, like hospitality, traditionally exhibit high turnover, others like finance and government organizations, generally display a lower rate. According to the latest labor statistics figures from September 2023, the hospitality industry has the highest monthly turnover rate at 6.6%, while the government sector has the lowest at 1.3%.

How to Reduce Employee Turnover

The overarching goal of most organizations is to decrease employee turnover. High turnover rates can disrupt the organizational rhythm, affect employee morale, and increase recruitment costs. Therefore, implementing employee retention strategies designed to improve the employee experience should be a priority.

Gallup’s State of the Global Workplace 2023 Report has some invaluable tips. These come from responses from survey participants who were asked what they would change to make their workplaces better. A high 85% of those who were quiet quitting said they would change:

• 41% wanted to change engagement or culture so that everyone is recognized for contributions. They wanted more respect and a fair chance for promotion. They also wanted better guidance and goals that were clarified. Some said they wanted more autonomy in work so their creativity would be stimulated. Others said they would appreciate managers who were more approachable and willing to talk openly. 
• 28% wanted pay and benefits to be improved and to be paid on time. They called for salaries to be proportional to merit as well as qualifications. Additional demands included:
  • A monthly gas voucher for transport costs
  • A good canteen for all employees to use
  • Child care that is fully subsidized
• 16% were more concerned about wellbeing with demands ranging from wanting to work from home more often to less overtime. Some wanted longer breaks for meals, a health clinic, and a place to relax for coffee breaks. Other changes they thought would be improve the workplace were for management to:
  • Communicate shifts well in advance 
  • Take employees’ lives and health seriously

Case Studies

A LinkedIn 2023 Workplace Learning Report discusses the state of learning and development (L&D) in the context of creating an engaged and resilient workforce. 

It hits the nail on the head in terms of career development.

“So many obstacles can impede large-scale initiatives. But individual people can make enormous strides. Empowering employees with career development tools and internal mobility options engages learners and expands workforce skills. The ultimate benefit is an organization that can act quickly on valuable opportunities.”

LinkedIn Workplace Learning Report 2023 

Rachel Richal, VP of Training at Buffalo Wild Wings, states, “More than ever, learning and development professionals have to be change agents.” She advocates bringing competition into the learning process.

“Buffalo Wild Wings runs a 10-month competition called Blazin’ Games. With a foundation of learning, over 1,200 teams compete for the championship by earning points on a variety of metrics, including training completions and quizzing. The Games are foundational to driving both culture and business metrics with top performers seeing results such as higher sales performance and lower turnover.”

Others do it differently. Benton McTaggart, chief people officer at Meritize believes in bedding yourself in the business. “We shadow different teams to understand how the business makes money, how each team operates, and where pain points are, and then build learning programs tied to business goals, team needs, and overall strategy.”

Also, regularly providing health benefits and even a health stipend to employees can improve their satisfaction levels, leading to a reduction in the employee turnover rate.

Another excellent strategy to minimize employee turnover involves investing in your employees’ professional development. This not only serves to enhance employee engagement and build organizational commitment but also helps employees chart a fulfilling career path within the organization.

What’s Next?

We know that great employees are difficult to find. It can also be a challenge to keep employees in an organization long term. But the good news is that Cerkl Broadcast can help you decrease employee turnover and maximize employee retention. 

We’ve talked about ways that you can reduce turnover and shown how important it is to engage employees and have an effective internal communication system. Broadcast can help you take your communications to the next level. 

Features the platform offers include an invaluable and highly effective omnichannel and a centralized hub that simplifies and enhances management strategies. There are great content scheduling features, customizable templates for surveys and email blasts, as well as an easy process to segment audiences for precise targeting. 

No more wondering if your communications system is working. Broadcast’s feedback and analytics tools give you the power to measure impact and see what’s being read or, conversely, ignored. 

Let’s talk about how you can use Cerkl Broadcast to maximize engagement and employee retention and minimize employee turnover. 

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