Could your employee turnover rate be costing your business big bucks? Every time an employee quits or is let go, you have to invest more time recruiting, hiring, and onboarding a replacement. Lowering your turnover rate saves money and improves workplace culture. We can help you investigate how to do this.
But first, let’s get our terms straight.
1. What is Employee Turnover Rate?
Employee turnover rate is the number of employees that leave your organization in a specified amount of time. Usually, it is calculated annually, but the amount can fluctuate during different quarters. For example, in both retail and restaurant industries, many part-time workers return to school in the Fall, increasing turnover rate during Q3.
Besides seasonal changes, employee turnover is also affected by management, hiring practices, and workplace satisfaction. Turnover rates can vary dramatically depending on the industry. For example, the hospitality industry has a turnover rate of 75%.
To lower the business costs of your employee turnover rate, you need to know how to calculate and track your turnover rate. That way, you can monitor any increases or decreases compared to the market and determine the underlying causes. Remember, the higher the turnover rate, the higher the human resource costs.
2. Why should you care about Employee Turnover Rates?
High turnover rates not only reduces morale but also cause disorganization in your business. Being under-staffed affects your workflow, causing managers to delegate more work and hours to employees. Poor communication and scheduling problems are the lead cause of employee turnover, especially in shift-based industries.
Recruiting and hiring appropriate replacements also take time. When employees must bear the burden of extra work, that affects their work-life balance which often leads to them looking for alternatives.
Forecasting your employee turnover rate will allow you to plan in advance, allocating time for recruiting and resources towards training and orientation. If your turnover rate is drastically affected by seasonality, you can prepare for it or apply different incentives to get employees to stay.
Industries with High Turnover Rate
- Foodservice Industry
- Non-management Hospitality
Industries with Low Turnover Rate
- Education and Health Services
- Financial Activities
- Wholesale Trade
3. How to calculate employee turnover rate?
To calculate your employee turnover rate, you must set a time period that you want to calculate within. For example, you can choose to calculate the turnover rate for a quarter, such as between January 1st and March 31st. To complete this calculation, you must know the number of terminations during that period as well as the number of workers employed at the beginning of the period. This is important because you may have hired new staff between the beginning of January and the end of March that should not be included in this equation.
Turnover rate = # Terminations during period / # Employees employed at the beginning of period x 100
Voila! Now, what does this percentage mean? Depending on your industry, your turnover rate can be well above average or below average (the lower the better!). The most important factor for your business is how much this employee turnover rate is costing your business. We created a calculator to help you with these numbers.
Use our employee turnover rate cost calculator here.
Now that you know the amount of money that your employee turnover rate costs you, it’s time to take action. You can lower your employee turnover rate by increasing employee satisfaction.
One very simple and straightforward way to do this is by implementing better systems and processes for team communication and shift scheduling. Research suggests that there are major pain points for shift workers around scheduling. Some pain points include being scheduled back-to-back for opening and closing shifts, getting scheduled in last-minute and having to cancel plans, and complicated/error-prone processes for getting time off.
Our free scheduling software Hyre simplifies team communication. Employers easily create schedules and employees can share their availability and see what shifts they’re scheduled ahead of time. Scheduling software has been shown to improve employees’ work-life balance, thus reducing the turnover rate for employers.
5. Factors that cause higher employee turnover rates
Some industries inherently have a higher employee turnover rate. However, many of the factors that cause high turnover rates can be changed by improving management processes.
People Management factors for high turnover rates:
- Hiring the wrong people: Are you doing a lot of firing? Perhaps your hiring and onboarding process does not enable the right people to fit into the role.
- Communication gaps: Are the expectations for tasks, schedules, and feedback clear? If communication is tedious, often duplicated, and confusing, this will lower employee satisfaction.
- Co-workers and supervisors: Does everyone in the workplace fulfil their role and treat each other with respect? Can team members give feedback to management? Good workers often leave teams that they don’t work well with to find a better fit for their skills.
Work Satisfaction factors for high turnover rates:
- Compensation: Are employees making a fair wage compared to industry standards? Pay satisfaction and distributive justice can cause employees to leave.
- Job satisfaction: Is the role what your employee expected it to be? Are workers challenged in areas they want to grow in? Sometimes, alternative opportunities are more desirable to certain employees, so ensuring the right fit from the beginning is important in reducing turnover rates.
- Upwards mobility: Are there options for employees looking to expand their role? Employees thinking long-term may want to make more money or do more interesting work in the future.
- Work-life balance: Are days off, vacations, and leaves respected? Depending on your industry and the type of work you hire for, expectations may be different. However, a lack of work-life balance will affect your workers’ productivity regardless of if they leave or stay. Use our vacation pay calculator and time off request form to organize this process.
The saying is that people don’t leave jobs, they leave managers. There may be other factors, but you can play a powerful role in reducing your company’s turnover rates by improving communication and workflow processes.
6. How to Reduce Turnover Rates
The fewer people that resign or are terminated, the better it is for your budget and your team culture. Lowering turnover rates goes hand-in-hand with improving work satisfaction and reducing recruiting frequency. If you want to improve your employees’ experiences, you need to understand them. Many of the methods below require you to ask for feedback, and in order to get honest responses, you must build a culture of open communication. Consider conducting an employee satisfaction survey, but also get comfortable having conversations with your team one-on-one. Here is our template for an employee satisfaction survey and ways to open up conversation with your team.
- Recruiting and training right: Ask your team for feedback on their onboarding process. Were there any gaps in understanding the role, tasks involved, and workflow? Get feedback from managers on whether new hires were the right fit or how long it takes for them to adapt. As your business grows and changes over time, your onboarding and hiring process will need to as well.
- Clear, streamlined communication: Pay attention to what questions are asked the most often. Are team members asking to confirm their hours? Is a certain task often unclear? When you look at what mistakes happen frequently, think about what can be done to prevent them. This can relate to managing people or tasks.
- Positive team culture: When you care about your team and the culture you create, you are setting a positive example for other team members to care about as well. Ask how team members are doing and share your experiences with them to build a rapport. Invite them to give feedback and empower them to give suggestions that can improve the business. Here’s an example of an employer on Hyre that built an inspiring team culture during COVID-19.
- Competitive pay and perks: This can look different depending on the workplace, and whether your employees are part-time or full-time. In addition to salary, some workplaces treat their staff to a meal or have a learning fund they can use after probation. Whether it is having an awesome break room, donating to a charitable cause, or covering healthcare, set aside a budget to take care of your staff. Consider conducting a poll to see what feasible options are most popular.
- Create a rewarding workplace: Challenge your employees with clear goals and reward them for going above and beyond. For example, Carol Hunt from Meatings BBQ will take suggestions from staff on specials, so they can pitch creative ideas. Give employees a chance to do work they are proud of. Another option is to incorporate this idea into team socials, asking for suggestions and treating your team to a fun activity.
- Opportunities for growth: Ask your employees what their goals are and what they are interested in learning. If their skills and interests are suitable for a different task that fits your business goals, give them opportunities to practice them. If those opportunities are not possible within their role or your business, at the very least you can build a rapport by understanding their goals.
- Breaks and flexible scheduling: Give clear guidelines on how employees can book time off, and how long breaks are. You can make it easier for employees to have control over their lives, and spend less time scheduling. Hyre’s free employee scheduling software allows employees to set their availability and managers to easily schedule shifts.
7. Predictors and Indicators of Employee Turnover
You don’t have to wait until the end of a fiscal period to monitor employee turnover. The biggest reason employees leave is lack of engagement, but there are other clues to who leaves and who stays.
Who is most likely to stay?
- Parents and married folks: This is likely due to extra responsibilities that children and marriage bring. Parents, husbands, and wives are less likely to jump ship.
- Managers and higher-ups: The more responsibility a role entails, the less willing an employee is to leave. This can be a result of a level of meaningful responsibility or kinship to co-workers or higher pay.
- Veterans or first-years: For full-time positions, people often want to gain experience and are unlikely to leave their first year. Those who have grown comfortable with a company for over five years are also less likely to leave.
- Role definition: If your job description is vague and not indicative of what the actual job is, you are setting yourself up for a higher turnover rate. Whenever employees are expected to fulfill more duties than they have time or resources for, they are more likely to leave. Having contradictory roles than what was established and lack of support from management are also predictors of turnover.
- External opportunities: When there are more opportunities in the market, employees are more likely to leave. When the economy takes a turn, individuals who still have a job are less likely to take a risk and leave. Of course, if individuals need to be let go to sustain a business, that also increases the turnover rate. If your position is competitive and better than other offers out there, you won’t need to worry about external opportunities increasing the turnover rate.
- Goal-orientated communication: When communication focuses on defining goals and targets, employees have a clear guideline of their tasks. This reduces stress and allows them to fulfill their work requirements, reducing the turnover rate.
- Work satisfaction: The more narrowly defined a role is, the higher the satisfaction often is. When a job aligns with a person’s level of interest and offers the ability to grow in areas they are interested in, turnover rates are reduced.
- Co-worker and leadership satisfaction: When employees have a positive relationship with co-workers and their boss, they are less likely to leave. With leadership, the more a manager treats those under them as individuals rather than one of a group, the more likely they are to have a positive relationship with them. Understanding the individual workers helps with providing opportunities for them to grow within the role and the organization, reducing the turnover rate.
Improve communication and reduce employee turnover with Hyre. Use our scheduling software for free.