What Does a High Turnover Rate Indicate for Your Business?

According to a recent Gallup survey, 51% of U.S. employees are watching or actively seeking a new job. Relatedly, a Glassdoor report showed that the number of employee reviews that mention “burnout” had hit its highest level since 2016. And Upwork released data saying that one in three employees are likely to quit their jobs in the next six months due to the pressure of increased productivity demands.

These figures don’t bode well for businesses across all industries.

In this article, we’ll spend some time understanding the concept of turnover, why businesses may have a high turnover rate employee, and pre-emptive steps you can take to minimize it.

What is Employee Turnover?

Employee turnover is the number of employees that quit or leave their employment during a defined period (weeks, months, or years). A high turnover rate indicates that many employees are leaving and that their tenure at the organization was brief.

It’s also important to understand the different types of employee turnover:

• Voluntary turnover refers to employees who left their company by choice. Their reasons for leaving might include accepting a new job elsewhere, personal commitments or challenges, or a desire to further their education, relocate, or retire.
• Involuntary turnover happens when individuals are terminated due to poor performance or other behavioral problems (such as absenteeism, unethical behavior, or on-the-job substance abuse.) People who are laid off due to workforce reduction or restructuring also fall into this group.

A high turnover rate not only increases recruitment costs but also disrupts team dynamics and lowers overall productivity, making it crucial to address burnout and employee dissatisfaction proactively.

Signs Your Business May Be Heading Toward High Turnover

The best way to ascertain if your company is at risk of high turnover is to look at your current numbers. Calculate your current turnover rate and compare this to the average rate within your industry. If your company’s turnover rate is lower than the average, you’re in good shape; if it’s higher, you need to take action.

How to Calculate Employee Turnover Rate

It’s quite simple to calculate your company’s turnover as a percentage. Simply divide the number of separations in a given period by the average number of employees. Then, multiply that figure by 100.

Turnover Rate = Number of Separations ÷ Average Number of Employees x 100

Today, there are numerous HR software tools at your disposal that you can use to analyze your business’s turnover trends by month, year, or quarter. These tools can help you spot an unusually high employee turnover rate. They can also report whether separations were voluntary or involuntary and which areas of your organization had the highest turnover. They can also analyze turnover by factors such as age, ethnicity, and gender.

Ten Factors that Lead to a High Turnover Rate

The causes of voluntary turnover are varied and plentiful. Here are some of the most common reasons:

1. Stress and Burnout

When people feel that the stresses of their jobs have become unbearable, many will simply quit. The causes of excessive stress and burnout include an unreasonably high workload, multiple conflicting deadlines, excessively long work hours, and a lack of resources required to succeed.

2. Low Compensation

Low wages are a common reason for an employee’s departure. Changing jobs to move to a company that offers better pay is particularly common among younger workers.

3. Few or No Benefits

A bigger salary offer isn’t the only reason some employees get lured away by a competitor. Today, people often leave to go and work for companies that offer more attractive benefits and perks such as health insurance, paid time-off and sick leave, retirement funding contributions, or more flexible work schedules that give them the freedom to work when it suits them.

4. Poor Management

Managers and leaders that instigate, tolerate, or ignore issues such as a toxic workplace environment, interpersonal conflict, and any form of harassment and discrimination will likely see high levels of employee turnover. Other poor management practices that often cause people to head for the door include favoritism, nepotism, micromanagement, and a lack of recognition.

5. No Advancement Opportunities or On-the-Job Training

These days, few employees will be inclined to stay with your company for the long term if they feel they have few prospects for advancement into more challenging or rewarding roles. It follows that neglecting to invest meaningfully in employee training programs is also a common cause for employee dissatisfaction and turnover.

6. A Hyper-Competitive Job Market

Today, looking for and finding a new job has never been easier. Recruitment has become an almost fully digital industry, and with online job boards proliferating, it’s quick and easy to discover and apply for new positions. The ability for people to get instant access to information about available jobs has helped increase employee turnover rates in recent years.

7. Younger Employees

In days gone by, the notion of staying with a single employer for decades – even until retirement – was commonplace and accepted. That’s no longer the case, and, as we mentioned earlier, staff turnover rates are particularly high in companies that employ a large number of younger workers.

 8. Remote Working Opportunities

Thanks to the internet and digital collaboration tools, certain workers, such as those working in call centers or in customer representative roles can perform their roles remotely from their homes. As a result, employers insisting that every employee be physically present in the office can expect higher turnover rates.

9. Entrepreneurship and the Gig Economy

The number of people choosing to leave the corporate world behind to start their own businesses is on the up.  Many others have embraced the notion of the Gig Economy with enthusiasm, opting to work more flexibly doing one or more part-time jobs.

10. No Sense of Purpose

The devastating events of the last two years caused by the pandemic have made many workers pause to rethink their priorities and reassess their futures. Now, many are ditching the “rat race” in favor of a career where they truly feel they’re making a positive impact on their community and the environment.

11. Bad Hiring Procedures

High turnover rates can sometimes result from a company hiring people that aren’t suitable for the role. When an employee lacks the skills required to perform their job or is a poor cultural fit for the organization, their period of employment is generally short-lived. When short-term retention rates are low, poor onboarding processes are often the culprit.

Losses and Costs Associated with Turnover

There are multiple direct costs imposed on the business when employees decide to leave.

First, every time you lose an employee, you immediately lose all the investments you’ve made (both time and monetary) in their training and development.

Next, the cost of job advertisements, agency commissions, and brand marketing can quickly add up.

Once a replacement is found, it will usually take time for the new employee to achieve the level of performance expected. They’ll have new systems and processes to master, new relationships to develop, and a new company culture to absorb. All of these things take time.

The Hidden Costs of High Turnover

The hidden costs of high employee turnover include intangible factors like damaged employer brand reputation and lost institutional knowledge:

• A reputation for high turnover can make it harder to attract top talent in the future, as potential candidates may perceive the company as unstable.
• Experienced employees leaving take with them valuable knowledge and expertise, which can be difficult to replace and can hinder decision-making.

How High Turnover Affects Team Morale

Consistently high employee turnover rates can eventually start hurting team morale. Here are some reasons why:

• Increased workload: While the recruitment process is underway, it often falls to other employees to cover the vacant headcount. This may mean they’re required to work more overtime, which can lead to burnout and feelings of resentment.
• Insecurity: Frequent changes can create a sense of insecurity and anxiety about job stability within the team.
• Lack of trust in leadership: If workers perceive that management isn’t addressing the real reasons behind high turnover, it can erode trust and morale.
• Demotivation and disengagement: Seeing colleagues depart can demotivate remaining employees, causing them to become less engaged in their work.
• Negative team dynamics: When new people are constantly joining, it can be hard to build strong team cohesion and collaboration

How to Minimize a High Turnover Rate

1. Offer Opportunities for Professional Development

If you give your employees opportunities to grow and develop – personally and professionally – you’ll see your employee turnover rate drop. More skilled employees will be more motivated, productive, and deliver more value.

2. Optimize Your Onboarding

First impressions matter. New employees should feel welcomed and accepted from the beginning. Checking in with them regularly shows you value their feelings and have a vested interest in their wellbeing. Failing to see what they need periodically within their first year is a sure-fire way to lose a valuable member of your team.

3. Reassess Your Employee Benefits Package

If people are worried about how they’re going to receive medical care or feed their family while they wait for payday, they’ll likely be distracted and may go as far as to look elsewhere for a better employment opportunity. So, why not consider offering health insurance and a financial wellness program? Your financial wellness program could include Earned Wage Access (EWA) to reduce the stress associated with being short of cash in between paychecks.

4. Focus on Employee Engagement

Employee turnover levels can start to creep up if people feel they’re just a small cog in a large machine, invisible to their management. So, make sure you regularly update employees about how well the business is doing. If there are challenges, be honest with people about what’s happening, why, and what’s being done to fix it.

5. Offer Workplace Flexibility

Flexibility is valued by all employees, not just those who are office-based. Giving employees the ability to swap shifts quickly and easily is a practical way to help them remain loyal.

6. Invite Feedback

Look at establishing internal feedback mechanisms that allow your people to share their thoughts and feelings in a safe, non-threatening environment. Many companies offer rewards for staff that contribute feedback and ideas that help the business become more profitable.

7. Cultivate a Positive Work Environment

To foster a positive work environment, ensure that your facility or office is clean, safe, and comfortable. Ensure that work breaks are scheduled and offer refreshments where possible. Say “no” to any form of abusive, discriminatory, or toxic behavior such as bullying and harassment.

8. Conduct Exit Interviews

Remember to conduct a thorough exit interview when employees decide to move on. It’s important to understand why an employee is leaving and learn if there’s anything you can do to reduce the chances of other employees leaving for similar reasons in the future.

Various Types of Jobs with a High Turnover Rate

It’s important to remember that employee turnover rates vary from industry to industry. The turnover rate is generally higher in sectors such as:

• Leisure and hospitality
• Arts, entertainment, and recreation
• Accommodation and food services

Employee Turnover: Moving Ahead

Employee turnover is a complex and multi-faceted issue, but it’s not always a bad thing. A level of employee turnover is actually good for everyone. Some employees need to change their work-life balance; some have skills better suited to different roles, while others are more suited to a different industry. For companies, an influx of new ideas and energy can be beneficial too.

If you feel that your level of staff turnover is becoming problematic, there is a range of practical steps you can take to help keep those turnover rates to a minimum.

Payactiv is the partner of choice for businesses seeking to help their people fully engage in both work and life and remain loyal and happy in their work environment. Our all-in-one Livelihood platform takes a holistic approach to improving financial wellness and increasing employee satisfaction.

Learn more about Payactiv’s Service, or book your demo now.