People leaders know that investing well is the key to growth. The most successful leaders also go one step further, acknowledging that failure to invest in the right things leads to costly consequences later on—even if those costs aren’t immediately visible. High employee turnover is one issue that becomes more expensive to fix after it’s had time to inflate.
Although it’s not a new phenomenon, the ripple effects of high turnover in an organization can be damaging to everyone. Rising recruiting costs, costly salary negotiations, and lost output are just a few hurdles that leaders have to overcome when the revolving door of employee relations just keeps swinging.
Ignoring the steep costs of employee turnover is a recipe for future disaster. To avoid trouble in the first place, however, you must be willing to revamp your workplace so that it’s conducive to exceptional employee engagement, workplace flexibility, and positive team culture.
What is employee turnover?
“Employee turnover” is the phrase that corporate organizations use when an employee leaves their existing role or position for another opportunity. To fill a vacant role, employers usually need to replace the previous employee with a new recruit or promote from within.
In order to prioritize people at your organization, you have to know what they’re doing and where they’re going—which is why employee turnover matters so much. Are current staff members opting for internal moves (like accepting a promotion in another department)? Or are they claiming new opportunities elsewhere (navigating between companies)? Leaders and managers need insights on these career-changing actions.
But employee turnover has implications beyond professional goals and upcoming job postings for HR. Regularly replacing employees is just plain expensive for businesses. Depending on the role and level, backfills can end up costing double the past employee’s salary, a major blow to headcount and annual department budgets.
Direct and indirect costs of employee turnover
Employee turnover even has ripple effects that touch on every aspect of “business as usual.” From changing the way that internal teams function, to creating major productivity gaps, high turnover always has far-reaching consequences.
Leaders can best understand these effects by breaking them down as direct and indirect costs of employee turnover.
- Direct costs – Direct expenses are those that have a clear dollar value. In this group, expect to see costs associated with rehiring, recruiting, displaced salary amounts, and tangible on-the-job training or onboarding expenses.
- Indirect costs – Indirect costs are more difficult to assign in terms of dollar amount, but the consequences are equally pricey. In this category, you’ll find intangible losses like decreased productivity, low team morale, and negative workplace culture. These effects always subtract from workforce output, which limits how a business grows and moves forward.
According to employee survey data from Monster, hiring the replacement for an individual employee can cost between 75-200% of that employee’s annual compensation. So when employees leave in droves, the total amount of money that a business has to spend on multiple replacements is staggering.
Hidden costs of employee turnover
There are also less obvious costs of employee turnover that show up only after a team member vacates a position. Things like knowledge loss, decreased customer satisfaction, and lower employee engagement scores are still detrimental, even if harder to track right away.
Not every employee turnover problem comes with a monetary value. Many turnover-related issues brew just below the surface, despite having the potential to completely change the trajectory of the business as a whole.
For example, turnover rates are often higher in workplaces like call centers and customer operations centers. Because these environments tend to involve higher stress with less upward mobility, employee churn happens more frequently.
For years, executives and business leaders have noticed the interconnected relationship between employee experience and customer satisfaction, prompting more of them to invest in better employee experiences as a way to reshape the customer journey.
Factors contributing to high turnover rates
There’s not just one reason that explains employee turnover. Motivations for job changes are as diverse as employees and companies themselves (and not all of those motivations are within an employer’s direct control).
There are, however, common threads that illuminate which factors inspire workers to stay or leave for brighter opportunities. If you oversee a talent acquisition team or manage an internal department with direct reports, keeping tabs on these factors allows you to offer better perks and make enticing counter-offers to your existing employees.
The most common reasons why employees leave their jobs typically involve pay expectations, daily workplace experiences, and long-term growth potential.
- Lagging compensation and benefits – In 2021, the Pew Research Center reported that the majority of employees who leave a company do so for compensation-related reasons. In fact, up to 63% of employees who left an existing role were motivated to do so because of base pay and salary. Higher turnover is bound to happen when a workplace fails to stay competitive in its pay bands or merit increases.
- Poor work-life balance – Although the specific definition of work-life balance changes generationally, it’s clear that employees want some separation between the professional and personal. A healthy balance looks different for everyone, but most employees crave a designed “off the clock” time, paid leave, and personal incentives.
- Lack of career growth opportunities – Employees also leave roles when their current position limits growth. In some scenarios, this means that strong mentors and leaders aren’t present to instill new knowledge. In other cases, there aren’t enough open roles at higher levels, causing employees to hit their “ceiling” without room to expand and evolve.
- Negative workplace culture – MIT Sloan Management Review reports that toxic leadership or workplace culture often predict employee turnover at a rate that’s ten times higher than salary considerations alone. This shocking trend has emerged during the Great Resignation, but it continues to force employers to take a second look at corporate values and management culture.
4 strategies to reduce employee turnover
The overall vibe around employee turnover topics can feel forced, stressful, and intense. After all, whenever managers start to consider expensive rehiring costs and sunk operational expenses, the path forward feels rocky—especially in today’s uncertain economy.
But the outlook doesn’t have to be all doom and gloom. There are proven ways to reduce employee turnover and new methods for monitoring, like using employee turnover software. Plus, business leaders now have better chances to improve internal communication, offer competitive benefits, provide career development opportunities, and promote employee engagement that focuses on well-being.
Enhance employee communication
In today’s digital world, it often feels like most workplaces are continuously connected, even during off hours. From corporate communication platforms like Slack, to super detailed project management timelines, communicating around-the-clock is the norm. But employee communication must also happen on a human and emotional level, too.
The burden is now on employers to create work environments that promote honesty, transparency, and clarity at every level. When employees feel like their managers hear and understand them, they’re more motivated to stay committed to the task at hand. Plus, the mental health benefits are obvious.
Apply it: After connecting Erudit to Microsoft Teams and Outlook, one multinational software company was able to save up to $173,000 per year in costs associated with employee burnout.
Provide flexible workplace policies and accommodations
With the rise in remote and hybrid work options, employees are looking for flexibility and competitive accommodations (especially now that more organizations offer them). Whatever your policies are for outside work options, share them clearly—both on new job postings and directly to current employees.
In addition, analyze how these policies influence metrics like employee engagement, job satisfaction, and employee turnover rate. You might be surprised at how seemingly small changes (like allowing staff members to always work from home on Fridays) change the way that team members “show up” to their assigned responsibilities.
Apply it: In a post-pandemic world, Global Workplace Analytics shares that up to 72% of employers identify remote work options as a primary indicator of employee retention.
Create more competitive benefits
When employees don’t feel fairly compensated for the work they perform, they’re more likely to feel burned out. And if you’re a manager, you might already know that burnout equals flight risk. Underappreciation might take time to manifest in measurable ways, but it always ends up hurting team morale and driving higher turnover rates down the line.
To truly enhance the employee experience, look for ways to keep pace with the market. Research industry standards for specific roles and levels, and raise or adjust your current salary rates to stay competitive.
Where it’s reasonable to do so, continually expand access to better benefits (like insurance, retirement matches, or personal incentives) and publicize these changes to your organization. Make it easy to select and sign up for new benefits so that the process of enjoying them is simple rather than stressful.
Apply it: According to research from United Insurance, 51% of employers are increasingly turning to better benefits packages to drive employee retention in the years to come.
Drive top-down change based on core values
News flash: toxic leadership or management styles contribute just as much (if not more) to employee turnover than compensation and pay. If this hits home, it’s time to gauge how mentally and emotionally healthy your work environment really is.
Corporate values can’t simply appear on signs around the HR department. Instead, leaders at every level must embody the qualities and characteristics that make a company unique. Integrity, fairness, diversity, and equality are known factors for keeping employees happy and engaged in the workplace.
If and when you identify that a lack of core values contributes to employee turnover—make a smart, quick response. Don’t assume that the problems will dissipate on their own. Be proactively supportive of your employees, and they’ll be more inclined to return the favor.
Apply it: AI-powered analysis from Erudit helps managers develop clear action plans for correcting employee turnover risk. Suggestions are based on the group or team (such as Sales), allowing leaders to identify the biggest sources of tension and stress.
Calculating and monitoring employee turnover rates
Tracking and analyzing employee turnover rates allows responsible employers to stay on top of trends at intervals through the year. If you have a specific turnover percentage to maintain, keeping tabs is the only way to actively manage it.
Not only that, but when you monitor turnover data, you can intervene early and efficiently. Creating turnover policies after you’re already in a deep employee deficit doesn’t fix the problem or save money and resources when you’re actively losing them.
To calculate employee turnover yearly, use the following formula.
Employees leaving or separated / (Employees at start of year + employees at end of year)/2 X 100 = Turnover Percentage
Although having a strong grasp of your organization’s internal employee turnover rate is important, benchmarking against industry averages is an even smarter move. That’s because some industries naturally lend themselves to higher (or lower) turnover percentages, based on factors that include seasonal work assignments or fluctuating market rates for salary.
By understanding where your team stacks up at key points throughout the year, you’ll better understand how to make significant changes to internal policies and team culture.
Reduce your organization’s employee turnover costs
It’s time for employers to spot the real reasons that employees send those notorious two weeks’ notice emails. Taking proactive steps now to reduce or eliminate the reasons for turnover is critical—and not just for the workers who could benefit from more positive and fair places of work.
There are also major advantages when it comes to saving time, money, and resources. With greater employee retention, imagine the ways you could reinvest back into your business and increase your bottom line. Possibilities are endless when you’re not burdened with expensive turnover costs (and the stress that comes with them).
If it’s time to track and reduce your turnover costs once and for all, Erudit’s AI-powered people software delivers the real-time workforce insights you need without surveys. Make smarter decisions that keep your employees engaged and happy, and pave the way forward.