Employee turnover


In human resources, turnover refers to the employees who leave an organization. The turnover rate is the percentage of the total workforce that leave over a given period. Organizations and industries typically measure turnover for a fiscal or calendar year.
Employee turnover can occur for a number of reasons, including termination, resignation, retirement, death, and transfers to other sections of the organization. External factors—such as financial pressures, work-family balance, or economic crises—may contribute to both individual decisions regarding turnover, as well as the overall turnover rate of an organization.
High turnover can be particularly harmful to a company's productivity, as skilled workers are often hard to replace. Companies may track turnover internally by department, division, or demographic group. Such comparisons can help reveal whether disproportionate departures are occurring on certain teams or among certain demographic groups, alerting leadership to potential systemic problems that may require correction.
Organizations often survey departing employees to understand the reasons for voluntary turnover, and many find that promptly addressing identified issues significantly reduces departures. Common retention measures include benefits such as paid sick days, paid holidays, and flexible schedules.

Terminologies

Employee attrition, employee turnover, and employee churn all refer to an employee quitting the job, and are often used as synonyms. For the first two terms, the difference is due to the context, i.e., the reasons for the employee leaving. While attrition is usually voluntary or natural, like retirement or resignation, turnover refers to both voluntary and involuntary departures. While turnover includes employees who leave of their own volition, it also refers to employees who are involuntarily terminated or laid off. In the case of turnover, HR's role is to replace employees, while positions vacated through attrition may remain unfilled. Employee churn refers to the total number of attrition and turnover cases combined.

Types of turnover

There are five categories into which turnover can be classified.
  • Voluntary vs Involuntary turnover: 'voluntary turnover occurs when an employee voluntarily chooses to resign from an organization. Voluntary turnover could be the result of a more appealing job offer, staff conflict, or a lack of advancement opportunities, among other causes. Involuntary turnover occurs when the employer makes the decision to discharge an employee and the employee unwillingly leaves their position. Causes of involuntary turnover may include poor performance, staff conflict, or organizational downsizing.
  • Functional vs Dysfunctional turnover: functional turnover occurs when a low-performing employee leaves the organization. Functional turnover reduces the amount of paperwork that a company must file in order to rid itself of a low-performing employee. Rather than having to go through the potentially difficult process of proving that an employee is inadequate, the company simply respects their own decision to leave. Dysfunctional turnover occurs when a high-performing employee leaves the organization. Dysfunctional turnover can be potentially costly to an organization, and could be the result of a more appealing job offer or lack of opportunities in career advancement. Too much turnover is not only costly, but it can also give an organization a bad reputation. However, there is also good turnover, which occurs when an organization finds a better fit with a new employee in a certain position. Good turnover can also transpire when an employee has outgrown opportunities within a certain organization and must move forward with their career in a new organization.
  • Avoidable vs Unavoidable turnover: avoidable turnover occurs in avoidable circumstances that the organization can change to make employees change their minds and not quit, such as lower pay and rewards or poor working conditions. Unavoidable turnover occurs under unavoidable circumstances, such as a family move, serious illness, or death.
  • Internal vs External turnover: internal turnover occurs when employees leave their current position and obtain a new job within the same company. It is related to internal recruitment, in which companies fill vacancies through their employees. External turnover, on the other hand, refers to cases in which the worker and employer separates, whether voluntary or involuntary.
  • Skilled vs Unskilled turnover: uneducated and unskilled employees often have a high turnover rate, and they can generally be replaced without the organization or company suffering a loss of performance. The fact that these workers can be easily replaced provides little incentive for employers to offer generous labor contracts; conversely, contracts can greatly benefit the employer and lead to increased turnover as workers seek and eventually find more favorable employment. On the other hand, skilled and educated positions' can pose a risk to the company if they leave, thereby leading to replacement costs as well as competitive disadvantages for the company.

    Evolution

As the turnover data in the United States show, the turnover rate has been rising for the past 9 years. The only period that is an exception, as expected, is when the first wave occurred due to the Covid-19 pandemic, in which people had no opportunity to change their work. After this period, the phenomenon undergoes a major acceleration in growth. Possible causes include desire to work for companies with better work policies, the desire to have a more satisfying job and career advancement opportunities, and safety concerns related to the COVID -19 pandemic.Attrition trends over the past 9 years. On the x-axis are shown the years, and on the y-axis the annual quits. Source: U.S. Bureau of Labor Statistics
Following the COVID-19 pandemic and the Great Resignation, it has become commonplace for professional employees to voluntarily quit within a year of employment, known as "quick quitting."

Costs

When accounting for the costs, some estimates on the cost of employee turnover in for-profit organizations range from 30% to 200% of the employees' salary. There are both direct and indirect costs. Direct costs relate to the leaving costs, replacement costs, and transitions costs. Indirect costs relate to the loss of production, reduced performance levels, defective products, unnecessary overtime, and low morale. In healthcare, staff turnover has been associated with worse patient outcomes. The true cost of turnover may depend on a range of variables including ease or difficulty in filling the position and the nature of the job itself. Estimating the costs of turnover within an organization can be a worthwhile exercise, especially since such costs are unlikely to appear in an organization’s balance sheets: some of the direct costs can be readily calculated, while the indirect costs can often be more difficult to determine and may require “educated guesses”. Nevertheless, calculating even a rough idea of the total expenses relating to turnover can spur action planning within an organization to improve the work environment and reduce turnover. Surveying employees at the time they leave an organization can also be an effective approach to understanding the drivers of turnover within a particular organization.

Internal versus external

Like recruitment, turnover can be classified as "internal" or "external". Internal turnover involves employees leaving their current positions and taking new positions within the same organization. Both positive and negative effects of internal turnover exist, and therefore, it may be equally important to monitor this form of turnover as it is to monitor its external counterpart.
Internal turnover might be moderated and controlled by typical HR mechanisms, such as an internal recruitment policy or formal succession planning.
Internal turnover, called internal transfers, is generally considered an opportunity to help employees in their career growth while minimizing the more costly external turnover. A large amount of internal transfers leaving a particular department or division may signal problems in that area unless the position is a designated stepping stone position.

Skilled vs. unskilled employees

Unskilled positions often have high turnover, and employees can generally be replaced without the organization or business incurring any loss of performance. The ease of replacing these employees provides little incentive to employers to offer generous employment contracts; conversely, contracts may strongly favour the employer and lead to increased turnover as employees seek, and eventually find, more favorable employment.

Voluntary versus involuntary

Practitioners can differentiate between instances of voluntary turnover, initiated at the choice of the employee, and involuntary turnover initiated by the employer due to poor performance or reduction in force.
The US Bureau of Labor Statistics uses the term "Quits" to mean voluntary turnover and "Total Separations" for the combination of voluntary and involuntary turnover.

Causes of high or low turnover

Turnover can vary significantly based on time and industry. For example, the US 2001 - 2006 annual turnover rate for all industry sectors averaged 39.6% prior to seasonal adjustments, while the leisure and hospitality sector experienced an average annual rate of 74.6% during this same period. The average total of non-farm seasonally adjusted monthly turnover was 3.3% for the period from December 2000 to November 2008.
High turnover often means that employees are dissatisfied with their jobs, especially when it is relatively easy to find a new one. It can also indicate unsafe or unhealthy conditions, or that too few employees give satisfactory performance. The lack of career opportunities and challenges, dissatisfaction with the job-scope, ability to balance work and personal life, and conflict with the management have been cited as predictors of high turnover.
Each company has its own unique turnover drivers so companies must continually work to identify the issues that cause turnover in their company. Further the causes of attrition vary within a company such that causes for turnover in one department might be very different from the causes of turnover in another department. Companies can use exit interviews to find out why employees are leaving and the problems they encountered in the workplace.
Low turnover indicates that none of the above is true: employees are satisfied, healthy and safe, and their performance is satisfactory to the employer. However, the predictors of low turnover may sometimes differ than those of high turnover. Aside from the fore-mentioned career opportunities, salary, corporate culture, management's recognition, and a comfortable workplace seem to impact employees' decision to stay with their employer.
Many psychological and management theories exist regarding the types of job content which is intrinsically satisfying to employees and which, in turn, should minimise external voluntary turnover. Examples include Herzberg's two factor theory, McClelland's theory of needs, and Hackman and Oldham's job characteristics model.