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Find and fix 6 Common Causes of High Turnover Rate

High turnover rates have a significant financial cost, but that's just the beginning. Learn some easy ways to find and address turnover causes.

HR and People Ops

Employee turnover is tremendously costly, and surprisingly often, it’s avoidable. Aside from knocking a box of cash into the paper shredder, it’s probably the most expensive forced error organizations make regularly.

You’re probably thinking, “who would leave a box of cash above a paper shredder?” I’m thinking, “who would just live with a high turnover rate?”

What is employee turnover?

Employee turnover is simply the loss and replacement of an employee, regardless of whether that employee left voluntarily or involuntarily. Employee turnover isn’t always bad. A certain amount of employee turnover is natural and expected, but a consistently high turnover rate can signal a number of systemic operational or cultural issues.

What does turnover cost?

In aggregate, employee turnover costs over a trillion dollars in American business alone, according to Gallup. What’s more, that figure only accounts for voluntary turnover. It doesn’t account for involuntary turnover events like layoffs or other forms of involuntary termination.

To break it down on an individual basis, the average cost of employee turnover ranges from about 50% of that employee’s annual salary on the lower range, to 200% or higher. The total cost depends on multiple factors like the individual employee’s output relative to peers, their functional role, and your organization.

Even assuming you take the smallest of those estimates and multiply it across every employee you’ve lost over the past year, the number you end up with will likely be a bit staggering. If not, you must have a great retention rate or money is no object. Either way, congrats!

But hold on a moment because we haven’t even calculated the full cost yet. We only outlined the quantitative, financial costs. There are also significant but less measurable costs to consider, like:

Decreased morale and engagement across other members of the team, especially when the departing employee is a senior leader or any other type of organizational culture leader.

While senior leaders leaving often has a large impact on morale, even those who aren’t senior leaders but have a strong influence on those around them—your organization’s cultural glue—leaving can have a dramatic, reverberating team-wide impact.

Increased workload for others needing to pick up the slack in the interim (or sometimes, indefinitely). A team missing key players will always be disadvantaged when it comes time to execute. For the same reason it’s impressive when a hockey team scores under penalty, it’s exhausting when a team has to absorb the duties of a missing colleague. That’s especially true when the departure is a surprise and there’s no candidate pipeline.

Even a small barrier can look like a mountain to climb if you’re already exhausted, and in many cases, those covering for a missing colleague are just that. Exhausted.

Lost organizational knowledge and culture

Every time an employee leaves, you lose a bit of organizational knowledge, no matter how senior or junior the departing employee is. Losing a senior leader can leave an entire division rudderless. Losing an individual contributor can leave a key aspect of an operation floundering, especially if their departure is unexpected.

Ramping

Every organization does things a little (or a lot) differently. No matter how skilled or knowledgeable a new employee is, it will take them time to absorb the many unique processes and methodologies that are commonplace for more seasoned members of the team.

Depending on level of seniority and job responsibilities, it can take anywhere from six weeks to six months to a year or more for a new employee to ramp up to their maximum level of productivity. That time to productivity can also be measured in lost revenue.

Training costs

Bringing someone from day zero to max contribution has other costs. The time and resources of designated trainers is the most obvious cost, but there’s also a productivity cost for a new employee’s colleagues.

From the basics like “where’s the bathroom?” To job-specific questions a senior employee can answer offhand, there will be diversions, and lots of them.

Other hidden costs

We’ve only covered a few of the less obvious costs of turnover, but there are many more. Because every organization is different, there will undoubtedly be some that are unique to your organization, too.

Without getting lost in the minutiae of those individual costs, suffice to say turnover is outrageously expensive in ways you may not have even considered, and the more time you spend considering it, the more expensive it gets.

Voluntary turnover

Voluntary turnover, or elective churn, happens when an employee chooses to terminate their employment. There can be any number of causes for voluntary turnover, from a bad manager to an offer at a different company. Voluntary turnover might also be due to personal reasons like an employee starting their own business, changing career paths, or moving closer to family.

Involuntary turnover

Involuntary turnover is when an employee leaves against their wishes. There are many reasons for involuntary turnover, but a few examples are layoffs or other workforce reductions, as well as termination for underperformance or breaking organizational codes of conduct.

Employee turnover rate

Employee turnover rate is the rate at which active employees leave and are replaced by new employees. The turnover rate doesn’t consider whether turnover is voluntary or involuntary, just the overall rate of turnover.

Turnover rate formula

The turnover rate formula is pretty simple. Just take the number of employees that separated (whether voluntarily or involuntarily) (s), divide it by the average number of employees (a), then multiply by 100 to get a percentage.

To find the average number of employees, take the number of employees at the beginning of the period (b), add it to the number at the end of the period (e), and then divide by two.

s/{(b+e)/2}*100

For example, if you had 4 turnover events with an average of 100 employees during a specific period, your turnover rate would be 4% for that period.

How to calculate turnover rate

You can calculate your employee turnover rate as a single static number, or plot it across a time range. Both approaches will help you to understand different aspects of turnover in your organization, and as such, they’ll help you diagnose and address different types of issues.

For example, you may have a turnover rate that seems excessive over a long time range, but when broken into a time series, it turns out there’s one quarter of excessive turnover and the rest show strong retention. This could be a sign to look closely at the events of that quarter for an acute cause. If you have excessive turnover with a relatively steady curve, that may point to more systemic, pervasive issues.

Employee attrition

Employee attrition and employee turnover are often conflated, but they’re not the same thing. While employee turnover represents the number of employees who leave and are eventually replaced, employee attrition is when an organization loses an employee but doesn’t expect to replace them.

Attrition rate formula

The attrition rate formula is identical to the turnover rate formula above, but simply replacing turnover (separations that result in a hiring effort) with attrition (separations that will not result in a hiring effort).

Choose a period. Take the number of attrition separations(s), divide that number by the average number of employees during that period, then multiply by 100 to convert to a percentage.

s/{(b+e)/2}*100

For example, if you had 2 attrition events with an average of 100 employees during your measured period, your attrition rate for that period would be 2%.

How to calculate attrition rate

Just like the turnover rate formula, you can look at attrition rate as a static number for a specific period or plot it across a time range. Employee turnover rate and attrition rate can provide insights into different functional areas of an organization as well.

If one department has a significantly higher attrition rate than average across an organization, there may be a root cause in that department. Knowing the attrition rate won’t solve the attrition rate for you, but it can help focus mitigation efforts.

Employee retention rate

Employee retention rate represents the percentage of employees who have stayed at your organization throughout a given period. Retention rates factor in both turnover and attrition because in measuring retention rates, the cause for termination is irrelevant. You’re simply measuring who stayed.

Employee retention rate formula

The retention rate formula is a bit different from the turnover and attrition rate formula, but it’s still relatively simple. Start by choosing a time range. Take the number of employees at the beginning of that period (b), subtract the number of employees departed during the same period(d), then divide that sum by the beginning number(b). Multiply by 100 to convert to percentage.

{(b-d)/b} * 100

For example, if I have 100 employees at the start of the period and 4 are terminated, my retention rate is 96%.

How to calculate retention rate

Calculating employee retention rate is a bit different from measuring turnover or attrition rates. Instead of taking the average number of employees across the period you’re measuring, you only want to measure the number of employees at the start. For that reason, it’s important to measure and track these metrics separately.

Retention rate focuses on that cohort specifically because retention’s focus is keeping the team you already have. Retention can’t be improved by increased hiring. If you start the period with 100 employees, lose 4, but end the period with 150 employees, your retention rate is still 96%.

How does your organization compare?

Okay, you have the tools you need. Take a second to calculate your employee turnover rate, your attrition rate, and your retention rate. As an exercise, try to guess what they might be before calculating them.

Are they higher or lower than you expected?

The average employee turnover rate differs across industries, but it’s important to consider the outliers. Organizations whose turnover rate exceeds the benchmark in their industry may struggle to compete.

It’s also crucial to remember that while an industry benchmark is helpful in understanding where your ultimate target might be, the most important benchmark is your own. How are you doing in these crucial areas now, compared to last year, last quarter, or last month?

Just like fitness, learning, career goals, or any valuable long-term pursuit, steady improvements are key to long-term success. It can be discouraging to set an astronomical target, and assume you’re not succeeding if you don’t reach it.

You might make drastic changes and see an outsized improvement, but at some point results will plateau. If you’re incrementally stronger than yesterday, last week, last month, last quarter, or last year, you’re still succeeding. If you notice backward progress and take steps to fix it, you’re still succeeding.

Now you know the basics of turnover, attrition, and retention, but what does it take to improve? That’s what we’ll cover next.

Addressing a High turnover rate — root causes

For those with a turnover rate higher than expected, don’t despair. There are just as many ways to address and improve turnover as there are causes for it. Some of these causes are easier to address than others. Some might even be unique to your organization and needs an equally unique solution.

Since we can’t practically list all the causes of high turnover rates here, we’ll cover some themes that are common across many industries, company sizes, and geographic regions.

Compensation

Compensation is often the first place people look when they’re thinking about what makes employees join, stay, or leave an organization. Salary and benefits are easy to quantify and easy to adjust, compared to something like organizational culture. Compensation does have a material impact on career decisions—but that impact might look different than you think. Here’s why:

When you’re competing for talent, compensation is table stakes.

While there may be shifts in leverage between a market favoring job seekers or job creators, the competition for some positions will always be harrowing. It’s a product of supply and demand. Top 10 percent performers will always be in low supply because there are only one for every nine in the same role.

If you’re providing a “competitive” compensation package, you’re providing the bare minimum in comparison to other opportunities. Competing solely on compensation packages means there will always be an organization willing to up the ante just enough to pull talent away because salary is fungible. Those competing on compensation alone should expect to pay a premium.

If salary is fungible, think about what you might be able to provide that isn’t.

Find out how well your benefits meet the needs of your team, and where you might be able to update or improve the package.

Culture

It’s common to see culture listed as a major factor in turnover, but culture is a multi-faceted issue that requires thought and effort on several levels. You can’t flip a switch and improve culture any more than you can flip a switch and become a piano virtuoso.

What you can do immediately is gauge employee sentiment on aspects of your organizational culture and use that information to inform initiatives that strengthen it.

If employees have a safe space where they feel as though they can share candid information about their experience, they’re more likely to be open and honest. Anonymity can help provide that safe space and encourage a free exchange of priceless feedback, but be prepared for some of that feedback to be negative.

It may be surprising or even a bit painful to hear negative feedback about some aspects of your culture, but gathering that information is the first step toward improving it.

Poor pre-boarding and onboarding

Onboarding and pre-boarding are key opportunities to set the tone for employee experience. Getting onboarding right is especially challenging now, when so many are working remotely—but that’s exactly why it’s crucial.

For many of us, there’s no guided office tour or buddy system to help new colleagues through the first few days of orientation. There are fewer opportunities for informal check-ins, or bumping into new mentors.

This is why it’s crucial to build those moments into the employee experience. Automating new employee check-ins for onboarding basics can relieve some pressure here, and allow for more bandwidth to be spent on deeper topics.

Lack of horizontal or lateral mobility

If an employee continues to grow, but there’s no place in their organization to grow into, they’re likely to leave the moment opportunity knocks. While it’s surprisingly common for employers to believe that investing in employee development is just footing the training bill for their next career shift, that couldn’t be farther from the truth.

Curating opportunities to advance internally can make leaving in search of advancement less likely. In cases where upward mobility is limited and there’s no way to change that, finding opportunities for horizontal movement can be equally valuable.

An easy way to find these opportunities is simply to ask. Get a sense of which roles might not currently exist, but would help push the team forward. Give peers an opportunity to celebrate and support one another’s growth.

Wasted time and effort

Counter to global bad boss opinion, most employees loathe wasting time and effort. Even well compensated employees may start to wander if they feel as though the work they’re doing lacks purpose. As behavioral economist Dan Ariely explains, motivation at work is closely tied to that work's value and purpose.

Check in to find out whether members of your team can see and express the purpose in their work. If they can’t, that’s a significant opportunity either to help illuminate that purpose. If illuminating that purpose isn’t possible, or is a major challenge, that’s also valuable data because the role itself might need adjustment.

The ROI of investing in people

The ROI of investing people is more than an inverse of the cost of losing them. To put it in other words, investing in employees’ personal and professional growth doesn’t only influence the cost of turnover, it can also produce an outsized positive impact across other areas.

Find ways you can invest in the employee experience from day zero, to the day you part ways. Doing so can help extend that timeline and support greater results throughout it.

Need a simple way to check in with your team, foster rich interactions, and capture crucial data about your employee experience?

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How about you?

What are some key factors you look at when addressing turnover? How do you measure their impact? Let us know @polly_ai.

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