Most hiring is down to poor staff retention. Data from the Bureau of Labor Statistics data shows that 95% of hiring is filling existing positions. This makes reducing employee attrition and staff turnover key objectives in any recruitment plan.
Just as it’s important to create an effective hiring strategy to get the best possible employees into an organisation, it’s as crucial to pay close attention to which employees are leaving and the reasons behind their departure. Understanding why employees choose to move on from your organisation can reveal a huge amount about the culture, health and prospects of your company.
This article will explain the differences between attrition and employee turnover, why they are important to an organisation and what can be done to minimise their impact. It will also highlight some industries which have particularly high employee turnover rates and suggest initiatives employers can use to tackle the issue.
Defining Attrition vs Employee Turnover
It’s important for any organisation to measure the speed at which employees leave their organisation, as any changes in staff can affect costs, time and resources. There are two broad categories that cover employees exiting an organisation – employee attrition and employee turnover. It’s important to understand the difference between the two and their different impact on the organisation.
What is Employee Attrition?
Attrition is when employees leave an organisation for personal reasons, which are normally outside of their employers’ control, for example, retirement, to study or to have children. A lot of the time these can be planned for in advance and they usually don’t have a negative impact as the employee is leaving to move on with the next stage of their lives. There is little an employer can do to prevent this from happening and is a natural part of the employee life cycle.
Employee attrition also covers redundancies and staff reorganisations if a company is in financial difficulties or changing their strategic direction. These are planned and budgeted for, so it is clear how much they will impact the organisation and they are not positions that usually need to be filled.
What is Employee Turnover?
Employee turnover is when an employee chooses to leave an organisation of their own accord, to go to what they perceive to be a better opportunity with another employer. There are all sorts of reasons why an employee chooses to leave a company, but often if an employer had acted differently there could have been an opportunity to keep that employee.
According to the 2019 Employee Retention Report, the top four reasons employees left their jobs were career development, work/life balance, managerial behaviour and compensation and benefits. In all of these examples, the employer has the power to prevent an employee with all their skills and talent walking out the door.
Turnover costs money and time as these are usually positions that need to be filled. There are the logistical costs associated with hiring such as advertising the position, temporary cover and recruitment fees. There is also the cost to the organisation around lost productivity, knowledge and skills. According to the US Bureau of Labor Statistics, staff turnover can cost up to 33% of an employee’s total package.
What is a High Turnover Rate?
This rate will vary from industry to industry. A higher turnover rate than comparable organisations may indicate serious problems in your organisation like poor management, failure to nurture talent or a toxic culture.
The UK average annual employee turnover rate is about 15%, but for some sectors, this will be significantly higher or lower depending on a number of factors such as pay, age of employees and skill level required.
How to Calculate Attrition Rate / Turnover Rate
Measuring attrition and turnover rates allows recruiters to benchmark themselves against competitors in their sector. This is sometimes called staff churn or churn rate. This can be done on a monthly or yearly basis, the principle is the same for both.
Step 1 – Decide the period of time you’d like to measure employee turnover or attrition for
Step 2 – Add the number of employees you had at the start of the period you are measuring to the number you had at the end of that period.
For example, you had 140 employees at the beginning of the month, 4 left in the month so you now have 136.
140 + 136 = 276
Step 3 – Divide that number by 2 to get the average number of employees in the month
276 / 2 = 138
Step 4 – Divide the total number of leavers in the month by the average number of employees in the month
4 / 138 = 0.29
Step 5 – Multiply that number by 100 to get the percentage turnover for the month
0.029 x 100 = 2.9% employee turnover rate in the month
Calculating employee attrition, regretted vs non-regretted employee churn uses the same formula as above, with adjustments made to the number used for the “total number of leavers”.
The Downsides of Having High Attrition
When an employee leaves an organisation, the investment you’ve made in that employee vanishes along with their skills, experience and connections. The ripples of that departure go far and wide and can negatively affect a number of different areas.
Studies have shown that every time an employee is replaced it can cost an average of six to nine months’ salary. Multiply that by your company’s average turnover rate and you will quickly see the problem.
If employees are leaving on a regular basis, this can create a lack of consistency and harm customer relations and service levels. Nobody works at their best when there is constant change and disruption. Recruitment takes a lot of time and effort, taking the hiring managers away from their day-to-day tasks, increasing the chances that deadlines will be missed.
Employee morale and engagement
A high turnover of staff can badly damage employee morale. Seeing colleagues depart on a regular basis, not only creates additional work and pressures for those left behind, it plants a seed of doubt and uncertainty. Perhaps the grass will be greener elsewhere? There is a real danger that a few departures becomes an exodus, putting huge pressure on the organisation and those left behind.
Whenever someone leaves a team the dynamics will change. While this may not necessarily be negative, it will take some time to cover for the employee that has left and to train up a new recruit to be performing at the same level. On average it takes 28 weeks to get a new employee working to their full potential.
Creating high performing teams requires trust, understanding and a clear, unified vision. This can only be achieved through continuity. It takes time for members to build these elements and a constant change of personnel will severely disrupt this.
The value of creating an engaging employer brand has never been higher. Employees want to work for an organisation with values they identify with and a purpose they believe in. Customers want to interact with businesses that adhere to the standards they expect and treat their workforce with decency and respect. An organisation with a high churn rate will struggle to attract the best talent. Suspicions will arise over why employees don’t want to stay, putting doubt in the minds of outside observers, damaging their reputation and denting the bottom line.
Aspirations Support Bristol case study: here is an example of how a company tackled their high staff turnover rate.
The Benefits of Employee Turnover
While there are many negatives associated with losing staff, some employee turnover can be good.
Injection of new talent
Any business can get a little tired or stale without any changes. Bringing in new employees means an introduction of new ideas and approaches, that can spark fresh creativity and innovation.
Prevents staff complacency
It is easy for teams and organisations to fall into a comfortable rut, following the same routine and never trying anything different. New recruits can change things up, provide a surge of energy and the impetus for everyone to improve their performance.
Increased diversity and inclusion
Hiring a new employee provides an opportunity to add to the skills and experience of the team. Rather than recruiting a carbon copy of the employee that you’re replacing, take the time to examine what gaps exist and what you need to fill these effectively. Take the chance to broaden your talent pool and add a fresh perspective.
Review employee training and incentives
Taking the time to find out why employees are leaving, will provide invaluable insights into what you could be doing more effectively. Is there something you could be offering your workforce that would make the difference between them staying or leaving? A small tweak in working practices or benefits can have a significant effect on employee satisfaction.
Opens up internal opportunities
While losing an experienced employee can have a negative impact on an organisation, it also allows internal talent to be recognised and promoted. An important part of employee retention is demonstrating to staff that opportunities for progression do exist within the company and that good performance will be rewarded.
Not every employee is an asset
If an employee is not performing to their best of their ability, is becoming unhappy, disengaged or even hostile to the organisation, them leaving the organisation can be a positive for everyone concerned. Sometimes no amount of training or attention can fix a problem and it’s better to find an amicable solution than to let discontent fester and spread.
Monzo case study : here is an example from startup challenger bank Monzo of why employee turnover can be positive.
Average Industry Staff Turnover Rates
As previously mentioned, turnover rates differ from industry to industry. There are some industries that experience exceptionally high rates. In these, organisations should benchmark themselves against competitors rather than look at an overall average. It’s still important they pay attention to their rate as improvements can have a significant impact on the success of their business.
Average staff turnover in retail
Retail is the UK’s largest private-sector employer with around 3 million workers. The industry has been under enormous pressure in recent years, with 2019 being the worst for the sector in 24 years, seeing growth of just 0.1%. Staff turnover is traditionally high in retail, typically over 30%. There are a number of reasons for this. Many employees work in the retail sector seasonally or as a stopgap while studying. When a position is vacant, it costs a business about 25% of the costs associated with that post through increased overtime and temporary staff costs.
Average staff turnover in hospitality
Similar to retail, this sector has around a 30% employee turnover rate. Workers in the industry tend to be very transient, only intending to take the job for a limited period of time. Many also work in the sector while in education or as a second job. The inflexibility associated with the industry, low pay and lack of benefits also contribute to the high staff turnover rate in hospitality.
Average staff turnover in call centres
Around half a million people are employed in this sector in the UK. It has an average employee turnover rate of 26%, with the rate for larger operations rising to 30%. The industry is seen as being inflexible, lacking opportunities to progress and excessively demanding, all of which help drive up it’s turnover rate. It is estimated that employee turnover costs the sector more than £1 billion a year.
In 2016, Compensation Force compiled some statistics on the average turnover rate for a range of industries. Here are a few examples:
- All industries: 17.8%
- Banking and finance: 18.1%
- Healthcare: 19.9%
- Insurance: 12.2%
5 Tips to Prevent Employee Churn
While there is no optimal level of employee churn to aim for, rates that are higher than average for your sector do point to issues within your organisation that are likely to be damaging performance and need to be addressed. Here are some steps that employers can take to ensure they are retaining their best talent.
1. Look for the early warning signs
There are often signs if an employee is not engaged in their current role. A rise in absenteeism or a reduction in productivity levels could be indicators that they may be thinking of leaving. Regular 1-2-1s with line managers and their reports can help pick up these issues and address them at an early stage. Through these discussions, a manager can look at options to help the employee become more engaged such as more stretching goals or additional training.
2. Measure, evaluate and review turnover
The more information you capture on why staff are leaving your organisation the better. If you don’t already have them, introduce exit interviews where this information is captured and shared. Review this on a regular basis to spot any patterns within any particular teams or departments. Measuring is very important, but even more vital is taking note of what the data is telling you and acting accordingly.
3. Ensure your hiring process is fair and fit for purpose
Finding and choosing the candidates who have the most appropriate skills, capability and commitment for any vacancies will ensure new employees want to stay and thrive within your organisation. If a disengaged employee stays, then our own research suggests that they’re three times more likely to be unproductive as someone who feels they’re a good fit for the company and the role.
Using a pre-hire assessment that tests candidates on realistic work scenarios that they may face in the job they are applying for has been found to be highly effective. According to a 2015 study by the Aberdeen Group, companies using technology-based pre-hire assessments experienced a 39% lower employee turnover rate.
4. Create compelling career pathways
The number one reason why employees leave their current roles is a lack of clear career development opportunities. If employees can see where they can go in their current organisation or feel they are being given the chance to learn and progress they will look elsewhere for these. It’s important that managers have regular conversations with their direct reports about what they would like to do and how they would like to develop themselves in order to put career pathways in place. Initiatives like mentoring schemes and aspiring leaders courses can help employees to see their employer values their development.
5. Continuous performance management and appraisals
As the coronavirus pandemic perfectly illustrates, a year is a very long time and a lot can happen from month to month, even week to week. Only having a conversation about performance on an annual basis means objectives can easily become irrelevant, valuable feedback is often lost and development opportunities are missed. Employing more regular reviews allows employees to become much more focused on their goals, receive feedback in a timely manner and drive forward their own development.
Many elements go into reducing attrition from performance management and employee engagement to compensation and benefits to reward and recognition. However, by far the most important thing is getting your hiring process right. Recruiting individuals who have the right skills, want to do the job and share the values and ambitions of the organisation will go a long way to eliminate expensive hiring mistakes and unnecessary employee turnover.
Each organisation will need to find the churn rate that is right for their businesses. Too high and performance and reputation can be badly damaged, too low and creativity, diversity and innovation can be lost.
- 80% of all employee turnover is a result of poor hiring decisions (https://builtin.com/employee-turnover-statistics)
- Only half (47%) of organisations run training and development programmes to help build employees’ skills and support career development (https://www.insider.co.uk/news/businesses-failing-act-staff-turnover-12345924)
- 83% of organisations fail to undertake exit interviews (https://www.insider.co.uk/news/businesses-failing-act-staff-turnover-12345924)
- Almost 30% of job seekers say they have left a job within the first 90 days of starting. (Robert Half & Associates)
- Between 60 and 70% of all employee turnover is voluntary (https://builtin.com/employee-turnover-statistics)
- 48% of people have left a job because the reality of the job did not meet expectations (https://thrivemap.io/dreams-v-reality)