19 minute read
Posted by Chris Platts on 11 May 2020
Most vacancies arise because of bad employee attrition. The Bureau of Labor Statistics data shows that 95% of hiring is filling existing positions. This makes reducing attrition a key objective in any recruitment plan.
Just as it’s important to hire the best possible talent into an organisation, it’s crucial to pay attention to which employees leave and why. Understanding the root causes of attrition can reveal a huge amount about the culture, health, and prospects of your company.
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This article explains the difference between employee attrition and employee turnover, why they are both important, and what can be done to minimise their impact. It will also highlight some industries which have particularly high employee turnover rates and suggest some initiatives you can use to reduce it.
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. This is sometimes known as the company’s attrition rate or turnover rate.
There are two broad categories that cover employees exiting an organisation – employee attrition and employee turnover. Although the terms attrition and turnover are often used interchangeably, it’s important to understand the difference between the two and their different impact.
Attrition is when employees leave an organisation for reasons which are normally outside of their employers’ control, for example, retirement, to study or geographic relocation. 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 can also include jobs lost due to planned redundancies and staff reorganisations. These are typically budgeted for and they are not positions that usually need to be re-filled.
Employee turnover is when an employee chooses to leave an organisation of their own accord, usually because they leave to go to a better opportunity with another employer. This is often called voluntary turnover. There are many 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. Involuntary turnover is when someone’s employment contract is terminated; it can be helpful to separate voluntary from involuntary turnover in your data analysis.
According to the 2019 Employee Retention Report, the top four causes of employee turnover were career development, work/life balance, managerial behaviour, and compensation and benefits. In these examples, the employer has some degree of control over whether an employee leaves or stays.
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.
Turnover rates will vary from industry to industry. A higher than average turnover rate may indicate organisational problems like poor management, failure to nurture talent or toxic work cultures. Learning how to reduce employee turnover rate will typically have a net positive effect on your organisation.
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 much does employee turnover cost a company? The answer is that it depends. Some 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 in having high attrition.
The true cost of worker turnover depends on a number of contributing factors. In order to work it out firstly, it’s important to calculate your cost per hire.
A simple equation for this is to add up your total hiring spend and divide it by the number of hires you’ve made in a specific time frame – a year, a quarter, or a specific campaign. Once you know your average cost per hire – you can see how much failed hires (e.g. the number of hires that leave in a given time frame) cost the business.
As the graph shows below, initially people are a cost to the business. Employees transition into the “return zone” after being with the company for an indeterminate period of time. It’s the job of HR and Talent Acquisition to hire more people who transition across into the return zone, and to squash the curve so that it takes less time for an employee to move up it.
This approach gives you a signal but it doesn’t usually tell the full story. Indirect costs such as lost opportunity costs also need to be considered.
One way to obtain this information is to calculate the daily cost of covering a vacancy. In order to do this you’ll need to know:
Once this real cost per hire is known then it needs multiplying by the number of failed hires in a given time period.
For a personalised output on your real cost of failed hires feel free to use our cost of failed hires calculator.
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 other than just cost.
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, and increasing the chances that deadlines will be missed.
A high staff turnover 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 turns into 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.
In most businesses, there are many factors influencing both turnover and attrition and while there are many negatives associated with losing staff, some employee turnover can be good. Here are some benefits of having a healthy attrition rate:
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.
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.
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.
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.
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.
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.
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 solutions to employee turnover that companies can take to ensure they are retaining their best talent.
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.
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 reasons for leaving are documented. Review this on a regular basis to spot any patterns within any particular teams or departments. Measuring churn is important, but it’s even more vital to take note of what the data is telling you and act accordingly.
According to research, 48% of people have left a job because the role wasn’t how it was communicated to them in the hiring process. And a further 31% of people have left a company as the culture didn’t meet a candidate’s expectations ahead of joining.
According to a 2015 study by the Aberdeen Group, companies using technology-based pre-hire assessments experienced a 39% lower employee turnover rate. Using pre-hire assessments that tests candidates on realistic work scenarios has been found to be more effective than other assessments at reducing new hire failures.
A major 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.
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.
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.
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”.
Turnover rates differ from industry to industry. There are some industries that have generally an exceptionally low employee retention rate. In these, organisations should benchmark themselves against competitors rather than look at cross-industry comparisons. It’s still important they pay attention to their rate as improvements can have a significant impact on the success of their business.
Your average employee turnover rate also depends on role type as well as industry sector. Understanding that sales and marketing professionals move jobs more frequently than financial professionals may help make sense of any inter-departmental differences in employee churn rates.
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.
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.
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 its 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:
Many elements go into reducing employee attrition from performance management and employee engagement to compensation and benefits to reward and recognition. However, despite all the employee retention tips in this post, the most important one may simply be to align your hiring strategy to show people what life in the role and company is really like. Recruiting individuals who have the right skills, want to do the job, and share the values and ambitions of the organization will go a long way to eliminating expensive hiring mistakes.
If a disengaged employee stays, then our own research suggests that they’re three times more likely to be unproductive than someone who feels they’re a good fit for the company and the role. Each organization 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.
Is there a disconnect between what your candidates think the job is vs. the reality of the job?
Then we have something that will help!
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ThriveMap creates customised assessments for high volume roles, which take candidates through an online “day in the life” experience of work in your company. Our assessments have been proven to reduce staff turnover, reduce time to hire, and improve quality of hire.
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