Employee Turnover Rates: Calculate Churn and Improve Retention

Employee Turnover Rates: Calculate Churn and Improve Retention

Across most organisations, regardless of sector, people are the most valuable assets. Employees often bring with them a range of valuable skill sets and knowledge while becoming ambassadors for the organisation over time. As a result, high employee turnover rates can have a significant impact on an organisation. Valuable skills and experience are diminished when an employee leaves, with organisations requiring new investments to compensate for the gap. In the US, turnover is costing organisations an estimated $1 trillion annually. However, the financial burden is just the tip of the problem. Disrupted workflows, plummeting employee morale and difficulty attracting new talent are all consequences of employee turnover, with loss of productivity costs as a direct result equating to $1.8 trillion each year.

In contrast, low turnover in an organisation can signify an engaged and happy team of employees. By understanding employee turnover rates, organisations can identify areas for improvement in order to create a workplace that fosters loyalty and productivity. The following guide has been designed to explore the factors that impact turnover, how to calculate the rate and, most importantly, actionable strategies to retain and foster engaged and happy employees.

What are employee turnover rates?

Employee turnover rate measures how frequently employees leave an organisation within a specific period, usually a year, compared to the total number of employees. High turnover rates can indicate underlying issues within the organisation, such as poor workplace culture, inadequate employee engagement or insufficient opportunities for growth and development. In contrast, low turnover rates often signify a satisfied and committed workforce.

Organisations can consider this like a revolving door – the higher the rate, the faster that door spins. As the door spins, this significantly impacts the business, from lost productivity to increased recruitment costs. According to a 2023 Labour Turnover Report, replacing a single employee can take up to 28 weeks, costing an organisation over £25,000 in lost productivity. This highlights the significant risk it can have, not just financially but also affecting operational output.

Why are employee turnover rates important for businesses?

When an employee leaves an organisation, the cost of replacing them can easily outweigh the cost of retaining them. Costs can include recruitment expenses, training relating to onboarding a replacement and salary. Depending on the pay bracket, organisations can expect to pay anywhere between 16% and 20% of a worker’s salary to replace them. For executive roles, this can stretch up to 213% of the employee’s salary.

Beyond this, employee turnover rates are a crucial metric organisations can use to obtain insights into their overall sustainability, productivity and financial stability. While some level of turnover is inevitable, excessively high rates can signal underlying issues and pose a significant risk to an organisation’s well-being. By understanding and analysing employee turnover rates, organisations can identify areas that can be problematic and implement strategies to maintain and keep workers engaged to minimise turnover and ensure productivity.

What is the impact of high turnover rates?

While the financial burden of replacing employees is a major and obvious concern associated with high turnover, it’s just the tip of the iceberg. The constant influx and outflow of personnel associated with high turnover disrupts workflows, and can lower morale for those who are left, result in a shortage of skilled and knowledgeable workforce, and affect the confidence of the team’s capabilities. 

Imagine a well-oiled team working on a large exploration and mining project in a remote and challenging environment. Temperatures can reach 40°C/104°F, with workers expected to work 6- to 8-hour shifts and some required to wear additional personal protective equipment (PPE). Each worker contributes their expertise, building on the knowledge of their colleagues while having acclimatised to the extreme conditions. Consider a key team member leaving mid-way through the project. Their departure creates a knowledge gap, forcing remaining colleagues to scramble to fill the void. This disrupts workflows, delays projects and can lead to costly mistakes that can affect the health and safety of those around them. New employees require time to be onboarded, trained and given an acclimatisation plan for the environment, if required, to avoid risks such as heat stress. This slows productivity, creates a domino effect of delays and can increase the exertion of other workers to bridge the gap, which introduces another wide range of health and safety risks.

The result of such events can spotlight underlying issues within the organisation and their impact on the workers. Low employee engagement and poor management can indicate employee dissatisfaction or an inadequate workplace culture. Employee engagement reduces absenteeism. In fact, a Gallup study shows that highly engaged workplaces saw 41% lower absenteeism. When turnover is frequent, this furthers the disruption and can add to bad workplace culture, with morale among remaining employees suffering as they witness their team members leaving. Studies have also shown that employees are more likely to look for another role if their co-workers are doing so. Organisations need to recognise this domino effect which can take place in their workforce.

Furthermore, high turnover rates can negatively impact an organisation’s reputation. As a result, this can make it far more challenging to attract the right and best people in the future. Addressing turnover requires proactive measures to enhance employee satisfaction, foster a positive and safe work culture, and provide opportunities for professional growth, ultimately mitigating the detrimental effects of turnover on organisational success.

What factors affect employee turnover?

There’s no doubt high turnover can have a great impact across an entire organisation. However, to address employee turnover, it is also vital to identify influencing factors. These can span from workplace culture and leadership quality to job satisfaction and salary packages. Understanding and addressing these multifaceted factors is critical in effectively managing and reducing turnover rates within organisations.

Poor management: The relationship between an employee and supervisor/manager plays a pivotal role. Ineffective or negative supervisors and managers can significantly impact employee morale and turnover. Studies have shown that 79% of employees working in construction have worked under either poor management or an inadequate manager at least once, while 71% who have experienced this considered leaving the job. Of these workers, 56% left their job as a result of bad management practices. Micromanaging, lack of recognition, unclear expectations or unresolved conflicts can make each shift a struggle. If employees don’t feel supported or appreciated by their supervisor or manager, there is clear evidence showing employees are more likely to disengage and eventually leave.

Organisational culture: This encompasses the overall work environment, including values, attitudes and expectations. According to The Culture Economy Report in 2021, almost a third (27%) of UK employees left their job in the previous year due to toxic workplace culture, which is costing the UK economy £20.2 billion per year, according to the research. A toxic culture with poor communication, negativity or a lack of respect can be stifling and demotivating. Employees who feel unsupported, unheard or that they don’t fit in with the team are less likely to be happy, fulfilled and productive in the long run.

Occupational health and safety: A safe and healthy work environment is a fundamental right of every employee. However, in some sectors the health and safety risks can be heightened. For instance, in oil and gas extraction, motor vehicle crashes cause over 40% of work-related deaths. As a result of insufficient sleep, long distances travelling to well sites and long work shifts, driver fatigue is known to be the leading cause of these fatalities. With the evolution of safety solutions, organisations need to implement new methods to keep their employees safe from preventable risks.

If employees feel like their safety is being compromised due to inadequate training, lack of safety protocols or exposure to hazards, it can cause immense stress and anxiety. This can lead to health problems, decreased productivity and, ultimately, a desire to find a safer work environment. In almost every situation, employees will share their own experiences about health and safety management in an organisation, especially when it is negative. Organisations that have issues with health and safety face damaging effects on their reputation. Word of mouth is extremely powerful – particularly in the age of social media. If an injured employee is not satisfied with the way an organisation has dealt with an incident, a worker can quickly spread negative sentiment across a very wide network. This negative perception can be irreversible and difficult to control. 

Organisations that prioritise employee safety will feel the benefits internally and externally, especially when it comes to turnover and retention. Effective occupational health and safety creates a sense of trust and well-being, fostering loyalty and reducing turnover. 

Work-life balance: In today’s climate, workers are looking for a healthier balance between work and personal life. In manufacturing and production, the annual cost of productivity lost due to absenteeism, in the US,  equates to $2.8 billion. This is often associated with factors like burnout and workplace injuries. Organisations that demand long hours, don’t offer flexible work arrangements or lack boundaries can lead to both mental and physical strain on workers as well as dissatisfaction. In 2021, approximately four-in-ten workers left their jobs citing working too many hours as the reason for leaving. Exhausted and fatigued employees are more prone to mistakes, have lower morale and are more likely to seek out a job that allows them to recharge.

Limited growth opportunities: In the US, aside from pay being insufficient, the lack of opportunities for career progression is stated as the top reason for leaving an organisation, with 63% highlighting this. Employees want to feel like they’re progressing in their careers. A company that offers no training programmes, mentorship opportunities or clear paths for advancement can quickly stagnate an employee’s growth. Without a sense of development, employees get bored and lose motivation, leading them to look for companies that invest in their future. 

Pay and benefits: For decades, the UK’s offshore oil and gas workers enjoyed a stable job, with great pay and benefits; however, over the years, this is now changing. A survey of offshore oil and gas workers found that conditions for these skilled workers have worsened in the last few years. Pay and training, job security, and health and safety are all diminishing. Four-fifths of workers who answered the survey are considering leaving the oil and gas business. A project manager in Inverness with over 40 years’ experience in the industry stated, ‘I know guys who have had two or three pay cuts over six months, no negotiations, nothing. If one engineering company cuts rates, all the others do too.’

Competitive pay and a strong benefits package are crucial for attracting and retaining talent. If employees feel underpaid or that their health insurance, holiday time or other perks don’t meet their needs, they’re more likely to look elsewhere. Employees have more options than ever, and they won’t settle for a company that doesn’t value them competitively.

Economic conditions and industry trends: Broad economic factors can influence employee turnover. During economic booms, employees may have more leverage to seek out higher-paying jobs elsewhere, whereas, in economic downturns, employees may be more reluctant to leave a stable job, even if they’re unhappy. Additionally, industry-specific trends can also play a role. For example, a rapidly growing industry may experience higher turnover as employees jump to new opportunities, while a declining industry may see lower turnover due to a lack of job prospects.

How are employee turnover rates calculated?

The ability to calculate employee turnover rates offers more insight into unveiling the root causes and minimising the rates of turnover. Calculating the figures, it’s relatively straightforward. The first step involves identifying the number of employees who have left the organisation within a designated period; this is usually a year. Following this, the average number of employees during that same period needs to be determined. This can be achieved by averaging the employee headcount at the beginning and end of the chosen timeframe or, alternatively, by dividing the total employee-days by the number of days within the period. Finally, to determine the result as a percentage, the number of departing employees is divided by the average number of employees and then multiplied by 100. This calculation generally includes voluntary resignations, terminations and retirements. 

For instance, if an organisation starts with 120 workers, and finishes the year with 115 while 10 workers leave throughout the year, the turnover rate would be calculated as follows:

Employee Turnover Rate = (Number of Employees Left) / (Average Number of Employees) x 100

8.51% = (10 Employees) / ((120 Employees + 115 Employees) / 2) x 100
 
This figure provides a clear picture of employee movement within the organisation. However, the significant value lies in analysing these rates over an extended period of time and benchmarking them against industry standards. This comparative analysis allows organisations to identify trends and potential areas for improvement in employee retention strategies.


Employee turnover rates by industry

Market research from 2020 paints a clear picture: retail endured a staggering 60.5% turnover rate, while hospitality topped the charts at a concerning 73.8%. These sectors often grapple with higher turnover due to factors such as:

Seasonal employment: Fluctuations in demand throughout the year necessitate seasonal hiring and lay-offs. This disrupts continuity and creates a less stable work environment.

Low barriers to entry: Many roles within retail and hospitality require minimal specialised skills, making it easier for employees to find alternative positions.

On the other hand, industries such as healthcare and finance typically experience lower turnover rates. This can be attributed to:

Stringent regulatory requirements: These industries often demand specific licences and certifications, creating a barrier to entry and encouraging existing employees to stay compliant and maintain their positions.

Specialised skill sets and expertise: The knowledge and experience required for these roles can be significant, so employees are valuable assets companies are keen to retain.

Sectors such as construction, manufacturing, warehousing, transport and logistics, utilities, and oil and gas fall somewhere between these two extremes. While not facing the same level of transience as retail or hospitality, these roles often involve stringent regulatory requirements and skills as well as:

Physically demanding work: The physical nature of many industrial jobs can lead to fatigue, injuries and burnout, potentially contributing to turnover.

Shift work: Rotating schedules and non-traditional working hours can disrupt work-life balance and contribute to employee dissatisfaction.

Understanding industry-specific turnover patterns is crucial for organisations to benchmark their performance and implement targeted retention strategies tailored to their sector’s dynamics. Through comprehensive analysis and comparison with industry norms, businesses can identify areas for improvement and mitigate the negative impacts of high turnover.

How to reduce employee churn

Reducing employee turnover begins with fostering a positive work environment where employees feel valued, engaged and supported. When organisations identify and can really understand the significant financial and operational consequences of high employee turnover, actionable strategies will be implemented to retain employees. This can be achieved through the following.

Use open two-way communication: Implement effective communication channels to address concerns promptly and transparently.

Conduct regular employee engagement surveys: Regularly request feedback from your employees through surveys and 1:1 meetings. This allows you to identify areas of concern and implement solutions to address their needs and frustrations.

Foster a culture of recognition and appreciation: Prioritise employee recognition and celebrate achievements to boost morale and job satisfaction. Employees who feel valued and appreciated are more likely to be satisfied and committed to their work. Implement programmes that acknowledge a job well done, publicly or privately, depending on the employee’s preference. This fosters a sense of accomplishment and motivates employees to continue exceeding expectations.

Prioritise health and safety: A safe and healthy work environment is fundamental. Implement robust safety protocols, provide adequate training and prioritise employee well-being to create a work environment where employees feel valued and protected.

Prioritise work-life balance: Achieving a healthy balance between work and personal life is crucial. Encourage a healthy work-life balance and provide resources for stress management and professional development. Offer flexible work arrangements, and remote work options when feasible, and encourage employees to take breaks and utilise annual leave. This helps prevent burnout and fosters a more positive work environment.

Invest in professional development: Providing opportunities for growth and learning demonstrates your commitment to your employees’ futures. Offer training programmes, mentorship opportunities and clear career paths to keep employees engaged and challenged.

Offer competitive pay and benefits: While not the sole factor, offering competitive salaries and a comprehensive benefits package is essential for attracting and retaining top talent. Regularly review your pay structure to ensure you’re offering market-rate pay and benefits that cater to your employees’ needs.


Conclusion

There is substantial evidence that indicates the cost of replacing a single employee for organisations can be upwards of 6 months’ salary or more, not to mention the disruption to workflows and the loss of valuable knowledge and skill sets. Beyond the immediate financial burden, high turnover can cultivate a cycle of negativity. Disgruntled employees are more likely to seek new opportunities, further escalating the issue. This highlights the critical importance of fostering a work environment that retains an organisation’s workers.

Organisations that prioritise employee wellbeing and implement robust safety protocols see a significant return on their investment while employees feel valued and protected. Offering competitive salaries and a comprehensive benefits package can be essential starting points. Organisations should regularly review their offerings to ensure they remain attractive in the current market. Open communication, recognition programmes and a focus on work-life balance all contribute to a positive work environment where employees feel valued and appreciated, while offering opportunities for career development, training programmes and mentorship demonstrates your commitment to your employees’ futures. By focusing on these factors, organisations can build a loyal and productive workforce, minimising the negative impacts of employee churn and maximising success.

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