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Turnover (employment)
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- See turnover for other uses of the term.
In a human resources context, turnover or labor turnover is the rate at which an employer gains and loses employees. Simple ways to describe it are "how long employees tend to stay" or "the rate of traffic through the revolving door." Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry.
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Encyclopedia
- See turnover for other uses of the term.
In a human resources context, turnover or labor turnover is the rate at which an employer gains and loses employees. Simple ways to describe it are "how long employees tend to stay" or "the rate of traffic through the revolving door." Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover can be harmful to a company's productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.
In the U.S., for the period of December 2000 to November 2008, the average total non-farm seasonally adjusted monthly turnover rate was 3.3%.
Costs
When accounting for the costs (both real costs, such as time taken to select and recruit a replacement, and also opportunity costs, such as lost productivity), the cost of employee turnover to for-profit organizations has been estimated to be up to 150% of the employees' remuneration package. There are both direct and indirect costs. Direct cost relate to the leaving costs, replacement costs and transitions costs, while indirect costs relate to the loss of production, reduced performance levels, unnecessary overtime and low morale.
Internal vs. external turnover
Like recruitment, turnover can be classed as 'internal' or external. Internal turnover involves employees leaving their current position, and taking a new position with the same organization. Both positive (such as increased morale from the change of task and supervisor) and negative (such as project/relational disruption, or the Peter Principle) effects of internal turnover exist, and thus this form of turnover may be as important to monitor as its external counterpart. Internal turnover might be moderated and controlled by typical HR mechanisms, such as an internal recruitment policy or formal succession planning.
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.
However, high turnover rates of skilled professionals can pose as a risk to the business or organization, due to the human capital (such as skills, training, and knowledge) lost. Notably, given the natural specialization of skilled professionals, these employees are likely to be re-employed within the same industry by a competitor. Therefore, turnover of these individuals incurs both replacement costs to the organization, as well as resulting in a competitive disadvantage to the business.
Voluntary vs. involuntary turnover
Practitioners can differentiate between instances of voluntary turnover, initiated at the choice of the employee, and those involuntary instances where the employee has no choice in their termination (such as long term sickness, death, moving overseas, or employer-initiated termination).
Typically, the characteristics of employees who engage in involuntary turnover are no different from job stayers. However, voluntary turnover can be predicted (and in turn, controlled) by the construct of turnover intent.
Causes of high or low turnover
High turnover often means that employees are unhappy with the work or compensation, but it can also indicate unsafe or unhealthy conditions, or that too few employees give satisfactory performance (due to unrealistic expectations or poor candidate screening). The lack of career opportunities and challenges, dissatisfaction with the job-scope or conflict with the management have been cited as predictors of high turnover.
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 Hertzberg's Two factor theory, McClelland's Theory of Needs, and Hackman & Oldham's Job Characteristics Model
Investments
Alternatively, low turnover may indicate the presence of employee 'investments' (also known 'side bets') in their position: certain benefits may be enjoyed while the employee remains employed with the organization, which would be lost upon resignation (e.g. health insurance, discounted home loans, redundancy packages, etc). Such employees would be expected to demonstrate lower intent to leave than if such 'side bets' were not present.
How to prevent turnover
Employees are important in any running of a business, without them the business would be unsuccessful. However, more and more employers today are finding employees remain for approximately 23 to 24 months according to the 2006 Bureau of Labor Statistics. The Employment Policy Foundation states it costs a company on an average of $15,000 per employee, including separation costs, including paperwork, unemployment; vacancy costs, including overtime or temporary employees and replacement cots including advertisement, interview time, relocation, training and decreased productivity when colleagues depart.
Providing a stimulating workplace environment in which fosters happy, motivated and empowered individuals, which lowers employee turnover and absentee rates . Promoting a work environment that fosters personal and professional growth promotes harmony and encouragement on all levels, so the effects are felt company wide.
Continual training and reinforcement develops a work force that is competent, consistent, competitive, effective and efficient. Beginning on the first day of work, providing the individual with the necessary skills to perform their job is important Before the first day, it is important the interview and hiring process expose new hires to an explanation of the company, so individuals know if the job is the best choice Providing ongoing performance management by networking within the company to share the best practices, helps build relationships among co-workers. Motivating employees to focus on customer success, profitable growth and the company well being is important. Including employees in on future plans, new purchases, policy changes, introducing new employees and employees who have gone above and beyond at meetings keeps employees informed and involved. Early engagement and engagement along the way, shows employees they are wanted through information or recognition rewards, making them feel included.
When companies hire the best people, new talent hired and veterans are enabled to reach company goals, maximizing the investment of each employee. Taking the time to listen to employees and making them feel involved will create loyalty, in turn reducing turnover allowing for growth
Calculation
One typical method of calculating the turnover rate of a company is to divide the number of employees who have left the organization within a year, by total number of employees who work for that company in the same year.
Let's say there were 100 employees at the beginning of the year, and
100 employees at the end of the year, and at the end of the year,
84 of those employees were the same ones as were there the previous
year. You might say that the turnover rate was 16%.
But suppose one of those 16 who left was actually replaced three
times. The employee quit in January, the replacement quit in April,
and another person was hired who lasted only until November. Then you
might want to count every time an employee left the company and
another one was hired - in this case you'd get 18%.
Another complication: suppose the work force is 100 at the beginning
and 90 at the end of the year. Perhaps 16 people have left, but only 6
have been hired during the year, while 2 more were hired and retired
within the same year. You might define turnover as 18/100 or as 18/90,
or as 18/95, since 95 is the average of 90 and 100. Instead of 95, you
might want to do a fancier average, where you actually add up the
number of employees on each day of the year, and divide the total by
365.
One more complication: who decided it was a calendar year that we
should use for sampling the turnover rate? Perhaps there was no
turnover at all for 3 years prior, and then a shift in management
caused a lot of people to leave this year. Then a more representative
measure would average over 2 or 3 or 4 years. Maybe you'd want to
average the turnover in each month of the last 48, but weight recent
months more heavily than earlier months.
Further reading
Historical interest
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