Knowing and managing your company’s employee turnover rate is essential if you want to stay in business for the long haul. While every company deals with turnover to some extent, if too many employees are leaving voluntarily, this can cause serious problems.
The impact of high employee turnover
Replacing employees requires you to find new applicants, conduct interviews and provide training. All of this takes time and money – especially when you consider that a new employee typically won’t start benefiting the company’s bottom line for their first few months on the job. Ultimately, a high turnover rate eats into your profits, but it also has a poisonous effect on workplace culture.
If your turnover rate is significantly higher than the average for your industry, it’s impossible to establish a positive atmosphere in the office. After all, you never know when the person sitting next to you will be leaving the company.
Fortunately, once you start tracking your employee turnover rate, you’ll have a clearer understanding of whether your company is moving in the right direction. As the popular business adage states: “What gets measured gets managed”.
How to calculate employee turnover rate
There are two types of employee turnover: voluntary and involuntary. Voluntary turnover is when the employee is leaving on his or her own volition, whereas involuntary turnover means that the company made the decision to let the employee go.
When calculating your turnover rate, you might find it insightful to determine voluntary turnover, involuntary turnover and total turnover. If you’re specifically analyzing voluntary turnover and there happens to be a higher than average number of retirements in your time period, you need to make sure this data is accounted for.
Additionally, determining the turnover for employees who have been with the company for a short period (such as a year) can be vitally important – as this may indicate a mismatch between job description and daily work, inadequate training or other factors.
If you’re calculating voluntary turnover for the past year, add up the amount of voluntary departures over 12 months, then divided this figure by the number of employees at the end of the 12 month period. For example:
Departures: 65
Number of Employees: 450
Turnover Rate: 0.14 or 14%
Check out some industry periodicals to find out the average turnover rate for your industry. If your percentage is higher than the average, this means that your employees are regularly leaving you for your direct competitors. Obviously, this is not sustainable and needs to be prevented.
Reasons for high voluntary employee turnover
If your voluntary turnover rate is high, this can be alarming, particularly since there are so many potentially contributing factors. Poor management, hiring problems, unpleasant working environments, uncompetitive salaries and benefits, unreasonable working hours, lack of flexible working practices and a lack of growth opportunities can all lead to a high employee turnover rate.
In most cases, there isn’t one single reason for a high employee turnover rate, but rather a combination of factors. If you can systematically tackle all aspects of your company to make it more appealing for employees, this will immediately improve your employee turnover rate.
Methods for reducing employee turnover
If your employee turnover rate is significantly worse than your industry standard, you urgently need to implement changes to stop your workers leaving you for your main competitors. Here are some of the best ways to reduce employee turnover and make your company a more appealing place for your workers.
1. Promote flexibility
The mass-production industrial era is well and truly over. You can’t take a one-size-fits-all approach to managing your workers and expect them to perform excellently, day in, day out.
In the modern era, people desire higher levels of autonomy than our predecessors experienced. If your company doesn’t offer flexible working practices, the competitors dominating your niche surely do! One of the easiest ways to retain your employees is by implementing flexible working hours.
People desire flexible working for a number of reasons; one of the most important pertains to sleeping patterns. There is a pervasive myth that early risers (also known as larks) are more productive, more successful and healthier than night owls. However, this is simply not true.
In a 1998 research paper by the University of Southampton, it was found that, on average, night owls had larger incomes than larks. Additionally, sleeping patterns bore no correlation with cognitive performance or state of health.
Every person has their own circadian rhythm, and genetics play a role in this. Research suggests that 10% of people have early chronotypes, 20% are late risers and 70% fall somewhere in between the two.
If you rigidly impose a 9am starting time at your office, this may cause a significant number of your workers to underperform, because they naturally have later sleeping patterns. This will not only lower the productive output of your workplace, but it may also build resentment which will lead to a higher turnover rate.
Flexible working is also extremely beneficial for those who have family commitments. For parents, the commute to work often coincides with the trip to school in the morning, so it can be hard to do both.
Flexible working is a huge incentive for people who are delicately balancing a career with looking after their familiars. Conversely, inflexible working practices significantly contribute to a high employee turnover rate – especially among workers who have family commitments.
2. Encourage remote work
To take flexible working practices one step further; allowing your employees to work remotely (if they desire) will also improve your company’s culture.
Depending on which study you reference, between one quarter and one half of all people are introverts. For some professions, such as graphic design and software engineering, introverts are the majority.
Despite the stereotype, being an introvert doesn’t make you a loner or a misanthrope – it simply means that you recharge while alone, require solitude to focus and become drained after prolonged periods of social activity.
As a general rule of thumb, introverts are not productive in traditional office spaces (particularly open-plan offices). Encouraging remote work is a great way to make the most out of highly skilled introverted workers who need a secluded workplace to maximize their output.
Some managers have unfounded fears regarding remote work. There is a misbelief that if a worker isn’t sitting in the office, with a manager monitoring his or her every move like a tyrant, then they will take this opportunity to slack off and underperform. In reality, the opposite is typically true.
A study by PurePayroll indicates that 86% of workers prefer to work alone in order to maximize their productivity, and 61% of workers consider loud colleagues to be the biggest workplace distraction.
In another study, 82% of telecommuters reported having lower levels of stress. If workers feel comfortable and are more productive when working at home, it simply doesn’t make sense to force people to work in an office when they don’t want to.
It’s true that for certain roles, you need to communicate face-to-face with your colleagues, but in many instances, remote work is perfectly acceptable, if not preferable. In addition to the vast improvements of employee morale, you will also save on overheads by encouraging employees to work remotely.
Managing remote workers isn’t nearly as difficult as you might imagine. There are plenty of tools available which make it easy to work with virtual teams. One of the most useful tools is employee monitoring software; this enables you to record the exact amount of time your workers take to complete specific tasks.
While many outsourced workers are honest, if you aren’t meticulously tracking time, there will always be a monetary incentive for workers to accentuate the amount of time they’ve taken to complete each task. Time tracking software combats this problem and helps business owners to maximize their profits when working with outsourced virtual workers.
3. Solicit regular feedback
Many companies solicit feedback from their workers once a year (at best!), and wonder why their employee turnover rate is high. Unfortunately, soliciting honest feedback can be challenging, because employees do not want to risk offending their superiors and may feel their livelihood is at stake if they’re too critical.
However, if you want to improve as a company, lower your turnover rate, drive higher profits and create an awesome culture that motivates your workers, you need to make it a priority to understand what your workers truly think.
If you explicitly state that you require honest feedback from your employees, and you reassure them that they won’t be judged, then they’ll be more likely to comply. You may wish to solicit feedback after important meetings, at the commencement of new projects or as part of their annual review (give them the chance to be the reviewer for once).
Instead of asking for general feedback, you’ll receive more actionable input if you ask specific questions about the company, managerial process and workplace culture. Instead of focusing on previous mistakes, try to steer the conversation towards what can be done better in the future.
You will receive more elaborate feedback if you present your workers with the questions in advance, and give them time to think about their answers before you consult them. If you spring an interview on them by surprise, important information may get omitted.
When receiving feedback, it’s all well and good stating that criticism won’t be judged, but if your sub-communications convey judgment or defensiveness, then you’ll receive sugarcoated nonsense instead of the true critical feedback that your company needs to evolve. It’s essential that business leaders push their egos to the side when receiving feedback and ask difficult questions such as “What could the leadership team do better to improve workplace morale?”
You might not always like the responses to the questions, but if the feedback helps you to lower your turnover rate and drive long-term profits, then it’s always worth hearing good, bad and ugly feedback.
It’s also advisable to conduct exit interviews for employees who are leaving voluntarily. This feedback will give you a clear idea of why people are leaving your company, and what you can do to prevent this from happening.
Finally, it’s crucially important to make changes based on the feedback from your workers. If your workers suspect that soliciting feedback is merely a shallow demonstration of empathy – they will be unlikely to give you honest feedback in the future (and your turnover rate will continue to rise). Always follow up with your workers at a later date and ensure the relevant changes are continuously being made to improve your company.
4. Pay people what they deserve
A survey conducted by the American Psychological Association reveals some interesting insights about why American workers stay in their jobs. The percentage of participants who agreed or strongly agreed with the following statements were as follows:
- I enjoy the work I do (67%)
- My job fits well with the other areas of my life (67%)
- The benefits (60%)
- The pay (59%)
- I feel connected to the organization (56%)
While fulfilling work and flexibility were the most important job retention factors, pay and benefits were not far behind. If you pay people the minimum you can get away with instead of what they deserve based on their skills, you will quickly start losing employees to your competitors. The same applies for employee benefits.
As an employee develops their skills and becomes more economically valuable to your organization, it’s important that their salary is continuously upgraded to reflect this (not just when they come asking for a raise).
Despite what they might tell you at their job interview about their reasons for applying – a significant number of your most intelligent, skillful and hardworking employees are motivated primarily by financial gain. Intangible benefits like a pleasant working environment help, but it’s important that your workers are taken care of monetarily if you want to want to retain them.
5. Optimize your hiring process
One of the easiest ways to reduce your employee turnover rate is by optimizing your hiring process. If you’re hiring the right candidates from the start, then they’ll be less likely to leave later on down the line. You need to make sure your new hires are a good fit in terms of skills, and to a lesser extent, company culture.
Oftentimes, companies can pass on candidates that would produce excellent economic results for the organization while hiring underwhelming alternatives who were more proficient in interview situations.
It’s an economic reality that the vast majority of your workers would not be working for your company if they didn’t need the money. This can be a difficult pill to swallow as a business leader, but it’s necessary if you want to be objective about selecting candidates who will benefit the long-term profitability of your organization.
By asking workers questions about their personality, values, weaknesses and reasons for applying – they’re more likely to tell you what they think you want to hear rather than the honest truth. If you put too much emphasis on such questions, you might end up hiring the best actor rather than the best worker. Remember that you’re running a business and not a social club. Your aim is to generate long-term profits, not to find like-minded friends.
By focusing on skills rather than personality during the interview process, you’ll be more likely to find the best candidates, and by treating them with respect (offering them a good salary, with competitive benefits and flexible working conditions), they’ll be likely to stick around.
Instead of asking your candidate peculiar, anecdotal questions about their previous working experience, you’ll learn more about their suitability by testing them on their core competencies. If you’re hiring a copywriter, put them in front of a computer and ask them to deliver a new blog post for your website.
If you can make the interview process a true assessment of what the candidate will be doing on a day-to-day basis at work, your hiring process will be much more efficient and your turnover rate will diminish as a consequence.
6. Improve managerial effectiveness
“People leave managers, not companies” is a scarily true business adage. Sometimes, you can do everything right as a business, but if there are strained worker/manager relationships within your organization, high employee turnover will be the result.
Some of the most deadly mistakes made by managers include:
- Overworking their teams
- Micromanaging
- Failing to reward good work
- Taking full credit for their team’s work
- Making false promises
- Preventing workers from developing their skills
- Refusing to take constructive criticism
In a study on workplace engagement, 80% of employees who are dissatisfied with their direct manager feel disengaged at work.
“Treat people how you would like to be treated” is catastrophically bad advice. Instead, it’s far more effective to treat people how they would like to be treated. This means taking an individualized approach to management.
Some workers want to be recognized for their efforts and love the camaraderie of being in a team. Others value privacy, financial remuneration and the ability to work remotely. Managers should take the time to get to know their workers and discover what makes them tick, then endeavor to make their workers as comfortable as humanly possible in exchange for high quality work.
The more comfortable your workers are, the more productive they will be. This results in long-term profits as well as lower staff turnover. Taking an individualized approach to management is essential if you want to retain your best workers and maximize their productive output.
7. Promote growth opportunities
The most talented and hardworking employees usually choose companies that have plenty of opportunities for career advancement. In a 2013 survey, a number of employees were asked why they would quit a job. 26% of respondents cited a lack of growth opportunities as a contributing factor.
If you aren’t actively investing in your workers and encouraging them to grow personally and professionally, then why would they stay loyal to you? If you continually hire from outside and neglect internal promotions, this will be detrimental to employee morale. Only those with low ambitions would want to stay in a job where they’re stagnant.
While it’s not always possible, incentivized rewards based on KPIs are a great way to motivate workers and dissuade them from leaving. Likewise, investing in new training and courses for your employees will not only give you a more productive workforce, they’ll also feel a deeper affinity with your organization which will make them want to stick around.
Investing in the personal growth of your employees (the skills and facets of a person’s personality which don’t directly relate to their career) will really set you apart from your competitors. Mindvalley is one company that prioritizes personal growth and gives each employee 5 hours a week for this to take place. This duration can be spent reading a book relating to personal growth, and the employee will still get paid for his or her time. Now that’s really investing in your workforce!
Summary
In the modern era, businesses can no longer get away with treating their workers as disposable labor. In the industrial era, workers had to choose between a small number of local businesses for gainful employment (depending on their specific skillsets).
Nowadays, workforce mobility is higher than ever before, people can choose to freelance online instead of work traditional jobs and digital entrepreneurship can also be embarked upon with minimal overheads. If you don’t like your job, you can simply open a Shopify store and start dropshipping items from AliExpress as an alternative means of income!
Since people have an abundance of options when it comes to generating income, businesses need to seriously consider the needs and desires of its employees in order to retain them. Flexible hours and remote work shouldn’t just be a luxury, they should be a default.
The first step to lowering your employee turnover rate is to open a channel of communication with your workers. Encouraging honest feedback from your employees and then implementing changes based on the feedback is an excellent way to demonstrate that you care.
If you’re committed to treating your workforce as individuals who have their own unique requirements, values and preferred styles of working, your employee turnover rate will fall and you’ll start receiving job applications from people working for your direct competitors!
Liam Martin is a serial entrepreneur, co-founder of Time Doctor, Staff.com, and the Running Remote Conference, and author of the Wall Street Journal bestseller, “Running Remote.” He advocates for remote work and helps businesses optimize their remote teams.