In simple words, employee turnover can be understood as dissatisfied employees leaving a company at an alarming rate and being replaced by a new workforce.
Turnover is something that affects all the companies in somehow or the other and hence it is very much important to pay special attention to it. Many of the organizations may think it to be something that is of not much importance but it can lead to a number of impacts on the organization that can be both good and bad.
In order to know about the impacts and other details, it is important to know and understand the concept of employee turnover in a bit detailed way.
What Is Employee Turnover?
The term actually depicts the rate of the number of employees or a percentage of employees that are leaving the organization and are then replaced by new employees with a specific span of the time period.
There are two ways of how the employee leaves the organization-
- Voluntary Turnover
- Involuntary Turnover
The first one is the voluntary type in which the employee takes the decision to leave the organization and resigns for varied reasons such as better opportunity or personal situations.
The second type is known as involuntary and in this case, the employer makes the employee leave the organization or is fired.
Whatever is the case, when an employee leaves a firm, it takes extra costing again for the company to hire someone new in his or her place. This surely puts an impact on the productivity and the revenue quotient of the organization.
Reasons for Employee Turnover are
- Personality Issues
- Poor Management
- Insufficient Employee Pay and Benefits
- Unchallenging Work Environment
- Work Stress
- No or Poor Employee Training
Employee Turnover is of two types – Desirable and Undesirable. Let us un derstand undesirable first because very rarely Employee turnover is desired by organizations.
1) The decrease in Overall Performance
When an employee leaves an organization all of a sudden, it can cause a decrease in the performance for the company, as they will not have enough time to find a new employee that is equally adept in handling that task.
2) Increase in the Cost
When an employee leaves, costing increase at a different level of organizations. It will incorporate things like paying the dues of the previous employee, new hiring, training cost, onboarding cost, etc.
3) The problem in Managing Daily Tasks
When employees leave a job all of a sudden, organizations struggle in maintaining the same flow in conducting the daily tasks. So, if the notice period is not followed in employee turnover, it can impede the performance of an organization.
4) Negative Image for the Company Due to Employee Turnover
Companies that do not have good employee retention rate, face negative sentiments in the market. So, if you are running a big business and want sustainable growth, it is important that you do not have higher employee turnover rate.
5) You lose your investment in the Employee Development Program
Businesses invest in the employee development program, so their employees can be more productive. It needs a lot of monetary investment along with time and energy, and all of these can be wasted if the employee leaves the organization all of a sudden.
6) Not having a Knowledgeable and Experienced Workforce
In case your business needs an experienced workforce for successful channelization of different tasks, then employee turnover can hamper your progress immediately. You will not be having adept employees to tackle crucial task which can be a big problem for sure.
However, one thing you need to understand that all turnovers do not have downsides. There are some turnovers that are the need of the hour and if you face those, you will have some fair share of benefits as well.
They are desirable turnovers and let us understand those as well-
Desirable Employee Turnover
So, by now you must have known that the employee turnover may put up a negative impact on the organization. But despite the disadvantages, there are also a number of benefits that the organizations enjoy from such a turnover. Yes, there are some of the amazing benefits that you never imagined about!
1) Staying Away From Poor Performances
There are a number of companies that have a very straight command for the employees that if you cannot perform you can leave the organization. Though this seems to be quite cruel for the employees this is something that is practical.
A company hires an employee based on the words spoken by him or her and the skills and talents displayed. But if the employee is not able to show up enough performance in comparison to what has been promised during the interview, it is a loss of productivity for the employer.
Hence, such employees can be replaced with someone who can perform well and can provide high productivity to the organization.
2) Upgrade Of The Employees
Based on the same theory as mentioned in the above section, there are a number of companies who provide the employees with a particular time period to upscale their performances.
The second option for those who are not able to get upgraded is to leave the organization. In such a situation, there are a number of employees who put in their best efforts to perform really well.
There will be also some such employees who will get themselves trained with professional courses so that they can perform in the best way.
3) Fresher Perspectives
The world is growing quite fast and the thought process and imaginations are also changing with this passing time. Brands and organizations need to think fresh so that they can provide new ideas and new approaches to the customers.
This can be done only when they have fresh brains in the team. Getting new employees hired on top of the existing ones can cost a lot to the employer. Hence, one of the best ideas is to replace some of the employees with the new ones who can provide fresh ideas for your business.
4) Lower Salaries
One of the major reasons to go for employee turnover is to maintain the salary capping. If an employee is working in an organization for years, the company needs to increase the salary from time to time.
This can be a loss for the company if the employee is not performing well and also if the employee is not able to provider fresher perspectives for the business. In such a situation again, it is better to get new employees with a much lower salary that you are paying an employee who is there in the organization for years.
This may seem at times quite shrewd but apart from taking care of the benefits of employees, it is also important for the organization to look after its profit. It the company is not looking after its profit, it will be not possible to pay the employees well.
5) Facing The Competition
A bit of this has been discussed in the section of fresher perspectives. Time is changing and hence you need to provide something new and much fresher to the customers so that you can still be in demand. This can be done only when you have fresher minds in your team.
Also, the competition is rising by each day and hence it is very much important that you stay focused and ready always to face the challenges of the competition.
Employees who have taken the position to be granted or who are just enjoying the benefits without putting in the extra effort can lead the company to great loses.
You need employees who are aware of the competitive market and are ready to come up with great ideas and go extra miles to provide results for your business. Rewarding such employees will actually be a great thing that spending on those who have become a burden for the firm.
So, now we can understand that turnover is good if you want to replace poor or marginal employees with the new workforce with brighter ideas and better motivation.
But it is inevitable that your business is not having high turnover costs. Businesses have to focus here with a goal to retain their good performers.
But the question that arises here is –
Why do businesses not consider Turnover as the cost problem?
Some of the key reasons for this are-
- Businesses do not have the process in place to tabulate the turnover costs
- The turnover cost is not being reported to the top level management of the company
- Some of the businesses consider turnover as the inescapable cost of channelizing business
- Turnover is just an HR issue
- Turnover costs are underestimated
So, if it has motivated you to find out the turnover cost then the following costs should be measured to gauge the exact turnover cost for your business-
- Exit costs
- Compensation & benefits while training
- Lost productivity
- Customer dissatisfaction
- Reduced or lost business
- Administrative costs
- Lost expertise
- Temporary workers
How to Calculate Employee Turnover Rate?
It may seem scary at first to come up with the employee turnover rate, but it is actually not. The rate is simply calculated with the formula-
The formula for Employee Turnover is:
Turnover % = No of Permanent Leavers x 100 / No of Permanent Employees
(Total number of employees who left the organization/average number of employees in a month) * 100
This will bring out the turnover rate of the employees in your organization.
Importance of having a balance between No Turnover & High Turnover
Here, you need to understand that a company with no turnover can have the working environment where proceedings are excessively routine and no innovation or improvement is envisioned.
But if a company is having a very high turnover rate, they will have a new and inexperienced workforce to do the important and crucial tasks.
So, both of these cases cannot be productive and opting for a mechanism that ensures a proper balance between High Turnover and No Turnover is significant for the successful channelization of a business.
The best solution for this is knowing the right strategy for retaining your bright employees.
5 Employee Retention Strategies to stop Employee Turnover
- Properly measuring Employee Satisfaction
- Including 360 Feedback strategy in which subordinates give feedback about their supervisors
- Having a compensation policy at per with your competitors
- Having an organizational culture that has two-way communication
- Conduct exit interviews to gauge the needs of the employees
The competition today has increased immensely and hence the theory of survival of the fittest is being followed quite seriously.
Organizations are making sure that no mistakes are conducted at their end and hence only the best performers are kept in the team. It is quite understood that at times the idea of employee turnover can have a bad impact on the organization, but it also provides various benefits.
So, how important do you consider employee turnover for your business? Share with us in the comments.