When it comes to workforce planning meetings, one of the top issues sure to be on the agenda will be employee turnover rates.
And this year, any conversation about employee turnover rates is sure to include talk about The Great Resignation. The Great Attrition. The Big Quit. The Great Reshuffle.
Call it what you will; this is an economic trend that started in early 2021 and has only shown signs of slowing down due to the recession we find ourselves in.
Most people said they were quitting to find a job that paid more, had a better work environment with more opportunities to advance, paid medical benefits, and were searching for a better work-life balance.
By August 2022, things seemed to be looking up, with a country-wide reported workforce larger than before the COVID-19 pandemic. While that sounds good on paper, a closer look shows that a record number of Americans quit to start their own small businesses. The irony is that these new business owners now face the same labor shortages the rest of the country is — the one they helped create.
This matters as replacing a full-time employee cost businesses at least one-half of each employee’s annual salary and can cost up to two times that amount. The costs are due to the following:
- Recruitment and onboarding processes
- Training new employees
- Operational inefficiencies and delays
- Organizational knowledge that leaves with the quitting employee
- Opportunity loss when innovative thinkers and leaders leave
- Negative impact on fellow staff members’ morale and burnout
- Negative impact on the customer experience due to organizational inefficiencies
Back in 2019, the pre-pandemic days, Gallup calculated that employee turnover rates cost U.S. businesses one trillion dollars. Fast forward to 2021, and the number is estimated to be closer to 2.4 trillion.
The Relationship Between Employee Turnover and Performance
While “employee turnover rate” is a handy catchphrase to describe staff leaving, it may not be the most helpful way to assess why this is happening and what to do about it.
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A more helpful metric in determining the relationship between employee turnover and performance starts with determining whether the turnover is happening with “top performers” or with the “bottom performers.” High turnover rates of under-performers are highly preferable to those of your top performers.
McKinsey & Company quoted a study of more than 600,000 researchers, politicians, athletes, and entertainers from “The Best and the Rest: Revisiting the Norm of Normality in Individual Performance” when they determined that high-performers are 400% more productive than average ones.
They dug deeper and found that businesses shared the same statistic, if not a higher one. High-performance information- and interaction-intensive workers can be a mind-boggling 800% more productive than average- and bottom-performers.
McKinsey & Company cited a three-year project as an example of the impact this may have. They posited what would happen if you replaced the 20% average-talent workers with great workers. If the replacement staff were 400% more productive, the same project would take less than two years. If the replacement staff were 800% more productive, it would take less than one.
Clearly, if your high- or top-performers are heading out the door, you have a different and more costly problem than if your lower-performing employees leave.
Current Employee Turnover Rates by Industry
As 2022 comes to an end, the Bureau of Labor Statistics released its “Job Openings and Labor Turnover — October 2022” news release. Included in the release was a breakdown of industry “separations” that includes quits, layoffs and discharges, and other separations.
Quits refer to “voluntary separations” that are initiated by the employee. Layoffs and discharges are initiated by the employer, and “other” separations cover employees leaving because of death, disability, or a transfer to another location in the same firm.
“In October, the number and rate of quits were little changed at 4.0 million and 2.6 percent, respectively. In October, quits decreased in information (-29,000).”
5,309 Total Private:
- Mining and logging: 20
- Construction: 326
- Manufacturing: 390
- Durable goods: 205
- Nondurable goods: 186
- Trade, transportation, and utilities: 1195
- Wholesale trade: 144
- Retail trade: 757
- Transportation, warehousing, and utilities: 294
- Information: 73
- Financial activities: 207
- Finance and insurance: 123
- Real estate and rental and leasing: 84
- Professional and business services: 1070
- Education and health services: 728
- Educational services: 86
- Healthcare and social assistance: 642
- Leisure and hospitality: 1070
- Arts, entertainment, and recreation: 134
- Accommodation and food services: 936
- Other services: 230
374 Total Government:
- Federal: 39
- State and local: 336
- State and local education: 169
- State and local, excluding education: 167
Before COVID-19, the average employee turnover rate was in the neighborhood of 20%. But according to Gartner, the U.S. total annual employee turnover “will likely jump by nearly 20% from the prepandemic annual average.”
In today’s economy, another study by Gallup states that companies with turnover rates under 40% are considered “low-turnover businesses.”
Here’s the same list, somewhat simplified, of employee turnovers by industry, given in descending order of percentages:
- Accommodation and food services: 86.3%
- Arts, entertainment, and recreation: 76.3%
- Retail trade: 64.6%
- Professional and business services: 64.2%
- Construction: 56.9%
- Transportation, warehousing, and utilities: 49.0%
- Nondurable goods manufacturing: 47.3%
- Other services: 47.2%
- Healthcare and social assistance: 39.4%
- Information: 38.9%
- Mining and logging: 36.2%
- Durable goods manufacturing: 35.3%
- Real estate and rental and leasing: 34.9%
- Wholesale trade: 33.5%
- Finance and insurance: 26.3%
- Educational services: 25.5%
- State and local government, excluding education: 20.2%
- Federal government: 18.8%
- State and local government education: 16.0%
How Employee Turnover Rates Impact Businesses
Digging a little deeper into how employee turnover rates impact businesses, beyond the costs to a company when they’re forced to hire and train someone new, shows that the most common impacts are related to:
- Recruiting new staff
- Employee productivity
- Employee morale
- Missed opportunities
- Reduced product or service quality
- Lower marketing return on investment
When it comes to recruiting new staff, the process involves more than reading resumes and conducting interviews. It starts with developing a thorough and well-defined job description outlining the “duties, competencies, qualifications, authority for decision-making, and impact of a given position on the organization.
Once you’re satisfied with the wording on the job description, you’ll want to place ads on industry-specific platforms in order to target recruits. If your company size warrants it, you may want to consider hiring an employee recruitment service to help source and pre-screen potential employees.
One of the ways employee turnover impacts businesses relates to employee productivity. When a fully-trained and productive employee leaves the company, their replacement will need a grace period as they adjust to their new role and familiarize themselves with projects and tasks.
Long-term employees have a built-in understanding of a company’s culture, ways of doing business, and who they need to talk with to get the job done. All this “extra” intelligence is known as institutional knowledge. The only way to accumulate this knowledge is through time spent and developing long-term relationships with other team members.
Employee morale can also take a hit when there are high employee turnover rates. This happens when the remaining employees are forced to take on increased workloads with more responsibility as a result of a gap in staff and also when new staff are hired and need to get up to speed on their job.
New employees can also struggle with employee morale. It can take time to learn how to do the job, relate to the team around them, and feel able to contribute to projects and deadlines. It takes an understanding boss and co-workers to onboard these new hires as quickly as possible.
There will necessarily be missed opportunities as a result of employee turnover. These missed opportunities, as well as reduced product or service quality and lower marketing return on investments, are all the indirect costs of employee turnover rates.
These are all natural consequences that come when trained and productive employees leave and new recruits step into their shoes. On average, it takes “between three and six months to learn a new job well.”
That’s why most organizations have a three-month probation period in order to see how well a new hire does their job and fits in with the company culture. Granted, if the job is relatively simple to learn, the time period can be shortened considerably down to several weeks.
Ways to Improve Employee Turnover Rates
If your organization is currently experiencing higher turnover rates than you’d like, there are ways you can stem the bleeding and turn the tide.
The global pandemic is responsible for nearly seven in ten employees rethinking how they view the place work plays in their lives. A Gartner survey indicated that near the end of last year, 52% of employees said they would stay at their current jobs based on how flexible the organizations were.
The United States was, until recently, commonly known as a nation of workaholics. Work became the new religion, a way to find meaning, and a “crucial part of our identity.”
In our (almost) post-pandemic world, that’s all changed. For better or worse, the “massive psychological shock” we all went through has become an opportunity to reevaluate our relationship with work. It became clear that the collective “we” wanted was to have greater control over the “terms of our labor.”
Companies must climb on board with this sentiment if they want to improve employee turnover rates and attract new hires. Understanding your employee and what their expectations are is critical.
The top trends that seem likely to continue into the new year and beyond when it comes to employee workplace expectations are:
1. They provide an opportunity for growth.
There’s a strong link between employees remaining with a company if that company offers internal promotion opportunities. Data shows that, on average, employees are 22% more likely to stay with their organization for longer than three years if they are offered an internal move through promotion or a lateral change.
This type of growth satisfies the employees’ desire to understand, “How can I do a better job so that I can get paid more, promoted, or land my next dream role?” Employers who neglect to answer this question will find some of their best people leaving.
2. They have a healthy workplace culture.
A University of California study identified six factors that, together, contribute to employee burnout. Toxic workplaces and a lack of fairness in the workplace were two of the areas that put staff at risk.
Managers contribute greatly to a healthy workplace culture. The best ones take time to see their employees as individuals, help them develop their personal strengths, and give them work that will capitalize on them.
“Average managers play checkers, while great managers play chess.”
3. They promote work-life balance.
Companies that recognize the importance of a work-life balance will care if their staff feel they are “asked to perform tasks without being given the resources to succeed, when they feel a lack of control or when they consistently face more daily stresses than is manageable.”
Understanding that remote work is the new normal is part of the “new” workplace culture. Owl Labs’s recent survey found that offering employees the opportunity for hybrid schedules — part of the week working in the office and part working from home made for happier employees who would be willing to stay in their jobs longer.
When it comes to millennials, 69% said they would be willing to give up some of their work benefits if it meant they could work from home. And the research shows these employees don’t want to work from home simply because they want to work in their pajamas. Seventy-eight percent of remote employees want to work from home to avoid distractions.
4. They are paid appropriately.
Compensation is the top reason why employees choose to leave their current company. Time off and benefits follow closely behind.
Organizations can’t expect to keep their best people without offering regular pay reviews and ensuring they are competitive with what other companies pay for similar roles. With 40-year-high inflation rates, people need to feel they are compensated to cover their standard expenses and earn enough money for extras.
Research competitive salary ranges that are based on similar work done locally. This will give you the insight needed to keep your employees happier staying than going.
5. They are recognized for the contribution they bring.
Earlier this year, CNBC released an article stating that “recognition is a simple yet effective way to keep employees from quitting.” They quoted heavily from a new Gallup/Workhuman survey that noted that employees who worked for an organization that made “employee recognition a priority” are 56% less likely to look for new jobs.
An old saying goes, “Good help is hard to find.” We know that good help is also hard to keep, and the companies that recognize their employees’ achievements are the ones who will have the best chance of flourishing in today’s ever-changing workforce.
Claudine is the Chief Relationship Officer at Level 6. She holds a master’s degree in industrial/organizational psychology. Her experience includes working as a certified conflict mediator for the United States Postal Service, a human performance analyst for Accenture, an Academic Dean, and a College Director. She is currently an adjunct Professor of Psychology at Southern New Hampshire University. With over 20 years of experience, she joined Level 6 to guide clients seeking effective ways to change behavior and, ultimately, their bottom line.