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Understanding employee turnover and its related cost

Opinion & Analysis
Employee engagement

Nobody enjoys high staff turnover — not HR, not managers, and not coworkers who have worked alongside the person exiting the company. High turnover is a tell-tale sign of low morale and dissatisfied employees. Employees who are satisfied with their jobs generally don't give up easily, so high turnover usually indicates a problem. High turnover trends are hurting businesses not just in terms of money and time lost, but in decreased morale and productivity. High turnover can be costly and disruptive to business, so it's important to understand what causes it and how to reduce it. Here’s a look at the true cost of employee turnover and the strategies your business can use to improve retention.

What is employee turnover?

Employee turnover is a major concern of businesses of all size, but what does employee turnover really mean and what can be done about it? A high turnover rate can be costly and disruptive to a business, while a low turnover rate can indicate a healthy and productive workplace. There are many factors that contribute to employee turnover, including job satisfaction, pay and benefits, company culture, and workload. A common definition of employee turnover is the loss of talent and this includes any employee departure, including resignations, layoffs, terminations, retirements, location transfers, or even deaths. Employee turnover happens in two ways: voluntarily and involuntarily. Voluntary turnover is when an employee decides to leave an organisation. Involuntary turnover is when an employer terminates an employee's contract. Both are incredibly expensive.

Why is employee turnover expensive?

Turnover is a problem for businesses because it can lead to lost productivity, high recruitment and training costs, and decreased morale among remaining employees. High turnover rates can reflect negatively on businesses, making it difficult to attract and retain top talent. Turnover rates vary depending on the industry, but turnover is generally considered to be undesirable because it can disrupt the smooth operation of a business. Employee turnover is so expensive because organisations pay direct exit costs when an employee leaves and incur additional costs to recruit and train new hires. Direct exit costs can include payouts for accrued leave days, severance pay and other costs directly related to employees. Side effects of turnover, such as decreased productivity, knowledge loss, and lowered morale, can incur incidental costs, as well.

How to calculate turnover rate

Turnover is the calculation of how many employees leave their positions within the company within a given period. The employee turnover rate is calculated by dividing the number of employees who left the company by the average number of employees in a certain period of time. This number is then multiplied by 100 to get a percentage. The average number of employees is calculated by adding the number of employees the company was employing at the beginning of a certain period and the number of employees the company was employing at the end of a certain period, and dividing the result by two.

What causes employee turnover?

High employee turnover is the scourge of many organisations: it's costly, time-consuming, and can totally destroy morale. Many factors cause employee turnover or increase employee turnover rates. Some turnover is expected and perfectly normal, such as employees leaving for personal reasons. While most of the reasons for staff turnover are in control of the organisation, some turnover is unavoidable. Bad staff turnover happens due to negative triggers at an unexpected rate. There are numerous causes of high staff turnover. Among the top reasons for employee turnover are toxic workplace culture, unfair remuneration and opportunities for career development.

Toxic culture is a virus

One of the most common yet often misunderstood causes of employee turnover is poor culture fit. And no, I don’t mean an employee who doesn’t fit in with the workplace culture; I mean a culture that doesn’t fit its people. If an organisation exhibits some of the tell-tale signs of a toxic culture, turnover rates will increase. That company might have the best possible people for the job, but those people will run for the hills as soon as they connect their increasing stress levels, with their probability of getting other jobs.

A bad match between the employee's skills and the job.

Employees who are placed in jobs that are too difficult for them or whose skills are underutilised may become discouraged and quit. Inadequate information about skill requirements that are needed to fill a job may result in the hiring of either under skilled or overqualified workers. It might seem natural that, in periods of economic pressure, you ask your staff to take on extra responsibilities. You might need to let people go and ask remaining employees to pick up the slack by working longer hours or even weekends. But asking workers to choose between their work life and personal life will never sit well. Instead, it will contribute to a higher turnover, as employees grow frustrated.

Employee’s efforts not recognized

Every human being wants to be recognised and appreciated for the work they do because they like to see the reward of their efforts. Acknowledging the efforts of your workers is an excellent employer branding tactic and recognising employees for outstanding performance in the workplace doesn’t have to be expensive. Verbal thanks, emailed thanks, and handwritten notes are always easy, cheap and quick ways to say thanks for everyday effort but they can go a long way in strengthening the employer brand. There are some employers who think that a thank you is unnecessary and they just brush out and ignore employees’ efforts. Recognising employees for their efforts and accomplishments is important in increasing engagement and loyalty and causes employees to do more great work.

Employees not listened to their issues.

The importance of listening to employees can be seen in terms of innovation. When employee ideas are heard and encouraged, the company can stand to positively impact the bottom-line, whilst engaging the employee simultaneously. Employees who feel listened are more connected with the employer and in turn feel more engaged and motivated to do the best work for the organisation. It is also crucial to have tools in place that can help ensure that you create room to hear employee concerns and these may include, having regular open forums Friday lunches, etc.

Poor compensation:

When people leave a company, compensation and benefits are a major reason, especially for younger worker. Employees shouldn’t be viewed as an expense. Instead, they’re one of your company’s assets. Employees will be much more invested in their jobs and in the company, they work for if they feel valued by that company. A higher salary is a way to show employees that they are valued. Assess the salary and benefits package offered, and see how it stacks up against the competition (that is, the competition for candidates/employees—which is not necessarily the same as competition for customers). If the salary and benefits package does not compare favorably to others in the market, it will be an uphill battle and employees will leave.

Companies make large investments for their employees’ training, development and exert a great desire to retain top-performing employees. Therefore, it is of the highest importance that those employees truly stick with the company and remain engaged at the workplace. High turnover can be costly and disruptive to your business, so it's important to understand what causes it and how to reduce it.-Emmanuel Zvada is a human capital consultant and international recruitment expert


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