If you’re running a business, it pays dividends to brush up on relevant terminology. If you don’t, you risk getting caught out, losing credibility and confusing your team. One common problem is, when people talk about “turnover”, it isn’t always clear what kind they mean. For HR professionals, “turnover” means “employee turnover”, but whether it’s voluntary or involuntary makes a big difference. Here’s everything you need to know.
Voluntary vs. Involuntary Turnover
Regardless of business type there are two main types of employee turnover: voluntary and involuntary. Within each of those categories, however, you’ll find various reasons for why a company might have employee turnover. While the term “turnover” sometimes has a negative connotation, not all turnover is bad. For example, when a poorly performing employee is let go and replaced with someone who is motivated and excels at their job, productivity can soar. This new worker can bring bottom-line benefits, as well as provide an overall boost to team morale.
What is involuntary turnover?
Involuntary turnover includes layoffs or reductions in force and terminating poorly performing employees. The first type of involuntary turnover would be considered undesirable because it can reflect on the company’s management and financial operations. The second would be more positive for the business as we outlined above.
What is voluntary turnover?
Voluntary turnover is when an employee leaves a job, whether that’s because they got another job elsewhere, took an internal transfer or retired. These types of turnover are typically more expensive to businesses because they often involve the loss of a high-performing employee.
How to calculate and monitor employee turnover rates
The calculation of turnover is pretty easy. You simply divide the number of employees who left the company for whatever reason by the total number of employees you started with. This number would be the percentage of turnover. You can calculate involuntary turnover, voluntary turnover and total turnover.
Say you start off the year with 100 employees. During the year, five employees quit, and seven are laid off. The voluntary annual turnover rate for the year would be 5/100 or 5%. The involuntary turnover rate was 7/100 or 7%. Adding the two numbers together would give you the total turnover rate of 12%.
The downside of employee turnover
Unfortunately, the downside to any turnover is that, regardless of the means of departure, replacing any employee is expensive. The Society for Human Resource Management (SHRM) estimated that the average cost to replace a salaried employee is around six to nine months of that employee’s salary. With an employee who earns $30,000 per year, that replacement cost would total between $15,000 and $22,500 in recruiting and training costs. Now, think about that calculation as it pertains to your executive suite. You can see how replacing many hourly, or just a handful of high-level, salaried employees can be a real budget buster. Use our turnover calculator to see just how much employee turnover is costing your organization.
4 ways to stop undesirable turnover of employees
If you find that your business is experiencing an unusually high level of undesirable turnover, you can look at a few factors.
- Assess your management
- Look at overall engagement
- Do employees have what they need to get their jobs done?
- What are competitors offering that you’re not?
As the old adage says, “People don’t leave companies, they leave bad managers.” If you notice that a lot of attrition is occurring in a certain department, it’s important to evaluate the managers to see what’s going on.
How’s the morale at the company? If it’s less-than-great, maybe it’s time to take a hard look at taking measure to improve it.
It’s disheartening to work at a job when you don’t have the tools you need to be successful. Make sure each employee has everything they need.
If your salaries are lower than your competitors’ or they’re offering some killer benefits that you’re not, it’s time to figure out what you’re lacking. Compare upward adjustments in salaries or offering retention bonuses to the cost of losing your best employees to the guy down the street and you might find that it actually costs less.
Get our guide for more insights on what’s causing your employees to leave, and strategies to use to boost retention.
Paycor Can Help
If your company needs help with managing your turnover or if you need to simply get a handle on it, give us a call. Our Workforce Insights can help you determine where the trouble areas are and give you the tools to help stop the bleeding.
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