5 High Turnover Rate Causes & How to Reduce High Employee Turnover Rates
By Carly Gail
Employee turnover rate is one of the most crucial metrics for companies to measure, as having a high turnover rate can be detrimental to a company's success. Although it is normal for employees to come and go, if new hires constantly find new jobs and leave their roles, it may be time to reevaluate your current processes or company logistics. It is vital for companies to take a look at their turnover rate and address the reasons for which employees are leaving.
When taking steps to reduce high turnover, examine your current employee satisfaction, training programs, hiring process, and corporate culture. Read on to learn more about employee turnover rate, industry standards, and how you can improve your own company's turnover.
What is high turnover?
Turnover rate is the rate at which employees leave an organization and need to be replaced. Typically, companies measure the first-year turnover rate. High turnover rates are indicative of issues like poor work culture, management, or job fit. If you are hiring efficiently yet experiencing quick turnover, you will have to increase your hiring efforts and spend more to compensate for backfill. Having a high turnover rate would mean that your turnover rate is higher than the national average. According to the 2020 U.S. Bureau of Labor Statistics Report, the average turnover rate is a staggering 57.3%, with voluntary turnover accounting for 25%, a troubling statistic compared to the voluntary turnover average rate of 18% in 2018. In addition to voluntary turnover, involuntary turnover has an average rate of 29%.
To determine whether your organization has a high turnover rate, you must first decide against what metric to measure. For example, if you measure your company's voluntary turnover rate at 45%, compared to the average of 25%, your turnover rate would be considered high.
2 types of employee turnover defined
When looking at your own company's turnover rate, it is essential to understand the high turnover rate definition-- which includes both voluntary and involuntary turnover as they relate to your organization's retention.
Voluntary rotation turnover rate
This type of turnover applies when an employee leaves a company willingly-- usually to pursue a better job or accept a job offer elsewhere or due to low job satisfaction.
Involuntary rotation turnover rate
This type of turnover applies when an employee is forced to leave a company-- typically because of low job performance or not being aligned with the job duties or work culture.
How a high turnover rate hurts your business
Replacing employees is increasingly expensive--both in time and money. Hiring requires dedicated talent acquisition teams, hiring managers to allocate time to the process, and a ramp period for the new hire to reach max performance. A high turnover rate causes companies to spend time sourcing, reviewing resumes, interviewing, and training new hires instead of working toward larger team goals.
While Human Resources typically handles the fallout, everyone is responsible for high turnover, including team members, managers, and leadership. Retention costs every business unit from hard costs like rehiring to more abstract costs such as loss in productivity. Bottom line: high turnover costs more than you think.
Although the average employee turnover cost by industry varies, it will always cost the company money to replace an employee; when they lose someone, they must pay recruiter and advertising fees, interview expenses, plus any costs associated with onboarding and training the replacement employee. These fees can add up-- employers can expect to pay (on average) 33% of the lost employee's annual salary when finding their replacement. Basically, the cost of turnover for an organization is high.
Loss of productivity
New hires rarely add immediate economic value to your organization. It takes, on average, 4.8 months for an employee to reach total productivity. When you have a higher turnover rate, there is constantly a new employee not working at full productivity, damaging an organization and its goals.
Low employee engagement
If a company culture is experiencing high employee turnover, they are likely to experience a decrease in employee engagement. When employees lack engagement at work, they’re likely to look for a more satisfying job elsewhere. According to Gallup’s Q12 Meta-Analysis Report27, an organization’s level of employee engagement is heavily correlated with turnover rates. The same report also showed that organizations that score in the top 50% in terms of engagement are more than twice as likely to see performance success.
Damage to morale
Sometimes, an employee's exit may result in a domino effect of other employees questioning whether they should stay. In other cases, a close work friend or mentor may jump ship, damaging employee morale for those closest to them. When coworkers are constantly coming and going, it’s difficult for team members to feel comfortable in their work environment and as a part of their company culture.
5 tips to reduce a high employee turnover rate
A high employee turnover rate is frustrating and discouraging for an organization. Luckily, there are steps you can take to reach your lowest employee turnover.
Set expectations upfront
By outlining career development paths for your open roles upfront, you can avoid costly turnover in the future--and it’s as easy as having an open dialogue between hiring managers and those in talent acquisition. In addition to discussing the general role requirements and skill sets, ask three simple questions:
Does this role have a path for promotion?
Are there opportunities for expanding responsibilities down the line?
As it currently stands, would we have the budget for promotion in the year?
Finally, pass this information along to potential employees. Talent acquisition teams and hiring managers must set expectations about the role and career development opportunities upfront. Invest heavily in the process here, and create clear roadmaps of your open roles that you can openly share with prospective employees to aid employee retention.
Prioritize work-life balance
When employees feel overworked and overwhelmed, they experience burnout. A Gallup study of 7,500 working professionals found that 44% feel burnt out and a staggering 23% feel burnt out regularly. Accordingly, lack of work-life balance accounts for the second most cited reason for employees leaving the organization. As culture has increasingly begun to value and embrace a better work-life balance, allowing employees that flexibility is very enticing to potential candidates.
Benefits like personal time off help here, in addition to clear role expectations and goal setting. Whenever possible, practice strong performance management practices by tying employee value to performance rather than arbitrary metrics like hours worked. A good amount of PTO encourages employees to take days off as needed, resulting in higher retention numbers, better productivity, and an overall healthier work environment.
Check-in on management
One of the leading causes of turnover is poor management; a study of 1000 professionals found that over half of participants felt managers at their company were promoted to positions they weren’t prepared for, and 60 percent said that managers need more training. Effectively hiring and promoting individuals into management positions requires the appropriate soft skills to manage and lead a team. Often, when we promote, we do so based on accomplishments heavily weighted on hard skills, i.e., “We are promoting Sara for her execution on the new product feature.”
Recognize when your team is promoting based on the merits of hard skills, and ask yourself if the individual is ready to manage people. If they aren’t, training and development programs can help. Good management practices can be taught and learned, but employees need access and motivation to reach for these resources when they’re available.
Prioritize career development
Implementing quality employee training and development is a critical part of any successful business model, as it directly impacts your ability to improve the performance of all employees and retain great talent. Employee training should offer employees the opportunity to expand their knowledge and skills within their roles. Employee development should go beyond the training, providing them with the tools to grow and develop as professionals and team members.
A study done by Gallup found that organizations that have made a strategic investment in employee development report 11% greater profitability and are twice as likely to retain employees than their peers. In a competitive market, where it is challenging to hire and retain top talent, it is vital to invest upfront in your employees and put the time and effort into developing them past their initial onboarding.
To maintain a strong program and continue to reap the benefits, be open to the challenge of readjusting the curriculum from time to time to meet them. Where your current team is thriving, your future team down the road may have blind spots. Encouraging growth amongst your employees should always remain a priority!
Offer employee incentives
In a competitive market, it is vital to set your company apart from and above the rest. Offering employees incentives is an excellent way to ensure that you stand out amongst your competitors to attract top talent and avoid high turnover rates. Employee incentives may vary in their splendor--from great medical benefits to casual Fridays to "Bring your pet to the office" days--you're bound to find an option that suits your budget and culture.
Nowadays, job seekers are not only looking for jobs with good pay. They want to work for companies that value their employees and offer them more than just a paycheck. Finally, when you find ways to recognize employees for their work through incentive programs, your employees will be more motivated and more engaged in the work environment.
Average employee turnover rates by industry: 5 industries with high turnover
Each industry suffers from employee turnover to some extent, and with the recent Covid-19 pandemic, there have been many upwards shifts in the various averages. Here are some of the highest employee turnover rates by industry:
The hospitality industry is extensive and includes event planning, theme parks, travel and tourism, hotels, restaurants, and bars. While part-time hourly store employees have the highest average employee turnover rate by industry, earlier this year, the U.S. Bureau of Labor Statistics reported an average turnover rate of 130.7% for the industry as a whole. Even in comparison to the previous years' rate of 78.9%, these numbers are staggering.
The retail industry includes any business involved in selling consumer goods or services to customers to make a profit, such as department stores, supermarkets, and bookstores. The Bureau of Labor Statistics reported the overall retail employee turnover rate to be 57.3%, an increase from previous years partially due to the Covid-19 pandemic.
The healthcare industry includes medical equipment and drugs, patient treatment and care, and other medical field-related industries. According to the NSI National Healthcare Retention & RN Staffing Report, the national hospital turnover rate is 19.5%. This number was determined after interviewing over 3,000 hospitals nationwide.
4. Financial services
The banking and finance industry includes money management, insurance, and other financial services. A 2020 Compdata survey found that the Banking & Finance industry has an 18.6 percent turnover rate, making it one of the higher industries on the list.
The tech industry comprises businesses in e-commerce, software, electronics, and others related to information technology or IT. With an average turnover rate of 13%, the tech industry sees significantly high turnover rates. Even major companies like Amazon or Google have a staggeringly low tenure of just one year (that’s a 100% turnover rate!). In an attempt to retain top talent, tech companies typically offer employees generous benefits, compensation packages, and perks.
What are the reasons for these industry turnover rates?
Each person may have their own reasons for leaving their current role, but there are some patterns to note within industries with high turnover rates. Additionally, employers can take steps to ensure they hire the right people for their roles by taking advantage of personality frameworks such as DISC to determine candidates’ role fit, cultural fit, and soft skills competencies. Get started with a free personality test today.
A high employee turnover rate may result from poor management, better job opportunities, burnout, low employee satisfaction or engagement, and so much more. It is always a shame to lose a high-performing employee or new talent to another company. Taking a look at your company's turnover rate is crucial to your success; recruiting, hiring, training, and replacing employees is costly to a company-- not just financially.
If your company's turnover rates are less than the averages, then you are doing great! If higher, it may be time to take a step back and reexamine your current methods and find ways to improve them. While there are many causes of turnover, many are rooted in employee satisfaction, so it may be a good idea to start there.
What do companies with high turnover have in common?
Most companies with high turnover also experience low employee engagement, lack of growth opportunities for employees, and poor management. When assessing your organization's turnover rate, examine these areas first to see if there is room for improvement. The cause of high turnover often lies with the experience of the current employees.
How can you adjust the hiring process to reduce higher turnover?
To reduce higher turnover, take extra care during the interview process to ask the right questions and learn about a candidates' soft skills and alignment with your current work culture. If you hire the right person in the first place, you will avoid potential turnover altogether.
Want to learn about your personality and what comes naturally to you?