In the world of business the word turnover usually doesn’t refer to a delicious pastry, unless someone brought goodies into the break room. In business, turnover often has the word employee in front of it, and unlike the edible kind, lots of it is not a good thing.
Employee turnover can be divided into two separate categories: voluntary and involuntary. Voluntary employee turnover refers to employees who have chosen to leave a company of their own volition. Involuntary employee turnover refers to employees that have left due to being fired or company lay offs.
A business’ turnover rate is calculated by simply dividing the total number of employees of a company by the number of employees who have left. However, you can take it further and look at monthly turnover vs. yearly turnover, and other more specific metrics.
Whether majority of your business’s employee turnover is voluntary or involuntary, a high turnover rate can have some very negative consequences. If it seems like your company’s rate is creeping up, why should you worry about it?
A high rate is bad for a business financially.
Hiring a new employee is expensive. First, you use time and labor to conduct interviews. Then, there is time and money spent on the onboarding process with the new employee. This includes filling out HR paperwork, training the new employee, and providing them with uniforms or materials. When onboarding a new employee can cost a business $4,000 you can see why a high employee turnover rate impacts a company’s finances negatively.
Now, imagine after spending all of that money on an employee they leave. Not only does that initial investment seem like a waste, but there are also costs associated with an employee’s departure. For example, depending on the circumstances and any contract that was in place, you may have to pay severance pay. Even if that’s not the case, there are still costs accompanying any wrap up paperwork, exit interviews, or last meetings.
After that, your business needs to invest more time and money into a new employee to fulfill the vacated position.
A high rate wastes time.
A high employee turnover rate wastes precious time. Time spent interviewing potential candidates, performing exit interviews, and training new employees is time that is not spent on sales or developing new ideas. The goal of your business is not just to hire employees and take care of what happens when they depart. The goal of your business is to sell a product or provide a service to customers. Therefore, you want the majority of time spent to be on furthering the business, not just on onboarding and offboarding employees.
A high rate makes it hard to find new employees.
People want to work in situations that will be good for them. They want to work for businesses with competitive salaries, benefits packages, ample vacation time, and a good vibe. In an article for Forbes, Jeff Boss explains that people typically stay at their jobs for the following two reasons: “1. Who you have to return to 2. What you have to return to”
A high employee turnover rate signals to others that a business either does not offer competitive compensation or that the management and existing employees are not pleasant to work with. If you take a look at Glassdoor’s 2018 Best Places t0 Work Employees’ Choice, the companies that make the top of the list have all made it for reasons involving coworkers, flexible scheduling, benefits, and office culture. If your company has a reputation for a large amount of employee turnover, that can say something about how people feel about working at it.
Having a high employee turnover rate will make it difficult to find quality employees who are interested in working at your company.
A high rate is bad for the team.
If it seems like your company is just a revolving door of employees it can be hard for individuals to get to know each other, forge bonds, and work together to produce innovative ideas. It’s important for a team to know each other and not feel like they are working in a brand new social environment every day.
A high rate means less quality work is being done.
When a position is vacated that means that somebody has to fill in until a replacement is hired. That person may not be as qualified, or he or she may have his or her own work to do and therefore does not have time to devote to this new responsibility. Either way, that job isn’t being done as well as it could be.
As you can see, your employee turnover rate is a number you should be aware of. Not only is constantly hiring employees tedious, but it can have some seriously negative impacts on a business.
Interested in learning more about making smart financial decisions for your company? Contact Lucid Advisory and Finance.