How to manage staff turnover in a competitive market

Staff turnover affects even the most successful of businesses. It can be for a wide range of reasons; following their partners across the country, wanting to spend more time at home with children, looking into a major change in career, following a career promotion, or going back to study.

Those reasons are tough to address by an employer because they involve life events in the employee’s world outside of work. But, there are many reasons employees leave jobs that aren’t related to big life events – and that’s where employers have an opportunity to strategise in the hope of retaining staff members.

As the ‘Great Resignation‘ begins to sweep across workplaces, we’re taking a look at what staff turnover really means, how you can calculate staff turnover and what to do with the results.

What is staff turnover?

Staff or employee turnover is the measurement of the number of employees who leave your business during a specified time period (usually one year).

There are two types of staff turnover, voluntary and involuntary;

Voluntary turnover

Voluntary turnover or voluntary resignations refers to any instance in which an employee actively chooses to leave a business.

Involuntary turnover

This occurs whenever an employer chooses to terminate an employee.

Within every business, low employee turnover is the goal. The industry standard can, of course, change. For example, industries such as retail and hospitality have a much higher average turnover rate than, say, finance or insurance companies.

The average staff turnover rate in Australia in 2019 was 8.5%. The highest contributor was hospitality with 17.9% turnover, whereas the lowest was public administration at 5.3%.

A high turnover rate is one that is significantly above the average for the relevant industry. When creating targets for your business, make sure to be realistic by measuring against the industry average rather than the national average.

Is low staff turnover always good?

Although you should aim for a low staff turnover, achieving zero voluntary turnovers may not necessarily be a good thing, especially if your business is changing and your people are rooted in the past.

It’s important for any business to bring in new talent and with them fresh ideas, different experiences, and new perspectives. In fact, healthy turnover can actually help rejuvenate a business.

The key to managing employee turnover is to first identify whether your current turnover is healthy or unhealthy. And while this is influenced by your industry, profession, and where you’re located, as I said earlier, it all depends on who’s leaving.

Whereas there’s no one magic number for employee turnover, company culture plays a pivotal role in employee retention.

How do you calculate employee turnover rate?

When it comes to getting a number against employee turnover, you might be overwhelmed at the thought. However, it’s not as difficult as you might think – a simple equation can help you calculate turnover rate and establish a realistic turnover percentage to aim for.

When we talk about employee turnover rates, we’re referring to the percentage of people who leave your business, typically over a one-month or quarterly period.

Monthly turnover rate calculation example

[Number of employees that leave your business in one month] ÷ [average number of employees in your business in one month] x 100 = monthly staff turnover rate 

To get the annual turnover rate, replace the one month with one year in the formula above.

From here, you can search for industry averages to see how you stack up against others in your field and if your rates are high, make changes to curb them!

What are the recruitment costs of losing employees?

You can expect to spend at least one-fifth of an employee’s annual salary on replacing that worker. This includes everything from advertising the position to the time and costs associated with recruiting, onboarding and training new hires.

It also takes into account lost productivity while new employees come up to speed and master their new roles.

So, lose three employees on $65,000 each, and you’re looking at the average number of a $39,000 hit off your bottom line just to replace them.

Of course, if you lose key executives, this cost will be much higher. In fact, replacing a highly specialised role can cost you as much as double the initial salary.

Should you be worried about staff turnover?

If you find a lot of your top employees leaving, then you should take immediate action. Why? Your company’s performance will begin to fall – and fast.

Here are some questions that you can ask yourself to decide if you should be worried about high staff turnover.

Who is leaving your company?

You want to look at what you could have done to improve the employee experience of that employee or look into any salary discrepancies that may have led them to look elsewhere.

On the other hand, if your low performers are leaving, you could stand to gain by enjoying better employee engagement, productivity and profits.

Will you regret losing the employee?

If the majority of your employee leavers are low performing this may be an indication that you’re hiring the wrong people in the first place. The way you look at who leaves your business is otherwise referred to as regrettable and non-regrettable leave.

• Regrettable leave refers to when an employee’s departure from a company has a negative impact on the team or business. You don’t want them to leave because they are a good worker or just a great cultural fit for your business.
• Unregrettable leave means you won’t regret dismissing an employee. It’s a good thing. This may be because they weren’t a good fit for your business, or they weren’t performing up to standard.

When are employees leaving?

Be sure to track when people leave your business. Your new employee turnover rate can offer a lot of insight. For example, it can tell you whether your recruitment process is working.

If a significant number of your new employees leave because they found their job duties different or more complicated than what they were expecting, perhaps you should consider reviewing your job descriptions.

Investing more time and money in developing your orientation process could help too if employees leave because of cultural mismatches.

You could also consider offering other employee engagement programs like parental leave or flexible working hours if your employees struggle with work-life balance.

If, however, you notice that a lot of senior staff are leaving the business after years of service, you might want to look into your staff retention incentives.

Are you offering them enough of a career path, or do you offer enough rewards for their loyal service?

Why are employees leaving?

When you know why your employees leave, you can change your company’s management style or policies in response.

Exit interviews are a great way to see whether people give similar reasons for leaving or whether they offer useful suggestions for how you can improve. Staff turnover rates can uncover hidden problems within your business that you didn’t know you had.

A high turnover rate is a warning sign you shouldn’t ignore. Review your hiring process, change your compensation and benefits plan or incorporate a succession planning policy.

Ultimately, if you respond to turnover issues proactively, you will improve your company and retain great employees.

A great way to check in with employees is through regular one-to-one meetings. By checking in regularly with employees, you are able to iron out any issues with employees before they leave your company.

Getting started is easy, just download our one-to-one meeting template and start sending those calendar invites!

What are common causes of high employee turnover?

You should regularly review your employee turnover rate. Look at who the departed employees were, when they left, and the reason for leaving.

Make sure to track changes in staff turnover rates against changes you make to the business. You may start noticing trends across teams or the whole business that you can then work on.

Lack of career development opportunities

In a professional setting, it’s only natural that people want to climb the corporate ladder and get more development opportunities out of their roles. How do we know?

In our recent Employee Movement and Retention Report, we uncovered that 48% of workers are planning on looking for a new role within the next year and the main reason explains why.

The most prominent reason for changing roles? A lack of career development, with 31% stating this as their top reason.

Whether employees are ready to put their heads down and climb the corporate ladder or upskill and make that career shift, employees want to be in a role where they have the opportunity to do so.

Pro tip: Use our performance review template to gauge employee performance

Toxic company culture

When we think of high employee turnover, we often think straight about the culture of the workplace. We’ve all heard of toxic company culture, or worse yet, experienced working in one – and it can make anyone run for the door.

An article by the Harvard Business Review – ‘Creating the Best Workplace on Earth’, described the key ingredients for superior organisational health – i.e. a positive workplace culture.

In a nutshell, it’s a positive culture that celebrates differences, allows for information to flow freely, provides meaningful work and values employees. Unfortunately, we still often hear just one word to describe current organisational cultures – and that word is: toxic.

Prolonged exposure to toxic workplace cultures can foster not only lacklustre performance and low staff morale but also be the reason for your business’s undoing.

In today’s highly competitive market, employees won’t hesitate to jump ship when faced with an unhealthy working environment. The worst part? It’s usually your star performers who will opt to leave first.

Too many skilled and experienced people choose to leave their jobs not because of the role itself but because they can no longer bear the heaviness of toxic workplace culture.

“People don’t leave jobs. They leave toxic work cultures.” – Dr Amina Aitsi-Selmi

Read more: Effective communication in the workplace

Lack of meaning or purpose in the workplace

Everyone wants to complete meaningful work, and it’s no secret that the Covid-19 pandemic has caused many people to reflect on their career paths. When your team doesn’t feel a sense of purpose in the workplace, chances are they already have one foot out the door.

How can you create meaning and purpose at work? 

Inspire your employees to engage in fulfilling work by organising group working sessions and fostering a sense of collaboration. Run a brainstorming session outside the office (or home office) space.

Ask your employees to think about the deeper purpose of their work as a team and as individuals. Celebrate each person’s specific talents and encourage them to utilise them in meaningful collaborative projects.

It’s the best way to fill them with inspiration and gain a new sense of joy from their current role and workload.

Read more: Implement OKRs for a greater sense of purpose

No employee retention strategy in place

No one likes managing employee turnover. That’s why it’s important to have a strategy in place to help prevent it from occurring – and it comes down to the way you manage your employee engagement, reward and recognition, and retention strategies.

You might be wondering how this fits into the process of preventing staff turnover. By improving employee wellbeing and engagement, you’ll automatically boost employee retention. How?

There’s a strong link between being engaged at work and being happy at work – happy employees tend to stick around longer. This means by prioritising employee mental health, you will have a workforce of trusted, reliable and enthusiastic employees.

As you begin to think about the future of your workforce, set aside time to incorporate employee wellbeing into your workforce planning.

Create an employee engagement plan, learn how to effectively reward and recognise your team and create a solid retention strategy to help you reduce staff turnover.

Read more: How workplace coaching can boost employee retention

No flexibility or remote working opportunities

No one could have prepared us for what the pandemic threw our way. However, if there’s one silver lining of the past few years, it’s that remote and flexible working has been embraced by many employers around the world.

So much so, that flexible and remote working is no longer considered a perk. For many workers in a wide range of occupations, it’s absolutely mandatory. If you don’t embrace remote working or demand your team goes back to the office full-time, you’ll bet your top talent will be ready to jump ship.

Flexibility can mean many things:

• Working remotely
• Being able to pick and choose hours or, at a minimum, preferred start and finish times
• Job sharing
• Opting for part-time work over full-time work, or
• Condensing a five-day working week into three or four days.

From an HR point of view, flexibility delivers serious payback to employers. Along with a boost in employee retention and lower absenteeism, it’s also a key component of employee wellness.

Offering flexible working arrangements allows employees to improve their work-life balance, which reduces stress levels. And so, employees with flexible work schedules typically have higher levels of job satisfaction.

And while offering flexibility might take a bit of work to set up at first, for most employers, it costs absolutely nothing to offer. If you’re not offering it already, consider how you can accommodate flexibility in your workplace.

Be creative and offer job-sharing opportunities, the ability to condense the working week, as well as working remotely. You’ll be pleasantly surprised at how productive your happy, life-balanced employees are – and you’ll improve your retention rates dramatically!

Read more: How to transition into a remote-first company

How to reduce employee turnover rate

Remember, it’s expensive to recruit a new employee. If your company culture is the reason why your employees leave, then it’s a perfect time to have a good look at how you recognise performance, provide opportunities for growth, and the quality of manager-employee interactions.

But, as an employer, you can do something about this. Here are some actionable ways for you to start reducing staff turnover:

1. Retraining bad managers to stop employee turnover

Take a good look at yourself in the mirror. If you’re a tough, self-styled Gordon Ramsay kind of manager, then you’ll need to make some changes if you want your good people to stick around.

It’s important to recognise bad people management practices when you see them and stamp them out if you want to keep your top talent.

Of course, employees leave jobs every day for any number of reasons, many of which are entirely out of your control. That said, the number one reason people give for quitting their jobs is due to their relationship with their boss. This is definitely something you can work on.

Read more: The importance of providing constructive feedback to employees

2. Scheduling and flexibility

Having the right people in the right place at the right time is crucial. For example in the hospitality industry, consider whether you are getting overworked employees to the tune of 60+ hours a week while others complain about not getting enough hours.

Lots of workers these days want flexibility. And this means shorter, regular shifts. If you’re still relying on spreadsheets or outdated technology all this can become a nightmare to manage, and you can easily overcook your shift rosters and schedule an individual beyond the legal parameters.

But, by using purpose-built HR software, you get the visibility you need to ensure optimal staffing levels while you accommodate your employees’ shift preferences.

3. Hire the right people

Keeping standout employees starts with hiring the right employees. You likely hire employees who have strong skills that match your open position. But, how well do your employees fit in with your business’s culture?

You want to hire those who are a behavioural and cultural add for the job. You can ask employees behavioural interview questions to find out how they react in certain situations.

If employees don’t fit in with your work environment, they won’t be happy and will end up leaving the business sooner rather than later.

Pro tip: Hiring internationally opens up a much wider pool of talents – but you’d have to be aware of their local employment laws. 

Learn how to hire employees from overseas in:

• Australia
• New Zealand
• Philippines
• Singapore
• Netherlands
• Indonesia
• Canada
• United States

4. Offer competitive pay and benefits

People want to be compensated well. Even the most passionate of employees aren’t just working for the love of the business.

They need to cover standard expenses like housing, utilities and food. And most people want enough money for extras, too. If you don’t pay your employees well, chances are they’re already looking for another business that will.

5. Reward and recognition

Your employees need encouragement and recognition. It’s human nature.

Early last year, we looked at how you can set up reward and recognition initiatives that won’t cost your business the big bucks.

Reward and recognition are a huge factor in your overall employee engagement and happiness and one that can help attract and retain top talent. Employees who feel valued for the work they do will show higher levels of engagement with your business.

6. Career pathing

As we shared before, building a solid career progression path is top of the list for job seekers. A lot of the time, employees will leave a business when they feel they have no future there and might even go straight to your competitor.

With this in mind, it’s essential your employees are aware of exactly where their job is going within your business. Nurturing growth and personal development will help to increase their engagement, boost their productivity and potentially save time and money on your employee turnover.

7. Conduct exit interviews

When people do leave your business, exit interviews are an important learning tool. Candid feedback here is invaluable.

But rather than asking them to tell you why they are leaving, ask them for suggestions on how you could improve the business.

8. Be proactive with “Stay interviews”

Of course, rather than leaving it until the horse has bolted, an alternative to exit interviews is to hold regular “stay interviews”. Instead of finding out why someone is leaving, find out what you could do to make sure that person sticks around. You can conduct these interviews as part of your regular employee happiness surveys.

We’ll hold your hand through the goodbyes

Saying goodbye when turnover occurs is hard, but we’re here for you. We’ll manage your employee admin so you can have one less thing on your plate.

Whether it’s offboarding checklists, exit interviews or stay interviews, we’ll be with you every step of the way.

Get in touch with one of our small business specialists and learn how we can make your onboarding and offboarding a breeze.