Reducing employee turnover and attrition

Reducing employee turnover is a top priority for organisations worldwide, and for good reason. Higher retention rates are linked to more engaged and productive workforces, while increased turnover and attrition result in higher costs, lower productivity, and decreased morale.

Exact numbers vary, but research shows replacing employees is costly, especially the A-players.

According to Gartner, turnover costs organisations an average of $18,591 per departing employee. When combined with the median annual turnover rate of 17.8% globally, employee turnover can cost anywhere from $33,000 to $1.7 billion per organisation, based on their size. 

However, the cost of turnover can be even higher due to intangible losses such as the organisational knowledge, skills, and experiences that employees take with them.  

It costs even more to replace a top performer in a higher-level role. Research by Dream Collective, reported in the Australian Financial Review, suggests replacing high-potential talent can cost a business two to three times the outgoing worker’s annual salary. The same research shows that in some cases, onboarding alone can cost $150,000 as it takes an average of six to nine months of an employee’s salary to recruit, train and onboard a replacement.

The cost of turnover will vary depending on the organisation and the job roles being replaced. It's important for HR professionals to have a consistent method for calculating their associated costs. In this blog, we provide strategies to reduce turnover to save costs and improve organisational health. 

The difference between turnover and attrition 

Before diving in, let’s get clear on the words we are using. The terms turnover and attrition are sometimes used interchangeably, but they have subtly different meanings. 

Attrition typically refers to staff leaving without being replaced, resulting in a reduction in total staff numbers. A common attrition scenario occurs when an organisation restructures, and certain job roles no longer exist and will not be replaced.

Turnover usually refers to staff leaving and being replaced. For example, if an employee in a critical role resigns, hiring managers will seek to replace them quickly. Involuntary turnover occurs when staff are required to leave as a result of poor performance.

Throughout this article, we use turnover more frequently, assuming that the intention is to replace lost staff.

How to calculate the cost of turnover

Calculating the cost of turnover can be challenging when there is no formal process. Calculations should consider direct and indirect costs, which can be harder to quantify.

Direct costs include resources spent on hiring (advertising, resume screening, interviewing candidates), onboarding and training new starters.

Indirect costs include time lost and slowed productivity as new starters get up to speed and fellow team members adapt.

Because of these costs, Peter Langford, GM of Xref Engage says, “companies often don't start seeing a positive return on their investment in a new hire until one or two years after they've been recruited.”  

Calculating turnover rate

To calculate the cost of turnover, start with understanding your turnover rate.

Staff turnover rate is typically calculated as the percentage of all employees who voluntarily or involuntarily leave a company over a certain period of time. 

Here's a simple way you can calculate turnover rates:

1. Determine the time period: Decide on the time frame for which you want to calculate the turnover rate. Measuring turnover by calendar or fiscal year is a good place to start. 
2. Count the number of employees who left: This includes employees who resigned, were terminated, retired, or otherwise left the company during the chosen time period.
3. Determine the average number of employees: This is the average number of employees you had during the same time period. You can estimate this by adding the number of employees at the beginning and end of the period and dividing by 2.
4. Divide the number of departed employees by the average number of employees: This gives you the turnover rate.
5. Multiply the result by 100: Now you’ll get the turnover rate as a percentage.

The rate and cost of turnover are also important metrics to track as higher turnover rates and costs can indicate a wider problem within the organisation and place a strain on resources. By understanding turnover costs you can make changes that lower spending and make better use of available resources. You can also invest in new resources, like hiring technology, to improve recruiting and training and plan for lost productivity in advance. 

Common reasons behind high turnover rates

It’s normal for every organisation to experience a certain degree of turnover and attrition, especially in industries like retail and hospitality. Voluntary departures such as resignations, retirements, relocations or contractors who choose not to renew their agreements, are a part of working life. 

However, if turnover rates are higher than usual and roles are not being replaced due to hiring difficulties, then problems are likely afoot. Some top reasons for higher turnover and attrition rates, especially voluntary departures, are as follows: 

• Hiring mistakes: Bringing in employees who are not a good fit for the organisation or the role can lead to quick turnover.
• Poor management: If management is lacking, employees are more likely to become disengaged and frustrated and eventually, resign. 
• Compensation and benefits: Employees may be dissatisfied with pay and benefits making them more likely to seek a job elsewhere. 
• Toxic work environments: Work cultures where harmful behaviours, attitudes, or practices prevail can negatively impact an employee's well-being and productivity and lead to high turnover. 
• Low job satisfaction: Lack of career advancement, monotonous work, inadequate resources, cumbersome operational procedures or mismatched job roles can contribute to low job satisfaction and higher turnover rates.
• Low employee engagement: Disengaged employees are usually not given the opportunity to express their opinions and preferences. As a result, they lack enthusiasm and motivation to do their jobs. 

Reducing high turnover and attrition rates starts with understanding what issues may be causing employees to leave your organisation. 

Strategies to measure and reduce turnover

Identifying the reasons for high turnover in your organisation is critical to rectifying the issue. For example, if employees are leaving due to operational processes, focusing on a new benefits plan is unlikely to fix the issue. 

Reducing turnover starts with measuring turnover rates. As discussed above, this begins with understanding your turnover rates and costs, and where turnover is higher and lower in your organisation. 

The next step is to understand why employees are leaving and the best way to do that is to ask them using employee engagement surveys. 

Ideally, organisations will consistently ask employees for feedback so they can spot and handle potential issues before they turn into challenges like high turnover.

Gathering data from employees goes a long way in improving retention and should start early in an employee’s tenure. If you begin to collect and measure employee feedback and satisfaction early in their journey, you can improve engagement and take positive actions to reduce potential turnover. 

McKinsey research shows that organisations with strong use of people analytics see an 80% increase in recruiting efficiency, a 25% rise in business productivity, and a 50% decrease in turnover rates. Measuring employee engagement can therefore help deal with current turnover challenges and help prevent future issues. It’s a consistent process that benefits organisations at every stage. 

Xref Engage Surveys

Xref Engage offers a survey platform with expert-designed online engagement surveys that can help organisations manage turnover. 

Getting started is as easy as selecting one of the many pre-designed survey templates designed through a rigorous process of scientific research. 

You can also work with our consultants to customise your engagement survey to identify specific turnover risks. By working with Xref Engage, you’ll have direct access to assistance from our in-house experts who have decades of experience as workplace psychologists. With tailored assistance, you can ensure your survey has the right focus to ensure you collect the best data. 

For example, the team at Deaf Connect teamed up with Xref Engage to ensure their engagement survey catered to their diverse team and unique contect. The team at Xref Engage helped Deaf Connect design a survey to address the needs of their recent merger and rebranding while managing the impact of COVID-19.

“By asking the right questions, leaders can understand the turnover risk and drivers of engagement in their organisation, compare results across different departments and employee groups, and benchmark against industry peers,” says Peter Langford, GM of Xref Engage. 

Results from Xref Engage surveys are presented in a dedicated Data Studio allowing you to self-explore key metrics and relevant insights that can be downloaded and shared as needed. Data is also benchmarked so you can understand how your organisation is performing compared to others in the industry.

Xref Engage offers four types of surveys you can use to gather feedback during an employee’s lifecycle that can be analysed for reduced turnover: 

• Onboarding surveys: Asking employees about their onboarding experience can lead to improvements to your new starter processes which can help improve retention from day one. 
• Pulse surveys: Conducting short and frequent surveys that ask how employees feel about their day-to-day work creates real-time data about employee engagement that can help leaders spot potential issues as they arise. 
• Engagement surveys: More comprehensive surveys that occur once or twice a year can help uncover drivers of turnover in your organisation, right down to the specific reasons for turnover within each department, work area and staff group. 
• Exit surveys: Crucial surveys that collect data about the reasons behind resignations. Asking employees about their experience with your organisation will shed light on their reasons for leaving and what you can do to improve. 

Final thoughts

High turnover rates can be very costly to organisations. It costs money, time and resources to fill vacant positions. And high turnover can impact morale and slow productivity, both of which can propel further departures. 

Reducing high turnover rates and maintaining that reduction involves creating a consistent employee feedback loop. By regularly engaging with employees through engagement surveys, your organisation can continuously assess strengths and weak points inside the workplace. Frequently asking for employee feedback and using that feedback to drive positive change can prevent high turnover before such a problem even arises. 

For organisations in the midst of high turnover, using surveys helps create a clearer picture of what is happening. With employee feedback, you can implement improvement plans and then maintain a feedback loop for future stability. Continuous organisational improvements based on direct employee feedback lead to positive changes that create a better work environment, higher employee satisfaction and improved retention.