Staff turnover is a fact of life in today’s workplace, and progressive organizations recognize the importance of being pro-active to minimize this phenomenon. While tangible staff turnover-related costs include advertising, interviewing, training, lost productivity, it is the less tangible costs that are often of greater concern. These can include effect on staff morale, poor corporate image, customer service problems, lost customers or clientele, supplier performance problems, back-filling, and overtime costs. Studies indicate that, on average, it takes 1-2 years for a new hire to meet the productivity of a former employee.
What are the common causes of staff turnover?
Employee-initiated turnover (Pull) is where staff voluntarily leave for better employment opportunities; involuntary turnover (Push) stemming from factors such as retirement, poor work environment, work/life conflicts, redundancies or dismissal are actions which also result in replacement.
Employers have limited options where pull factors are in play – although ensuring salaries, benefits and opportunities for advancement are competitive with market conditions is critical. With the push factors, employers need to develop strategies which address workplace bullying, intimidation or harassment; foster mentoring, coaching, training and career path programs; ensure acceptable workloads; merit-based recognition programs; and flexible hours to accommodate personal issues.
What is an acceptable turnover rate?
Excluding an analysis of part-time and seasonal workers, the basic formula for calculating the turnover rates is:
# of employees departed in a period / Average number of employees on payroll X 100
i.e. 75 / 600 X 100 = 12.5% turnover rate
The Canadian-based Society for Human Resources Management estimates that the annual turnover rate of a business is approximately 15% per year.
The best organizations experience only a 4% turnover rate, but the analysis must be context-specific. Canadian retailing can run at 20% turnover, the costs of which must be borne by increasing the price of goods and services. In an article by Nicola Middlemiss, the fast food industry turnover rate can be 100% or more, which explains why McDonald’s Canada is justly proud of their 45% turnover rate.
Let’s focus on the broader public sector for a moment. The turnover rate at St. Joseph’s Hospital, Hamilton, has reportedly been running at 8.34%, and neighbouring London Health Sciences was stated at 7% by some sources. These are exceptionally low but will still result in hundreds of people a year onboarding to fill openings. If we consider that US hospitals are running at closer to 19% turnover rates, the Ontario healthcare rates looks quite good.
What does staff turnover cost?
The cost of replacing entry level staff is generally 20-50% of an employee’s annual salary; for mid-level professionals, the cost is roughly 150%. When it comes to replacing senior management and executives, the cost can escalate to 4 times the annual salary. A 2015 report by Samantha McDuffee indicated that an entry-level employee making $10.00 per hour costs, on average, $5500 to replace.
Not all staff turnover, however, indicates there is a problem with the operation, and in some cases it can save money at least in the short term. A poor performing entry level individual who voluntarily leaves their position at least curtails further costs and disruption, and allows the employer to move swiftly to fill the position with someone more suitable. Social enterprises see a higher turnover rate as a good sign, as normally part of their mission is to assist people facing employment barriers to be successful. Conversely, a high-performing long-term employee who generates strong sales revenues or is an effective manager, and finds greener pastures, can represent a considerable loss for an extended period.
What can we do to reduce turnover?
The focus should be on the retention strategy. Employers have more options to affect the push factors. These can be summarized into the following areas:
- New hire orientation
- Creating a positive corporate culture
- Effective communications to and from staff
- Valuing diversity
If we concede that the lowest cost to replace an employee is $5500 and we have 80 people per month to replace in some of the best run organizations, the tab is in excess of $5M per year! We can’t afford not to invest in and develop our social capital; the return on investment is there. Even a reduction in a turn over rate of 10% has a tremendous payback.
Soliciting feedback on a regular basis is a way of gauging employee satisfaction, and benchmarking the retention rate provides transparency and accountability. To attract and retain new employees have them work with the best you have, instill confidence in the integrity of the organization and its leaders, provide adequate opportunities for skills development and career advancement, and truly engage with their creative capacity. Work to uncover their strengths and passion, and then surround them with opportunities to leverage those talents to benefit the organization as a whole.
By the way, what is the turn over rate with your main suppliers? After all, you are paying a portion of these costs.
Food for thought:
Q: What if we train our staff and they leave?
A: What if we don’t train our staff and they stay?
Thanks, Larry