What is staff turnover?
Join SenseHR as we investigate what staff turnover is, why it’s so important and how you can optimise it for your business
Staff turnover is effectively the number of people who leave your employment and have to be replaced, recorded within a certain timeframe.
Such as with most things, you’re looking to strike an optimal balance.
Out with the old…
Just like a healthy tree needs pruning to stimulate new growth, so too does a healthy business. Removing the dead wood and bringing in fresh perspectives can help you optimise your workforce, while creating new career opportunities for the old guard, too.
In the right context, some level of staff turnover can be a signifier of company growth and expansion, boosting morale and shifting evolution ever upwards.
But the word ‘turnover’ amongst HR personnel is usually met with an accompanying dose of apprehension.
It’s that same kind of apprehension felt when sitting alone in a party hat at 8.05 pm, when your party started at 8.
If nobody wants to come to your party and those that come don’t stay long – it can be a signifier that you’re not popular and your party sucks. Sorry.
In business terms, a lack of staff can be the death blow to an already ailing body.
The costs accompanying a high staff turnover
Research by Oxford Economics and Unum, tells us that the average cost of employee turnover per person (earning from £25,000pa upwards) is £30,614 a year.
So, replacing a measly 3 employees on this salary in a year will cost £92,000. Ouch.
That ‘alone in a party hat’ metaphor is starting to look less dramatic now, no?
How can it possibly cost that much to replace an average employee?
Let’s break down the figures.
According to Business News Daily, 33% of employee turnover costs will be ‘hard costs’ – advertising vacancies, recruitment fees, background checks, temp workers, onboarding etc.
£3000 per employee on average just for the hiring process says recruitment and employer review site Glassdoor. If you need to use a recruitment service for more specialist roles, you’re looking at around 25% of the final salary (about £5,000 for the average salary).
The HR costs in dealing with new starters are estimated at £8000 and the hours of internal employee time spent researching, interviewing, vetting and liaising all add up.
Onboarding is as costly as it is necessary – payroll, taxes, insurance, and provisioning new hires with everything they need to perform their new roles.
The quality of your onboarding process matters if you’re going to avoid feeding into the same turnover cycle.
The Society for Human Resource Management Guidelines for onboarding show that 69% of those that experience a successful onboarding path will stay for at least 3 years. People managers need to be able to optimise these processes so that quality is high and the cost is minimal.
‘Soft costs’ – the 67%
On average, it takes nearly 28 days to fill a vacancy. Whether the workload from that vacancy is filled by a temp worker or spread across existing workers, it’s expensive. If the rest of your team is carrying the load, that’s going to be a drag on efficiency and productivity.
The turnover costs keep stacking up even once your staff vacancy is filled. Why?
Because the upward trajectory of the climb to the blissful flatline of peak productivity for new starters takes an average of 8 months.
Added to this, your newbie is going to cost everyone time and productivity whilst becoming acquainted with their new role, asking questions and making mistakes.
The knock-on effect of this is damage to the company’s reputation. There is a clear causal link between employee reviews and customer satisfaction. If your employees are tired and stressed, they will make more mistakes and if they are new, they will not be at peak efficiency, needing help and slowing colleagues down. This all contrives to have a harmful impact on the customer experience, in turn, damaging the perception of your brand values.
One of the top ten reasons that customers trust a brand is a perception that employees are well treated, and unhappy staff do not give that impression.
Brand trust is a big deal. Customers are loyal to brands they can trust and depending on the sector, a loyalty increase of 7% can boost profits per customer by up to 85%, according to a report by leading brand research consultancy Brand Keys, with a 3% loyalty increase, correlating with a 10% cost reduction.
A vicious cycle
At this point, it’s pretty clear why a high staff turnover can be so expensive and how easy it is to get stuck in a vicious downward cycle.
Your team gets burned out from staff shortages, morale wilts as friends leave or are left behind and feelings of job insecurity abound in high turnover environments, more resignations follow, expenses mount.
What can we do to optimise our turnover?
Now down to the meat and bones. ‘Optimal’ is going to look different depending on the sector. Industries such as retail and catering will rely heavily on students for example, who are at a transitory stage in life and will naturally move through within a relatively short period.
That said, the National average across industries comes in at around 15% per year.
Around 6% of these will be terminated due to poor performance or staff reduction.
That’s a starting place but you need to be able to track the natural fluctuation and rates within your own business so you can internally benchmark over the month, the quarter, the year, and the years. This will enable you to spot trends and compare yourself against industry peers so that you can better see what ‘normal’ should look like for you. The right human resources software will be an invaluable tool to this end.
All turnovers are not created equally
This is when an employee chooses to leave the organisation. It could be because Pierre has finally popped the question, so Eve is moving into his Parisian penthouse with him, in which case, good for Eve. Or it could be that another company has romanced her away, in which case, her loss probably could have been avoided.
If you lose more of the people you want to keep than those you don’t, this is known as ‘dysfunctional’ turnover and this is a problem. You need a human resources management system that can identify and monitor it so that you can minimise it.
In healthy, balanced numbers, voluntary turnover can be a normal cost of doing business but exit interviews and processes need to be used to
- Determine the cause of the resignation
- Find out if anything could have been done to prevent it
- Assess the impact it will have on your business
If you have one takeaway from this, it should be ‘know when you have lost a high performer for a preventable reason and what you’re going to do to stop it happening again’.
This is when people are let go by their employer. Maybe because the costs of replacing a poorly performing worker outweigh the benefits of keeping them. Maybe they have behavioural issues. Or it could be budget cuts, changing business needs or structural reorganisation.
How do you go about implementing all of this?
You need to treat your people like the individuals they are and communicate with them to find out what they need to thrive.
Is there something they’re lacking in their role? Is there anything making them unhappy?
Some are hungry for progression, some hanker to go in a different direction, whilst others will want more flexibility to support a better work-life balance.
You need an HR software system that can help you to monitor, identify, and course-correct all of your staffing functions, including helping you to identify your top performers, acting as a wizard for the processes engendered by staff turnover and consolidating and streamlining all of the above.
Reducing costs and maximising efficiency, SenseHR’s custom software provides a library of functions that can help you to benefit from happy workers.
A worthy investment when offset against the savings that it will make for your business.