Turnover levels vary very considerably from industry to industry. The highest levels of turnover (20.4%) are found in private sector organisations. Successive CIPD surveys of labour turnover show that the highest levels are typically found in retailing, hotels, catering and leisure, call centres and among other lower paid private sector services groups. The public sector has an average turnover rate of 13.5%.

Turnover levels also vary from region to region. The highest rates are found where unemployment is lowest and where it is unproblematic for people to secure desirable alternative employment.

The number of employees in the UK who have been in their current job for more than five years is falling – dropping from 24% in 2006 to 20% in 2007.

As a proportion of aggregate turnover, the percentage of people leaving organsiations through redundancy has fallen in the last three years. There has also been little change in the number of organisations operating recruitment freezes. In 2007, 22% of employers made more than ten people redundant and 21% put a hold on recruiting new employees.

When does employee turnover become problematic?

There is no set level of employee turnover that determines at what point turnover starts to have a negative impact on anemploying organisation’s performance. Everything depends on the type of labour markets in which you compete. Where it is relatively easy to find and train new employees quickly and at relatively little cost (that is where the labour market is loose), it is possible to sustain high quality levels of service provision despite having a high turnover rate.

By contrast, where skills are relatively scarce, where recruitment is costly or where it takes several weeks to fill a vacancy, turnover is likely to be problematic for the organisation. This is especially true of situations in which you are losing staff to direct competitors or where customers have developed relationships with individual employees.

Some employee turnover positively benefits organisations. This happens when a poor performer is replaced by a more productive employee, and can happen when a senior retirement allows the promotion or acquisition of welcome ‘fresh blood’. The more valuable the employees in question the more damaging the resignation, particularly when they move on to work for competitors.

Measuring employee turnover

Most organisations simply track their crude turnover rates on a month by month or year by year basis. The formula is simply:

Total number of leavers over period

——————————————————————–             x 100

Average total number employed over period

The total figure includes all leavers, even people who left involuntarily due to dismissal, redundancy or retirement. It also makes no distinction between functional (that is, beneficial ) turnover and that which is dysfunctional.

Crude turnover figures are used by all of the major employee turnover surveys, including the annual CIPD and CBI surveys, as they are necessary for effective benchmarking purposes. However, it is also useful to calculate a separate figure for voluntary turnover and to consider some of the more complex employee turnover indices, which take account of characteristics such as seniority and experience.

Measuring employee retention

A stability index indicates the retention rate of experienced employees. Like turnover rates, this can be used across an organisation as a whole or for a particular part of it. The usual calculation for the stability index is:

Number of leavers with more than one years service

———————————————————————–               x 100

Total number of staff in post one year ago

Costing employee turnover

It is possible to compute a ‘not less than’ figure very easily by working out what it costs on average to replace a leaver with a new starter in each of your major employment categories. This figure can then be multiplied by the crude turnover rate for that staff group to calculate the total annual cost of turnover. The major categories of costs to take account of are:

• administration of the resignation
• recruitment costs
• selection costs
• cost of covering during the period in which there is a vacancy
• administration of the recruitment and selection process
• induction training for the new employee.

Many of these costs consist of management or administrative staff time (opportunity costs), but direct costs can also be substantial where advertisements, agencies or assessment centres are used in the recruitment process.

More complex approaches to turnover costing give a more accurate and invariably higher estimate of total costs. A widely quoted method involves estimating the relative productivity of new employees during their first weeks or months in a role and that of resignees during the period of their notice.

Less than 3% of respondents to the CIPD survey were able to provide figures relating to the estimated costs of labour turnover. Based on this small sample, the average cost per employee was £5,800, rising to £20,000 for senior managers or directors.

Why do people leave organisations?

Employees resign for many different reasons. Sometimes it is the attraction of a new job or the prospect of a period outside the workforce which ‘pulls’ them. On other occasions they are ‘pushed’ (due to dissatisfaction in their present jobs) to seek alternative employment. It can also be as a result of both ‘pull’ and ‘push’ factors. Another reason for voluntary turnover is a change in domestic circumstances outside the control of any employer, as is the case when someone relocates with their spouse or partner.

Evidence strongly suggests that push factors are a great deal more significant in most resignations than most managers appreciate. It is relatively rare for people to leave jobs in which they are happy, even when offered higher pay elsewhere.

CIPD research highlights the importance of front line managers and how their behaviour relates directly to employee engagement, job satisfaction, advocacy and performance.

A poor relationship with a line manger can be the push factor behind an individual’s decision to quit their job and leave the organisation, but its significance can be masked as a result of the difficulties associated with exit interviews.

A lack of training and development opportunities is also a major reason for voluntary turnover.

Premature departure

In high turnover industries in particular, a great deal of employee turnover consists of people resigning or being dismissed in the first few months of employment. Even when people stay for a year or more, it is often the case that the decision to leave sooner rather than later is effectively taken in the first weeks of employment. Poor recruitment and selection decisions, both on the part of the employee and employer, are usually to blame, along with poorly designed or non-existent induction programmes. Our factsheets on selecting candidates and indution explain good practice in these areas.

Expectations are often raised too high during the recruitment process, leading people to compete for and subsequently to accept jobs for which they are in truth unsuited. Organisations do this in order to ensure that they fill their vacancies with sufficient numbers of well-qualified people as quickly as possible. However, over the longer term the practice is counter-productive as it leads to costly, unavoidable turnover and the development of a poor reputation in local labour markets.

Investigating why people leave

Obtaining accurate information on reasons for leaving is difficult. Where exit interviews are used it is best to conduct them a short time after the employees hand in their notice. The interviewer should not be a manager who has responsibility for the individual and who will not be involved in future reference writing. Confidentiality should be assured and the purpose of the interview explained.

It is important to appreciate that the reasons people give for their resignations are frequently untrue or only partially true. The use of exit interviews is widespread yet they are notoriously unreliable, particularly when conducted by someone who may later be asked to write a reference for the departing employee. Individuals are reluctant to voice criticism of their managers, colleagues or the organisation generally, preferring to give some less contentious reason for their departure.

Using an external provider to conduct exit interviews will help employers capture more accurate data about why people are leaving, as individuals are more willing to tell the truth when there is reassurance that their comments will remain anonymous.

Alternative approaches to collecting exit data involves the use of confidential attitude surveys which include questions on intention to leave and questionnaires sent to former employees on a confidential basis around six months after their departure.

CIPD viewpoint

It is important that employers have an understanding of their rates of labour turnover and how they affect the organisation’s performance and ability to achieve their strategic goals. Depending on the size of the business, an appreciation of the levels of turnover across occupations, locations and particular groups of employees (such as, identified high performers) can help inform a comprehensive resourcing strategy.

Making sure that new joiners have realistic expectations of their job and receive sufficient induction training to help minimise the number of people leaving the organisation within the first six months of employment. Tools such as confidential exit surveys and staff attitude surveys can help line managers understand why people leave the business, so that they can take action accordingly.

Measuring the costs of employee turnover is vital in building the business case for effective recruitment and retention initiatives. These costings can be a powerful tool for winning line manager and Board-level support for resourcing activities.

Learn how office massage can help your office or call centre reduce workplace stress today.