Employee Turnover – Costs, Types, Causes

Employee turnover is a key indicator for the efficient functioning of a company. It entails significant costs, both direct and indirect, hidden within the organization. It is worthwhile to measure employee turnover levels and compare them with the market average (this can be easily done using our platform, wskaźnikihr.pl). High turnover is a sign that something is wrong within the organization. Considering the number of factors that influence personnel fluctuations, it is advisable to conduct a broad job satisfaction survey to find out what is wrong. Ultimately, the ideal approach is to monitor employee sentiments before observing high turnover levels.

Types of Employee Turnover

Contrary to appearances, the term employee turnover (also known as employee churn rate or attrition) is not unambiguous. There are several types of turnover. We distinguish between:

• Voluntary and Involuntary Turnover (Eberle, G.J. 1919)
• Desirable and Undesirable Turnover (Bowden, B. G. T. 1951)
• Avoidable and Unavoidable Turnover (Abelson, M. A. 1987)

Voluntary turnover occurs when the employee initiates the separation from the employer. Involuntary turnover happens when the employer dismisses the employee. Although employers often sign a mutual agreement to terminate the contract to accommodate the employee, if the company initiates the departure, it is still considered involuntary turnover.

Desirable turnover is beneficial for the organization, manifesting in several ways, such as when a low-qualified or poorly performing employee leaves, or an individual with low engagement and high absenteeism departs. Some level of turnover is always desirable as it opens the company to new people who can bring new knowledge and skills.

Undesirable turnover happens when an objectively valuable employee leaves the organization, such as a salesperson with strong personal client relationships or a long-searched programmer.

To understand turnover research, it is essential to differentiate between avoidable and unavoidable employee departures. Avoidable turnover is caused by factors within the company's control, while unavoidable turnover results from factors beyond the company's control, often related to personal life situations like a serious illness of a family member or the employee moving to another city or country.

Causes of Avoidable Turnover

Holtom and Brooks (2008) present a complex set of turnover causes. Factors under the employer's influence include:

• Job satisfaction
• Employee engagement
• Work stress
• Job security
• Job content (scope of duties)
• Management style (leadership type, fairness, goal setting)

In their model, Holtom and Brooks used two complex psychological constructs: job satisfaction and work engagement. Job satisfaction has many components, each a determinant influencing the desire to leave a job simultaneously. Factors affecting job satisfaction include the compensation system, relationships with supervisors and colleagues, level of employee autonomy, pride in the workplace, and perceived promotion opportunities.

Reducing unwanted turnover requires addressing many factors influencing the desire to leave a job, often fighting on multiple fronts. Sometimes a single major cause (e.g., a supervisor) can drive turnover, while in other organizations, multiple factors collectively contribute to turnover.

Economic Factors and Turnover Levels

The overall economic situation also affects turnover levels. Economic growth and a so-called "employee market" lead to staff shortages, forcing companies to intensify recruitment efforts and offer higher wages. These efforts include direct contacts with individuals not initially considering a job change, often through platforms like LinkedIn or direct calls offering employment elsewhere.

In contrast, during economic slowdowns and recessions, fewer job offers exist, and the risk associated with changing employers is higher. If something goes wrong, finding another job will likely take longer.

Real Costs of Turnover

One of HR departments' major challenges is raising awareness of the actual costs of losing an employee. Many managers only see direct costs related to finding a new person. However, this is just the tip of the iceberg. Detailed breakdowns of costs include:

Pre-departure costs:

• Decreased engagement of the person deciding to leave
• Time spent by the departing person transferring knowledge and duties
• Time spent by the departing person and the team on farewells and job change discussions

New employee search costs:

• Cost of preparing and publishing job advertisements
• Time needed to screen incoming applications
• Time needed for interviews (often several meetings)
• Time needed to check references, agree on terms with the selected person, and prepare the contract

Onboarding costs:

• Time the new person spends getting acquainted with the company, duties, and procedures
• Time other employees spend training the new person
• In some cases, the cost of purchasing individual work aids such as uniforms or personal earphones

Lost benefits:

• Cost of lost knowledge not transferred by the departing employee
• Downtime in performing some duties if the old employee left and the new one is yet to be hired
• Temporary burden on remaining employees with the departing person’s duties
• Lost benefits due to the new employee not performing as well as the departed one for a certain period
• Decreased client satisfaction (internal or external) due to lower service levels caused by the employee's departure

Other costs:

• The departure negatively affects the morale of the remaining team
• A colleague's resignation might prompt others to look for jobs
• The departed employee may try to recruit former colleagues to their new company, especially if they are rewarded for candidate referrals

It is estimated that turnover costs range from 30% to 200% of an employee's annual salary (Philips J.J., Edwards L., 2009).

Turnover Risk Assessment

To reduce turnover, regular employee satisfaction surveys should be conducted. These should be designed to identify specific dissatisfaction factors. Subsequently, efforts should be made to improve those areas. Of course, work always involves some effort for the person performing it, and no job is purely enjoyable. However, employers can strive to improve what can and should be improved. In the case of unrealistic employee expectations, time should be spent explaining why certain aspects must remain unchanged.

References

Abelson, M. A. (1987). Examination of avoidable and unavoidable turnover. Journal of Applied Psychology, 72(3), 382–386. https://doi.org/10.1037/0021-9010.72.3.382

Bowden, B. G. T. (1951). The Problem of Employee Turnover. Harvard Business Review.

Eberle, G. J. (1919). Labour Turnover. American Economic Review.

Holtom, B. C., Mitchell, T. R., Lee, T. W., & Marion B. Eberly. (2008). Turnover and Retention Research: The Academy of Management Annals, 2(1), 231–274. https://doi.org/10.1080/19416520802211552

Philips, J.J., Edwards, L. (2009). Managing Talent Retention: An ROI Approach. Pfeiffer, San Francisco.