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What is employee turnover and what causes it?

Written by: Chase Charaba
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Published on April 14, 2022.

Many factors influence employee turnover, both internal and external. While organizations may not always be able to control external factors, you can control the internal factors that lead to employee turnover.

This article will define and explain the root causes of employee turnover, how to calculate turnover rates, and how to lower it by offering comprehensive benefits.

What is employee turnover?

Employee turnover is when employees leave an organization for any reason, typically searching for better opportunities. However, it also includes the number of employees who were let go by the organization. Employee turnover rate accounts for how many employees leave a company in a specified period.

You can split employee turnover into two categories: voluntary turnover and involuntary turnover. Voluntary employee turnover occurs when an employee chooses to leave the organization. This could be because a better opportunity presented itself, they were offered better pay or benefits, or they left the workforce.

Involuntary turnover, meanwhile, is when you choose to part ways with an employee, either through layoffs or other terminations due to poor performance.

How do you calculate an employee turnover rate?

To calculate your employee turnover rate, add up the number of employees lost in a specific period. You’ll also want to gather the average number of total employees you have.

Subtract the number of any temporary or seasonal employees from each amount. Typically, employee turnover rates don’t include temporary workers, which will skew your numbers.

Now divide the sum of employees who have left by the average number of employees at your organization. Move the decimal two places (or multiply by 100) to get your turnover rate.

For example, let’s say you’ve lost five employees this year. On average, you have 30 employees at any given time. Divide those 5 employees by the 30 overall and you’ll get 0.167, or a 16.7% turnover rate.

What is the average turnover rate?

The U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey reports the average total turnover rate was around 4.1% in February 2022, with 2.9% for quits and 0.9% for layoffs.

With unemployment rates at record lows, the U.S. has gone from around six unemployed people per job opening in 2009 to less than one unemployed person per job in 2022. That means workers have more job options available to them.

When unemployment is low, voluntary turnover tends to rise, and involuntary turnover tends to fall.

Although larger organizations have slightly lower turnover rates, smaller organizations often feel more of an impact when someone leaves.

The greatest variances are seen between industries. Hospitality and retail generally have a high turnover rate, while finance and insurance have less turnover.

The table below shows annual quit rates for the entire year. This is shown as a percentage of annual employment numbers.

Industry

2019 Quits Rate

2020 Quits Rate

2021 Quits Rate

Total

28%

25.2%

32.7%

Mining and logging

24.6%

17.7%

20.6%

Construction

27.8%

22%

29.7%

Manufacturing

19.4%

19.3%

28%

Wholesale trade

17.5%

17.8%

23.5%

Retail trade

39.9%

38%

50.6%

Transportation

26.6%

26.9%

31.3%

Information

19.3%

16.3%

22.1%

Finance and insurance

15.6%

13.9%

16%

Real estate

23.4%

18.5%

23.1%

Professional services

36.5%

32.7%

40.5%

Education

17.3%

14%

17.1%

Healthcare

23.9%

24.7%

30.4%

Leisure and hospitality

55.7%

48.4%

66.8%

Other

27.7%

19.6%

28.4%

Government

9.9%

10.6%

10.8%

Source: U.S. Bureau of Labor Statistics

What causes employee turnover?

While there can be many causes for employee turnover, certain aspects of the employee experience tend to be the biggest drivers of turnover.

Some of the most common causes of high turnover are:

  • Pay and benefits
  • Lack of professional development or career advancement
  • Burnout
  • Poor onboarding process
  • Feeling disrespected or unappreciated at work

Let’s go over each in more detail below so you can combat these common challenges in employee retention.

Pay and benefits

Employee compensation is often a top reason for voluntary turnover. This is usually due to a lower-than-expected salary or raise. A lack of employee benefits can also cause your talent to leave for better opportunities.

According to a Pew Research Center survey, 63% of workers quit their jobs in 2021 due in part to low pay. Additionally, 43% said poor benefits or a lack of benefits were factors in their departure.

To retain your employees, you need to stay updated on what your competitors are offering their employees. If your competitors offer a comprehensive benefits package or a greater salary, they’ll entice your employees to apply.

Establishing yearly cost-of-living wage increases and offering benefits is a great way to keep your employees engaged and improve employee satisfaction. Glassdoor found four out of five employees prefer added benefits to a salary increase.

Lack of professional development or career advancement

Nobody wants to feel stuck in their career. Employees value organizations that provide opportunities for career growth and development, whether that’s through education benefits or promotions.

According to LinkedIn’s Workplace Learning Report, 94% of employees said they’d stay at an organization longer if it invested in their career.

Additionally, according to the same Pew Research Center survey, 63% of employees who quit their jobs in 2021 said a lack of opportunities for career advancement was a reason for quitting.

Poor promotion practices create staff turnover because people feel like they’ve been passed over. To combat this, organizations need to communicate open opportunities with employees and prioritize promoting within.

Speak to internal candidates who weren’t selected for a promotion or new role as soon as possible to preserve your relationship. Be prepared to address any concerns or questions they may have. Work with these employees to share what they’re doing well and what they can work to do better next time.

Encouragement and recognition are key for retaining employees in these situations.

Poor onboarding process

Onboarding is a way to set your new hires up for success by providing them with all the information and resources they need to do their jobs effectively. However, some organizations fall short of this goal.

According to the Society for Human Resource Management (SHRM), the absence of an onboarding process results in lower productivity and higher employee turnover. While most organizations want new hires to feel welcomed, culture integration only accounts for 27% of onboarding processes.

Your hiring process and onboarding process should help new hires to feel welcome and prepared. Introduce your new employees to their co-workers and show them around. Answer any questions they may have, and inform them of any employee perks or benefits.

New to onboarding employees? Use our seven-step checklist to get you started

Feeling disrespected or unappreciated at work

Pew Research Center found that 57% of employees who left their jobs in 2021 cited feeling disrespected at work as a reason for quitting.

Organizations need to promote an inclusive company culture where everyone feels welcome and appreciated. When employees have the chance to connect with one another and with management on a personal level through activities, they’ll feel happier and less likely to leave.

You can show your employees that you value them by celebrating their successes and efforts year-round. This could be through compliments and words of encouragement or employee recognition programs.

Employee happiness is a major indicator of job satisfaction. Investing in your employees’ happiness and making them feel valued can help you keep them engaged and productive, reducing employee turnover.

What are the real costs of employee turnover?

Losing an employee comes with a cost, especially for small businesses. High employee turnover can lower employee morale, damaging employee culture.

Since you’ll be down a team member, other employees will need to pick up the slack. This leads to increased workloads for your remaining employees, decreasing overall productivity.

Probably the highest cost of employee turnover is the expense of hiring a new employee. According to Built In, the average cost of replacing an hourly employee is $1,500. And this number only scratches the surface, as certain positions will cost more to replace.

Read our blog post on the real cost of losing an employee to learn more about why employee retention is so important

Which benefits reduce employee turnover?

With benefits playing a major role in why employees quit their jobs, it’s important to offer benefits that your employees want. This section covers some of the best employee benefits to include in your employee retention strategy.

Health benefits

Health benefits are one of the most important perks you can offer your employees, and they are frequently the most-desired benefit.

Traditional group health insurance is an option for businesses that want to provide comprehensive coverage to their employees. However, the lack of flexibility in a group health plan can put some employees at a disadvantage. Group health insurance may not be cost-effective or easy to manage for many small to medium-size businesses.

Employees increasingly desire flexibility in their workplace, and that includes perks. Offering personalized health benefits allows your employees to choose how they want to use their best.

Offering a health reimbursement arrangement (HRA) or health stipend are better options for some businesses because of the flexibility and cost savings they provide.

With an HRA, you reimburse employees for their individual health insurance premiums and qualifying medical expenses, such as out-of-pocket expenses for prescriptions or office visits. You set up monthly allowances for your employees to use on their medical expenses with unused funds rolling over until the end of the benefit year. These reimbursements are tax-free for both employers and employees.

Three of the most popular types of HRAs include:

HRAs allow your employees to purchase individual health insurance coverage that best fits their needs instead of being forced to use a one-size-fits-all plan.

Find out which HRA is best for your organization with our HRA quiz!

Health stipends are another great option for businesses of all sizes. Like with an HRA, you can offer your employees a monthly allowance for their medical expenses. However, health stipends are taxable and must be reported as additional income on your employees’ W-2s.

It’s best to offer a health stipend instead of an HRA when your employees receive advance premium tax credits, as they’ll be able to claim their APTC and use the full health stipend benefit. You can also offer stipends to international employees and 1099 contractors. Otherwise, HRAs are often better for businesses because of their tax advantages.

See how HRAs and health stipends compare with our free comparison chart

Wellness benefits

Offering your employees a wellness benefit is a great way to reduce employee turnover. Wellness perks help boost employee productivity and employee engagement by reducing stress and improving your employees’ overall well-being.

Some businesses create comprehensive wellness programs featuring in-office classes, mental health counseling, and fitness programs, just to name a few examples.

Instead of creating a wellness program, you can offer your employees a wellness stipend. Wellness stipends help you easily offer an employee benefit while giving your employees control over how they use their benefit.

You give your employees a monthly allowance for wellness expense reimbursement with a wellness stipend. This could be for gym memberships, fitness classes, exercise equipment, and more.

Learn how to improve employee well-being with our free guide

Remote work

Allowing your employees to work from home is another great way to reduce employee turnover. According to Pew Research Center, 59% of Americans who can do their jobs from home are working from home at least most of the time. That’s partly because 64% of remote workers feel it’s easier to balance work and personal life in a remote work environment.

If your employees are remote or hybrid, you should provide them with a remote work stipend. This allows you to reimburse your employees for their home office setup costs, monthly internet bills, and cell phone bills if they use their devices for work.

This additional employee perk helps ensure that your remote workforce has a stable internet connection and the tools they need to do their jobs effectively.

Conclusion

Employee turnover is caused by various factors, many of them controllable. Understanding common causes of employee turnover and how to avoid it can help you retain your employees and improve their wellbeing at the same time. If you want to know what’s driving your employee to leave, consider conducting an exit interview for departing employees.

Allowing employees to move up in the company, providing them with a great onboarding experience, recognizing accomplishments, and offering competitive compensation and benefits can help reduce your organization's employee turnover rate.

If you’re ready to provide your employees with benefits, PeopleKeep can help! Our HRA and employee stipend administration software helps organizations like yours create and manage flexible employee benefits in minutes.

Schedule a call with a personalized benefits advisor today to see how employee benefits can work with your organization

This blog article was originally published on January 21, 2020. It was last updated on April 14, 2022.

Originally published on April 14, 2022. Last updated April 14, 2022.
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