Employee Turnover

Why calculate turnover?

Identify trends and where appropriate address them e.g. changing particular policies to improve
retention
Forecasting (including budgeting) for the future

Turnover has a significant impact on an organisation and this needs to be measured. In a survey
conducted by the CIPD in 2005, attitudes towards turnover were revealed as follows: 52% of
respondents felt that labour turnover had a minor negative effect on organisational performance; 21%
stated there was no effect; 17% stated a serious negative effect and 9% that there was a positive effect.

Adverse effects of turnover can include:

Financial - the cost of recruiting for and training new staff

Loss of expertise and knowledge of the history of the organisation
Potential loss of relationships with partners/clients/customers
Lower productivity until new staff are fully trained
Additional administration for managers and HR staff
Additional work for other members of staff in the interim
Potential damage to morale of remaining staff this can lead to more staff members becoming
unsettled and leaving

However, it should be recognised that some turnover positively benefits the organisation, injecting fresh
enthusiasm, new skills and a new perspective.

How to calculate turnover:

The separation rate is calculated as below:

Number of leavers
X 100
Average no. employed

This can be broken down further and analysed by other factors e.g. turnover according to team.

According to the 2005 CIPD survey, the average staff turnover was 15.7%, with the voluntary sector
standing very slightly higher at 15.9%. This means that roughly one in six employees left a job last year.
The vast majority leave voluntarily; only a small fraction leave because of redundancy or dismissal.

In order to calculate the retention of more experienced employees, the stability index can be used:

No. of employees with one years service (or more) on particular date
X 100
No. employed one year ago to the date

One third of employees in the UK have been in their current job for over ten years; one in ten have
stayed in their job for over twenty years.
What are the reasons?

According to ACAS, turnover is likely to be higher in larger, more centralised organisations and lower in
smaller organisations. There also slightly higher turnover in urban areas than rural.

Various methods can be used to find out why staff are leaving. In the CIPD survey, 90% of organisations
use exit interviews to investigate why staff leave; 30% use information from staff satisfaction surveys;
28% rely on word of mouth and 24% use exit surveys.

The most commonly cited reason for staff turnover is promotion outside the organisation (53%),
followed by lack of career and development opportunities (42%), change of career (41%), and level of
pay (37%). Some factors can be recognised as push factors such as lack of support from line managers
(10%), whilst others are pull factors such as external promotion. In order to minimise turnover, an
organisation therefore needs to look at reducing the potential push factors and upping the stakes to
match the external pull factors.

How to increase retention:

73% of the CIPD survey respondents reported difficulties in retention of staff. The following factors can
improve retention:

Only employing staff who meet the job specifications not filling the vacancy with someone
under-qualified out of desperation, nor someone over-qualified who will get bored
Ensuring new members of staff have a realistic idea of what the job involves from the start
Providing a thorough induction, both to the organisation and training in the job itself
Training managers to be effective particularly in listening to their staff and identifying
problems at an early stage
Creating a clear system for communications and consultation with staff
Providing opportunities for personal and career development
Allowing flexible working
Creating a pleasant working environment
Providing a sense of stability
Dealing with issues of stress, harassment etc. promptly and thoroughly
Treating all employees fairly and having a transparent pay scale

The CIPD survey cited the most frequently used retention initiative as improving employee
communication and involvement (57%). This was followed by increasing learning and development
opportunities (49%) and improving the induction process (45%).

Material taken from:

ACAS Analysing and dealing with labour turnover

Characteristics and costs of absence and labour turnover
Controlling labour turnover (2005)
CIPD Employee turnover and retention factsheet (2005)
Recruitment, retention and turnover annual survey report (2005)
Work Foundation Labour turnover management factsheet (2002)