A quick summary:
- What is labour turnover?
- The disadvantages of high labour turnover
- Recognising avoidable causes of labour turnover
- Labour turnover formula
- A labour turnover calculation example
- Reducing high labour turnover in your organisation
- Our conclusion on employee churn
Creating successful businesses starts with getting control of labour turnover. In recent months, employee churn has become a talking point for businesses, as talented employees become harder to retain.
After a rough few years, workplace trends and employee needs have taken on a new meaning. If leaders want to keep retention in the green, the causes of labour turnover must be addressed.
This topic isn’t new to us, as we’ve covered labour turnover from various angles in a number of articles on our blog. However, as far as guides go, this is definitely a must-read for all HR and people management professionals.
In this comprehensive guide, we’re going to walk you through the A to Z of labour turnover. This means definitions, calculations, examples, disadvantages and more. Our goal? To better prepare you, as a leader, for the fight for talent retention on the horizon.
But, before we jump into all of that good stuff, let’s start by looking at the labour turnover definition…
Labour turnover definition
Labour turnover refers to the number of employees who have left a business in a determined period of time. It’s also known as employee turnover, and both terms share the same definition.
As a metric, labour turnover is used by senior teams to better understand and manage who people move through the employee experience. Here are a couple of the questions leaders may ask themselves when assessing employee churn metrics…
- Why have nine employees left in the last quarter?
- How can we prevent employees from departing so quickly?
- Have we conducted exit interviews to improve our labour turnover rate?
These questions are by no means exhaustive, but they should give you an idea as to what questions labour turnover data may prompt for leaders.
We would summarise by saying that it is a metric, much like job satisfaction, employee engagement and cost of hiring. These are all metrics that businesses small and large track on a monthly and quarterly basis.
Pro tip: Using our free HR calculations cheat sheet, you can access more than 15 different calculators to help strengthen your HR strategy.
Disadvantages of high labour turnover
The disadvantages of high labour turnover include recruitment and training costs, poor morale, shattered workplace relationships and more. In simple terms, the consequences can be immense and impact a business in various ways.
Below, we’re looking at some of these in more detail. Hopefully, this will demonstrate exactly why high labour turnover is nothing to be proud of and something to be totally concerned about.
Replacing employees is expensive
Firstly, by ignoring labour turnover, your business could be throwing away thousands of pounds. Employee recruitment and training don’t come without a cost.
Whenever your company loses someone, not only does productivity and activity for that role vanish, you’re tasked with recruiting, conducting interviews and training new hires. It’s undoubtedly going to incur costs, but some may have been avoidable.
Did you know it can cost around six to nine months of salary to replace an employee? If that doesn’t put enough fear in your HR team to start taking labour turnover seriously, we don’t know what will!
Poor workplace morale
Let’s talk about morale… when a workforce’s headcount rapidly changes, it’s going to negatively affect employees that stick around. Most team members because they believe in the mission or potential of a business.
Seeing people leave constantly can make other employees question whether they’re in a good organisation and whether they are fairly treated.
As people come and go, your employees can’t develop meaningful relationships and make progress with projects they’re working on. Imagine having to constantly bring new hires up to date with what’s going on — no fun, right?
Fractured workplace relationships
Our final disadvantage of labour turnover is fractured workplace relationships. As we touched on briefly above, employees can’t build connections with their team members if there’s always leaving.
Collaboration is the essence of a successful business, and without a robust team behind it, very little can be achieved. Let’s not forget employees who are very vocal about their feelings as they leave, because they do exist.
Avoidable causes of labour turnover
There are a number of avoidable causes of labour turnover such as a lack of promotion opportunities, poor employee benefits and substandard hiring practices — just to name a few.
These are things that businesses must look at improving if they are to prevent employee churn from wreaking havoc in their business.
A lack of promotion opportunities
Starting with one of the most lacking qualities in a lot of organisations; promotion opportunities. Unfortunately, most companies do not outline promotion chances in their “reasons to work for us” section on job ads.
When it comes to labour turnover, you can be sure that a lack of promotion or opportunity to progress will be high on the list. We all want to move onwards and upwards in our careers, and that applies to everyone, regardless of position.
Without promotions, we can sometimes feel like we’re stuck in a rut. However, feeling that way for too long drives us to leave, i.e spiking labour turnover for our employers.
Think about the lack of opportunities in your organisation and what you can do to retain talent despite this. It may be that your company is just too small to offer these chances; it may be due to a lack of financial resources.
Think outside the box to prevent high labour turnover due to poor promotion opportunities. We recommend you read through our complete guide to employee retention to strengthen your chances!
Poor employee benefits
Many leaders misjudge just how vital employee benefits are to their workforce. They can versatile, life-changing, supportive and more. They help both businesses and their teams achieve goals.
Think about it, your company probably wouldn’t suffer at the hands of labour turnover if you offered a robust benefits package that supported financial wellbeing, emotional and mental health, physical wellbeing and more.
Whilst workplace perks sometimes become mere box-ticking for some companies, don’t let yours fall behind and become outdated benefits. It’s platforms like Heka that can help you ensure your benefits package is 10X better than that of your competitors.
Better workplace benefits lead to better engagement. What’s more, a highly engaged workforce sees 21% higher profitability than a disengaged workforce.
Substandard hiring efforts
Next, let’s talk about inadequate hiring efforts. Recruiting the right talent is so important. Not only does it ensure they’re the right fit for the role, team and overall company, but it also supports lower labour turnover.
Whilst many companies try to hire fast and avoid really getting to know candidates, it does more harm than good. Instead, consider revising your recruitment strategy. Think about the negative implications of employees who only stick around for the short term.
In an article by CNBC, it was reported that 20% of millennials would leave a job within the first month if it turned out differently than what was advertised. This demonstrates that employee needs and expectations have to be met!
With figures like that, it’s clear why labour turnover rates can skyrocket when hiring isn’t executed effectively. Here are a few things to think about when recruiting:
- Does this person really fit our culture and team?
- Can we outline a career pathway for them?
- Are our workplace perks compelling enough for this candidate?
- Is there a genuine interest in our industry and product/service?
Labour turnover formula
The labour turnover formula is simple. It’s the number of employees that have left in a specific timeframe divided by the average number of employees in your organisation. You then multiply that number by 100 to give you a labour turnover calculation.
Let’s look at this in a more visual sense…
We first start by finding the average number of employees in a given time period. This is calculated by taking the number of employees at the beginning plus the number of employees at the end of the defined period and dividing that number by two.
The above is then followed by the next part of the labour turnover formula… (The number of employees who left / average number of employees in your team) x 100 = labour turnover figure.
This basic labour turnover formula gives you a clear picture of employee churn in your organisation on a monthly, quarterly or annual basis. It really depends on the timescale you’d like to track.
To make things even simpler with the labour turnover formula, let’s look at an example using these exact mathematics.
Labour turnover calculation example
So, in our hypothetical scenario, we have 200 employees. However, last month 16 chose to leave the company.
Our recruitment team managed to fill one of those vacancies, but unfortunately, we want to know exactly what our labour turnover calculation is, so the new hire doesn’t count.
This meant that from a labour turnover perspective, we started with 200, and we finished with 184.
- Employees at the beginning of the month = 200
- Employees at the end of the month = 184
- Employees who left during the month = 16
If we abide by the labour turnover formula that we’ve outlined above, this is how our maths would look…
200 + 184 = 384 / 2 = 192
16 / 192 = 0.083 x 100 = 8.83% labour turnover.
Hopefully, the labour turnover formula above made total sense. If you’re looking to explore more HR metrics, do not hesitate to use our cheat sheet. It includes numerous calculators and takes out all the guesswork for you.
Now that we’ve covered various disadvantages, avoidable causes and the labour turnover formula, let’s look at ways you can actively reduce and improve your labour turnover rating.
How to reduce high labour turnover
Reducing high labour turnover starts with deciding to become better as a company and as a leader. That’s because it’s not easy to reverse employee churn, and developing a healthy culture and offering robust workplace perks takes time.
Because you’ve made it this far through our guide to labour turnover, we know you’re already committed to achieving better retention.
Hire great culture-fit employees
We’ve spoken a lot about workplace culture in this guide, and that’s because it’s ineluctable in this conversation. Well, we’ve come full circle back to the subject when looking at ways to reduce high labour turnover.
Your first port of call is your company’s culture. This entails management styles, the relationships, communication and collaboration of your team and your mission and values as a business.
Yes, there’s a lot to consider, but if we’re to truly reduce high labour turnover, culture must be addressed. For most organisations, it’s the case of completely reinventing the wheel — setting new ambitions and goals for culture.
The reason we’ve started with this point is that shifting organisational culture is a big task. It depends on everything from your recruitment efforts to your benefits package and more.
To minimise employee churn, you’re going to need the help of other senior managers too. One person cannot change company culture alone. Here’s a step-by-step guide to changing your culture:
- Arrange a meeting with all senior team members
- Draw up a review of your current organisation’s culture
- Be open and honest with yourself about current circumstances
- Amongst your senior team, set up culture goals for the next quarter
- Assign tasks and duties to other managers to survey the workforce on culture
- Reflect on your strategy and make any necessary changes each month or quarter
Following this six-step plan should help senior teams develop a game-changing company culture — one that will benefit your labour turnover rating.
Offer fair career progression
Yes, we are also coming full circle back to career progression. After careful consideration, we decided it was one of the most pivotal areas for improvement if you want to reduce high labour turnover.
Defining career pathways for employees means giving them goals to reach, ambitions to achieve and ways to engage them with their work. When the journey isn’t visible, we question why we’re doing something.
Create that journey for them. Explain the ambitions you have for both the business, the role and the specific team or department. It’s information like this that really brings people on board your mission and helps retain them, i.e reduce labour turnover.
With each new hire, answer these questions below and feed the answers to them in their opening days, weeks or months. Don’t let them question their role and feel inadequate in the greater scheme of things.
- How can this role develop in the next six months?
- How will the wider team or business change in the next couple of years?
- Do we have the capacity to upskill new employees for future opportunities?
- Do I believe this role reflects the ambitions of the candidate?
- Have I been clear about the opportunities this role offers?
Take workplace wellbeing seriously
Our final idea for reducing high labour turnover is to start taking workplace wellbeing seriously. As you can imagine, we’re pretty passionate about healthy and happy employees.
In the past few years, workplace wellbeing has been turned on its head. Box-ticking and meaningless support has been exposed and employees are demanding better initiatives.
The global pandemic was a moment of immense evolution when it comes to employee wellbeing. Since then, however, it’s become even more important to employees than during the pandemic.
According to an article by Zippia, around 87% of employees consider the health and wellness offerings of employers when deciding on a new job.
It’s simple. Your employee wellbeing strategy supports improving retention and minimising labour turnover. Remember, it’s not just the initiatives that count, but your approach to work as a whole.
- Flexible working opportunities
- Fair annual leave allowances
- Regular team socials
- 1-2-1 wellbeing meetings
This is a short list of other ways in which your company can start taking workplace wellbeing more seriously. It’s time to get your thinking cap on and find ways to help employees stay healthier and happier at work.
Consider conducting workplace wellbeing surveys to find out what makes your specific employees happier. This way, you can save time and focus on what matters to reduce labour turnover.
Our conclusion on labour turnover
Managing your company’s labour turnover is only possible by addressing points we’ve made in this complete guide. Decide how to tackle poor morale, support work relationships, revamp your benefits and carry out meticulous hiring efforts.
Without first addressing these issues, your labour turnover will remain high. It will always be an uphill battle and you’ll never quite retain your best talent long enough to push the business higher.
Most important of all, be consistent with your strategy. Reducing employee churn has to be an ongoing goal. Assign strategy implementation and management to your HR team — only then can your goals be taken seriously and progress be made.
We would round up our conclusion on labour turnover by saying this…
Every business can attract and retain top talent. It’s just understanding how pivotal their needs are to your business. Employees are the most important stakeholder in your business. Without a strong and trustworthy team, there is no business!
Treat your employees as best you can, and allow your organisation to develop a reputation for being a great place to work.
By doing this, you are actively reducing labour turnover and will gradually attract and retain people who want to make your business a huge success!