Employee turnover and retention

Employee turnover

Employee turnover refers to the proportion of employees who leave an organisation over a set period (often on a year-on-year basis), expressed as a percentage of total workforce numbers.

At its broadest, the term is used to encompass all leavers, both voluntary and involuntary, including those who resign, retire or are made redundant, in which case it may be described as ‘overall’ or ‘crude’ employee turnover. It's also possible to calculate more specific breakdowns of turnover data, such as redundancy-related turnover or resignation levels, with the latter particularly useful for employers in assessing the effectiveness of people management in their organisations.

Employee retention

Retention relates to the extent to which an employer retains its employees and may be measured as the proportion of employees with a specified length of service (typically one year or more) expressed as a percentage of overall workforce numbers.

Turnover and retention trends

Our Resourcing and talent planning survey reports give a median ‘crude’ or ‘overall’ employee turnover rate for the UK sample collected, although not all organisations in the survey provide turnover figures for their workplace.

Turnover levels can vary widely between occupations and industries. The highest levels are typically found in retailing, hotels, catering and leisure, call centres and among other lower paid private sector services groups.

Levels also vary from region to region. The highest turnover rates tend to be found where unemployment is lowest and where it is relatively easy for people to secure desirable alternative employment.

Employers in the UK face uncertainty over Brexit, with some noting increased difficulty retaining staff. Find resources and guidance in our Brexit hub.

When does employee turnover become problematic?

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

Especially 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. The more valuable the employees in question - for instance where individuals have specialist skills or where they have developed strong relationships with customers - the more damaging the resignation, particularly when they move on to work for competitors.

But employers should pay attention to the turnover of staff regardless of industry. The reasons behind turnover may highlight issues within the workforce such as dissatisfaction with career progression opportunities. Employers should still strive to address any issues and create a positive working environment for their employees.

Measuring employee turnover

Organisations may track their ‘crude’ or ‘overall’ turnover rates on a month by month or year by year basis, expressed as a percentage of employees overall. The formula is simply:

Total number of leavers over period x 100
Average total number employed over period

The total figure is for all leavers, including those who retire, or leave involuntarily due to dismissal or redundancy. It also makes no distinction between functional (that is, beneficial) turnover and that which is dysfunctional.

Crude turnover figures are often used in published surveys of labour turnover as they tend to be more readily available and can be useful as a basis for benchmarking against other organisations.

However, it’s also useful to calculate a separate figure for voluntary turnover (resignations), as such departures are unplanned and often unpredictable (unlike planned retirements or redundancies for instance) and can have a particularly adverse impact on the business.

It may also be helpful to consider some of the more complex employee turnover indices, which take account of characteristics such as seniority and experience, or calculate figures for different functions and locations of the business to highlight areas where turnover is higher than others.

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 staff with service of one year or more x 100
Total number of staff in post one year ago

Costing employee turnover

The costs associated with employee turnover related to resignations rather than redundancies may be estimated by calculating the average cost of replacing each leaver with a new starter in each major employment category. This figure can then be multiplied by the relevant turnover rate for that staff group to calculate the total annual cost of turnover.

The major categories of costs are:

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

Many of these costs consist of indirect 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. These could include measures estimating, for example, 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 (both likely to be lower than the productivity levels of established employees).

In practice, however, the vast majority of employers do not calculate the specific costs of employee turnover, as illustrated in our Resourcing and talent planning survey reports.

Employees resign for many different reasons. Sometimes it is the attraction of a new job or the prospect of a period outside the workforce that 'pulls' them. On other occasions they are 'pushed' as a result of dissatisfaction in their present jobs to seek alternative employment. These ‘push factors; range from a lack career opportunities to organisational changes. The move might also be prompted by a combination of both ‘pull’ and ‘push’ factors.

One key factor behind an individual’s decision to leave the organisation may be a poor relationship with a line manager, leading to disengagement. Find out more on in our factsheet on employee engagement and motivation.

Turnover in the first year 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. Even when people stay past the first few months, the first impressions of a business can influence an employee’s decision to leave a business sooner rather than later.

Expectations can also often raised too high during the recruitment process, for example by overstating opportunities for progression, or the scope of the role, leading people to compete for and subsequently to accept jobs for which they are in reality unsuited.

Our recruitment factsheet gives an overview of effective recruitment, or read our factsheet for more on the importance of good induction.

Investigating why people leave

It’s important to understand why people leave the business. However, obtaining accurate information on reasons for leaving can be difficult. It’s important to appreciate that the reasons people give for their resignations can be sanitised. Individuals may be reluctant to voice criticism of their managers, colleagues or the organisation generally, preferring to give some less contentious reason for their departure.

Where exit interviews are used to ask about the reasons for leaving, the interviewer should not be a manager who has responsibility for the individual or who will be involved in future reference writing. Confidentiality should be assured and the purpose of the interview explained.

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 be truthful when there is reassurance of anonymity.

Alternative approaches to collecting exit data involve the use of confidential attitude surveys for current employees including questions on intentions to leave, or confidential questionnaires sent to former employees on exit or a period of time after their departure.

It’s also important to consider the experiences of those still employed at the business; conducting an exit interview will gather useful data, but using information from current employees (such as employee surveys) will help pinpoint retention issues before they lead to people leaving.

The first steps when developing an employee retention strategy are to establish:

• why employees are leaving
• who is leaving - for example, are employees from a particular team, seniority level or demographic group more likely to leave?
• the impact that employee turnover has on the organisation, including the associated costs.

This data can be used to develop a costed retention strategy that focuses on the particular issues and causes of turnover specific to the organisation.

Examples of retention activities are examining and improving employee value proposition and focusing on staff development. However, according to our Resourcing and talent planning surveys, many organisations do not have specific retention strategies.

As well as basic pay and benefits, organisations should consider the following elements, all of which have been shown to play a positive role in improving retention and are likely to impact the working environment:

• Selection - Give prospective employees a realistic job preview at the recruitment stage - don’t oversell the job or minimise aspects of the role.

• Career development and progression - Maximise opportunities for employees to develop skills and careers. It's also important to understand and manage people’s career expectations. Where promotions are not feasible, look for sideways moves that allow employees to gain different development experiences.

• Consult employees - Ensure that employees have a 'voice' through consultative bodies, regular appraisals, attitude surveys and grievance systems. Where there is no opportunity to voice dissatisfaction and influence outcomes, resigning may be the only option. See more in our employee voice factsheet.

• Be flexible - Wherever possible, accommodate individual preferences on working hours and times. As part of this, it's also important to monitor workload and ensure it is manageable within working hours. Learn more on flexible working.

• Pay attention to employee well-being - Support managers to help their teams thrive and manage issues such as workplace stress and presenteeism. Find out more in our Health and well-being at work survey report.

• Treat people fairly - A perception of unfairness, whatever the management view of the issue, is a major cause of voluntary resignations. For example, perceived unfairness in the distribution of rewards is very likely to lead to resignations.

Books and reports

ACAS. (2010) Managing attendance and employee turnover. Advisory booklet. London: ACAS.

TAYLOR, S. (2014) Resourcing and talent management. 6th ed. London: Chartered Institute of Personnel and Development.

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.

Journal articles

BERMAN-GORVIVE, M. (2014) To retain valued employees, don't wait until they have one foot out the door. HR Focus. May, Vol 91, No 5, pp13-15.

CASTELLANO, S. (2013) Talent retention is a global challenge. T+D. November, Vol 67 No 11, p18.

FOX, A. (2014) Keep your top talent: the return of retention. HR Magazine. Vol 59, No 4, April. pp31-32,34-35,38-40.

HAMORI, M., KOYUNCU, B. and CAO, J. (2015) What high-potential young managers want. MIT Sloan Management Review. Vol 57, No 1, Fall. pp61-68.

MacAFEE, M. (2007) How to… conduct exit interviews. People Management (online). 12 July.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.