When you’ve worked so hard to build your business, hiring your first employees can be an exciting and nerve-wracking step. Surrounding yourself with a team of dedicated workers who want to see your company succeed is one of the most important steps that you can take as a business owner.
With the average number of employees being around 10-12 for a small business, it’s your responsibility to create a collaborative and prosperous work environment where everyone has the opportunity to grow and thrive.
But what do you do when things turn sour? We’re here to show you how to keep your new hires happy, what to do when you spot the first signs of employee dissatisfaction, and how you can keep your turnover rate low as you continue to grow your team.
What Is Turnover Rate?
Employee turnover is when an employee leaves and needs to be replaced, regardless of their reason for moving elsewhere. Turnover rate is typically calculated by dividing the number of people who left that year by your average number of employees on your payroll, then multiplying by 100 percent. That will give you your annual turnover rate. For example:
- Employees: 28
- Employees who left: 2
2 ÷ 28 = 0.07 x 100 = 7% turnover rate
This is different from attrition, where an employee leaves but you have no plans to refill that position (so the overall number of employees will likely shrink) and retention rate, which looks at the percentage of employees that stay over a given time period.
You’re probably wondering what kind of metrics we’re talking about when it comes to employee turnover but there’s no easy answer here. Most businesses aim for around 10-20 percent in turnover, but some can be higher if your industry sees significant shifts in work from seasonal employment or temporary staff.
The Bureau of Labor Statistics noted that, in 2020, average turnover rate was around 57 percent across all industries, with retail and food service topping the list at 65 percent and 73 percent respectively. Always compare percentages for your business within your own industry when you’re trying to determine the highest turnover you should be trying to stay under.
Types of Employee Turnover
Not all types of turnover are the same. Most reasons for employees leaving can be broken down into two groups–voluntary and involuntary.
Voluntary Turnover
This kind of employment change is the most common and, like the name suggests, is when an employee decides to leave a job by choice. There are plenty of reasons for this (which we’ll get into later), but not all of them are areas that you can address.
No one wants to see the day when one of their best employees leaves, but factors like relocation, returning to higher education, or moving on to a different career path entirely are usually personal decisions that have little to do with the work environment that an employee was in.
While you can offer alternatives like remote work flexibility, the employee may ultimately decide that the balance isn’t going to work for them. Conducting exit interviews is a great way to better understand what that team member’s experience has been like and where you can make improvements.
Whatever the reason for an employee choosing to leave, it’s best to try and part on good terms. You never know where they’ll end up in the future!
Involuntary Turnover
This is exactly what it sounds like: an employee will no longer be on your payroll not by their own choice, but yours.
Letting an employee go, whether you’re firing them for poor performance or making them redundant due to budgetary cutbacks, is never a pleasant experience. You’ll want to rely on your human resources team when asking an employee to leave against their wishes and determine what impact this will have on the rest of the group.
Why Having a High Turnover Rate Matters
It’s easy to think that turnover rate doesn’t matter. After all, isn’t there always a pool of people looking for a new job that you can recruit from? That may be true for your industry, but that doesn’t mean it’s time to sit back and take it easy, whether you have significant employee turnover or your rate is fairly low.
1. It’s a Red Flag about Your Culture
Here’s the first reason you need to worry about high turnover (voluntary turnover, specifically): It’s a red flag that there’s something not-so-desirable happening within your organization. There’s a reason that employees are hitting the road and failing to look into those root causes could mean staff members (yes, even your best ones) might continue to walk away.
2. It’s a Burden for Your Remaining Staff
Additionally, you need to think about your staff that sticks around. You may never think about the outgoing employee again, but you still have a whole team left behind that needs to pick up the slack, even if you plan on refilling that position. That individual’s work will need to be completed by someone, or a team of people, which means that their own work may suffer as a result.
It’s an inevitable downside to turnover and can seriously affect employee morale at the rest of the company. In a worst case scenario, if you’re experiencing high turnover and slow recruitment, the pressure on your team could ultimately lead to burnout and further turnover over a longer period of time. No one wants to fit the tasks and responsibilities of a second role into their day and you’ll start to see employee satisfaction going downhill rapidly.
3. It Costs Both Time and Money
If that isn’t enough to motivate you to improve your employee retention, let’s take a moment to think about the cost of turnover. Like it or not, higher turnover rates can end up having a sizable impact on your business finances and seriously damage your bottom line.
According to Gallup, employee turnover costs American businesses over a trillion dollars every year. Other estimates say that it can cost up to six to nine months of an employee’s salary to replace them or $1,500 to replace an hourly employee. Numbers can vary pretty widely, but the question is: Do you want to risk any kind of money when you’re a small business?
Regardless of whether you’re bringing in a fresh-out-of-college graduate or a senior-level employee, there will always be recruitment and training costs involved. Some of these may be minimal, like advertising in your local media or on LinkedIn, but others can be incredibly costly.
It’s not only monetary costs that need to be taken into account here but also time. Existing team members will need to spend some of their workday training the new employee, which decreases productivity for both of them. If you work as a remote team, it can take even longer for a new staff member to get up to speed. Each time there’s staff turnover, you’re starting from square one again.
What Are the Top 3 Reasons for Turnover?
Some turnover is natural; after all, people leave jobs for all kinds of reasons, even if they loved their previous place of employment. But having a high turnover rate is often the wake up call that business owners need to look at how their day-to-day operations are being managed and whether there are deeper, company-wide issues that need addressing.
1. Culture Differences and Workplace Conflict
Having a clearly defined company culture is a significantly overlooked aspect of growing a business and bringing on additional staff. While it’s important to have a diverse team, acknowledging shared boundaries, goals, and codes of conduct when it comes to working together is key to employee retention and avoiding staff turnover as a result of a negative workplace.
Ongoing disagreements and misalignment with corporate culture are some of the top reasons for people moving on to new jobs. We don’t expect your employees to be best friends forever, but ensuring that new team members can feel integrated and welcome from day one is vital in improving employee engagement and building a high-performing workforce.
How to Deal:
- Establish clearly defined cultural values and ensure employees uphold them
- Address conflicts head-on rather than letting them fester or sweeping them under the rug
- Regularly solicit employee feedback to gauge cultural satisfaction and address challenges
2. Insufficient Compensation
Salary and benefits are the first things that you should be assessing if you’re seeing a high employee turnover. They’re one of the biggest factors in recruiting, particularly if you’re making a job offer in a competitive industry, and they’re easy to quantify and adjust if necessary.
An employee may be willing to jump ship to a better job for a higher annual salary. But if everything else is equal, it’s up to you to determine if they’re worth investing more money in or if there’s another type of benefit that you could use to sway their decision to stay. After all, money isn’t everything. Job satisfaction can often come down to a better work-life balance, the opportunity for remote work, or travel benefits that other companies may not offer.
How to Deal:
- Use regular employee surveys to gauge satisfaction with their pay and benefits
- Connect with industry peers to get a better handle on what’s considered competitive pay in your specific area (and adjust accordingly)
- Have candid conversations with employees about what perks and benefits are most meaningful to them
- Uphold any promises you make about raises, bonuses, and other financial incentives
3. Lack of Growth Opportunities
Some employees may be perfectly happy to stay in their position for the rest of their working lives, but for others, climbing the career ladder is an ambition that they can’t let go of. If you’re not providing growth opportunities, whether that’s into a higher position in the business or resources for personal and professional development, your staff might start to look elsewhere.
Don’t only think of growth as upward, though. For younger or less experienced employees, knowing exactly what they want their careers to look like when they’re only just starting is almost impossible. Leaving a job to pursue a different career path is incredibly common and small businesses have a unique chance to offer flexibility in day-to-day duties that a bigger corporation might not have. If an employee is showing interest in areas outside of their own position, that’s a good indication that they may be questioning if their current role is right for them.
How to Deal:
- Regularly connect with employees (at least every six months) about career goals and how you can support them
- Provide thorough training and resources needed for employees to succeed in their positions
- Offer access to new challenges—whether it’s a promotion or an opportunity to lead a project or take more responsibility
- Promote employees from within to emphasize a growth culture
How to Proactively Avoid High Employee Turnover
A high employee turnover rate may feel inevitable, but as some of the specific tips we’ve already covered prove, it doesn’t have to be. There’s plenty that you can do as a business owner to spot the signs early and take action to address any employee unhappiness before anyone heads off in search of a new job.
Looking for even more strategies? We have a few ideas for you here.
1. Take a Magnifying Glass to Your Hiring Process
Hiring the right people to begin with is an obvious first step. As we’ve seen, if a new employee doesn’t fit into the company culture, that can cause all kinds of issues that quickly escalate from small disagreements to team-wide conflict. But you can prepare your new hires right from the start. As part of the hiring and onboarding process, have your HR professionals walk through standard processes and acceptable behaviors within the office, including how to report any problems to the HR team.
2. Offer Opportunities for Personal Connections
It can also be helpful to provide additional opportunities for your staff to get to know their co-workers and build a collaborative workplace. Particularly for entry-level employees, a buddy system can be a great way for them to learn everything that they need to be successful in what’s very likely their first professional job and find mentorship and support from someone who's been in their shoes before.
3. Keep Your Ear to the Ground (and Make Necessary Changes)
Watch for signs of dissatisfaction or changes in employee behavior over the course of a few months. If a highly productive employee becomes slow and sloppy with their work, take the time to meet with them one-on-one to discuss what might be happening.
If they need their workload to be lightened or some additional support, you can rectify those issues before they become worse. Or if they’re struggling to deal with something in their personal life, offer flexibility to help them find a better balance. Showing a little kindness and empathy really does go a long way in improving employee happiness.
4. Prioritize Praise and Recognition
You can even get ahead of the curve and boost employee morale before the warning signs are there. Everyone likes to feel appreciated and rewarding good performance is one of the best ways to show how much you value your employee’s hard work. Go beyond a simple “thank you” with a tangible reward, like lunch for their team or a gift card to their favorite local coffee shop.
Regardless of the specific tactics you try, keep this in mind: As your business continues to grow, ensuring job satisfaction and building an enjoyable work environment are the key to keeping your annual turnover low.
