How To Calculate Profit Margin For Small Business Owners
As a small business owner or manager, you need to speak the language of your ind...
Employee turnover is an invisible issue that most managers tend to neglect. But if you want your business to succeed, you need to understand employee turnover and be able to manage it for the better.
Because this is often easier said than done, the talent-management experts at Sling have created this article to introduce you to the concept of employee turnover and give you tips for decreasing it in your business.
Employee turnover (the shortened form of employee turnover rate) is a metric used to describe the number of employees who leave a business during a specific time period.
Built into this metric is the assumption that once an employee leaves, you replace them with another employee. If you don’t replace the departing team member, it becomes a different metric entirely (more on this later).
We’ll discuss how to calculate turnover in the next section, but before we do that, let’s take a moment to examine its five subcategories: voluntary, involuntary, internal, demographic, and retirement.
Voluntary turnover is when an employee chooses to leave their job for any reason, including:
If you neglect to address the issues your team members are dealing with, your voluntary turnover rate will be high and you’ll lose more high-performing employees than you’ll retain.
Involuntary turnover is when an employer chooses to terminate an employee. As with voluntary turnover, involuntary turnover happens for any number of reasons, including:
Understanding the difference between voluntary turnover and involuntary turnover comes down to viewing the issue from the employee’s perspective, not management’s perspective.
If they are the one who does the leaving, it’s classified as voluntary turnover (even though you may not want them to leave).
If you — as management or ownership — initiate the process of termination, it’s classified as involuntary turnover (because the employee probably didn’t want to lose their job).
Within those broad categories of employee turnover lie three more categories that are important enough to mention. They’re all technically voluntary or involuntary turnover, but they describe different motivations that can affect your business as a whole. Let’s take a look.
Internal employee turnover describes a scenario in which one employee moves from one job or department to another job or department within your business.
For example, if you promote Chuck (a high-performing employee) from service technician to manager of the tech squad and then hire Sarah (a new employee) to take his place on the team, that’s internal employee turnover.
Smaller businesses experience this type of turnover often — team member to manager — but it can also manifest in other ways (e.g., a food runner moving to the server position).
Larger businesses experience internal turnover in the same way as smaller businesses but also experience it when employees move from one department to another.
Demographic employee turnover occurs when a specific group of employees chooses to leave your business.
Upon analysis, you may notice that a high number of people of the same age, race, or gender have left your company in the last six months.
This could indicate that something is wrong with your business’s diversity policies and that you need to address the issue as soon as possible to prevent it from continuing.
Though not immediately obvious, retirement is a form of employee turnover. More to the point, it’s a form of voluntary turnover for which your business can plan and prepare.
With the exception of internal turnover, the other categories in this list aren’t readily apparent until they happen. Retirement, though, you can see coming and take steps to make the transition less abrupt.
Now that you understand the concept of employee turnover, let’s discuss how to calculate the metric so you can proceed to control it for the better.
To get the best feel for your turnover rate — and to see where you stand in relation to other businesses — base your metrics on the formula that the Bureau of Labor Statistics (BLS) uses to calculate the annual national percentage.
Here’s their formula:
NOTE: They use “departures” (or “separations”) to refer to the total number of employees who have left or been fired.
Employee Turnover = (Number Of Departures / Annual Average Number Of Employees) x 100
So, for example, if 150 million people held a job at the start of a given year and, at the end of the year, 50 million people left for a different job, the employee turnover rate would be:
Employee Turnover = (50,000,000 / 150,000,000) x 100
Employee Turnover = 0.33 x 100
Employee Turnover = 33 percent
The BLS also calculates employee turnover every month within a yearly cycle using the same formula.
For example, if 150 million people held a job at the start of February of a given year and, at the end of February, 4,175,000 people left for a different job, the employee turnover rate for that month would be:
Employee Turnover = (4,175,000 / 150,000,000) x 100
Employee Turnover = 0.0278 x 100
Employee Turnover = 2.78 percent
You can customize this formula to analyze your own turnover rate in a variety of situations, including:
While the calculations listed above lump voluntary and involuntary turnover into one large number, you can separate them out to get a more nuanced picture of your business.
As simple as the concept of employee turnover may seem, it’s easy to confuse it with another business metric: attrition.
As we mentioned at the beginning of this article, turnover describes the rate at which employees leave your business and are replaced by new employees.
So, if one employee leaves (voluntarily or involuntarily), it’s counted as turnover only if you then hire another team member to take the place of the outgoing employee (a one-for-one staff replacement).
Essentially, the total number of team members your business employs remains the same because one goes out and one comes in.
Attrition, on the other hand, describes the rate at which employees leave your business and are not replaced by new employees.
So, if a long-time employee retires, it’s counted as attrition if you then decide to distribute their responsibilities to other team members rather than hire a new employee to do the job.
With attrition, the total number of team members your business employs decreases because one team member leaves and isn’t replaced by another.
Regardless of whether you’re measuring turnover or attrition, it’s more important to identify the underlying causes that are driving the numbers up and then take steps to get those numbers under control.
The first step in controlling turnover is to hire with business culture — not just skills — in mind.
A good fit in this regard matters more than you might think because it’s the “day-to-day” life of your team. If a team member isn’t a good fit, they are far less likely to enjoy their time at work.
As a result, their relationships and productivity will suffer, and they will be more likely to leave or cause problems that would lead you to fire them.
A successful onboarding process is a set of steps that eases new hires into their work environment so that their first days and weeks aren’t such a shock.
You may already have some form of onboarding process in place, but make sure it includes the following information and activities:
For more information on how to set up a successful onboarding process, check out this article from Sling: Onboarding Checklist: How to Onboard Your Employees the Right Way.
Encouraging teamwork helps reduce turnover by allowing team members to experience intangible benefits that they can’t find anywhere else, including:
The value of these benefits makes the day-to-day activities in your business more enjoyable and prevents employee turnover from running rampant through your team.
Competitive pay is certainly a significant part of what prevents turnover — and you should definitely pay your team accordingly. But a high pay rate isn’t the only thing that keeps employee turnover low.
Added value and incentives, such as health insurance, life insurance, a 401k, and other fringe benefits, can help motivate team members to stay with your business longer.
Whenever possible, give your team members the recognition they deserve to prevent high employee turnover rates.
This recognition doesn’t have to be a public spectacle. Sometimes, the best, most meaningful validation of a job well done is simply a word in private.
Take the time to make your employees feel like a valued part of your business and they’ll want to work hard for years to come.
Few people enjoy sitting through a performance review.
But when you remove the anxiety and stress from the appraisal process, it’s easier to show employees at all levels how to improve and achieve success in your business.
Then, when they feel a sense of achievement in the work they do, they’re more likely to want to stay in that position rather than look for a new job.
One of the biggest influences on employee turnover is oversight. If there’s a conflict between an employee and their direct supervisor, one of two things can occur:
Either way, the results can be difficult for your business.
As an owner or upper manager, you can prevent oversight conflicts by making sure those in supervisory positions are well-trained in both job-specific and interpersonal skills.
For more information on management training, take a few minutes to read these helpful articles from the Sling blog:
Employee turnover is largely dependent on how happy your team is while on the job. Many things affect employee happiness — and some of those things you can’t control.
But, of the things you can control, few are more frustrating than not having access to the tools necessary to do the job effectively and efficiently. It’s essential, then, to make sure your team has the tools they need to do their job right.
Put yourself in their shoes. If you didn’t have a copy machine, for example, and you had to hand-write and distribute 30 copies of a 500-word memo outlining new company policies, how much more difficult and time-consuming would the task be?
Or, if you only needed one copy to finish a task but you always had to repair the copy machine first, how much more frustrating would your workday be?
It’s the same for your employees. If they don’t have the simple tools necessary to get their job done in a timely manner or they always have to recreate the wheel before getting to the primary task, their happiness will suffer.
One of the best ways to find out if a lack of necessary tools is reducing happiness — and, thus, playing a part in employee turnover — is to ask your team directly.
Hold a meeting to brainstorm with your team on how to make their jobs more productive and what tools would make that possible. Or send out an employee satisfaction survey that includes a question to that effect.
You might be surprised by what comes back. The solutions could be simple or complicated, mundane or inspired. Either way, give them serious thought because these solutions could, ultimately, help you better manage employee turnover.
Allowing your team to work autonomously means giving them the permission, space, and flexibility to control how they approach and complete their work. In simplest terms, it means not micromanaging their every move.
Giving your employees autonomy by assigning a task and a deadline and then stepping back to let them work proves that you trust their abilities. That sense of trust contributes to a higher sense of job satisfaction.
Autonomy within the workplace can help reduce the stress that can build up over time and lead to feelings of discontentment, burnout, and, eventually, employee turnover.
Try building a bit of autonomy into each task and see how your team reacts. Keep in mind, though, that too much autonomy (e.g., ambiguous assignments or goals) can be just as stressful as not enough autonomy.
It can also be useful to discuss with each employee their preferred degree of independence and experiment with what works and what doesn’t to find the right balance.
Communication is one of the fundamental building blocks of an effective team and an effective business.
You communicate in one form or another every day, so you may feel like you’re already an expert at getting your message across. But communication is about more than just an exchange of information.
Strong and effective communication is also about how well the recipient understands what you’re trying to say. It doesn’t matter if you speak, draw, or write, if the message isn’t clear, your communication will suffer.
You can strengthen your team’s communication by:
Making your team communication clearer, more concise, and more effective will, in combination with other tips on this list, dramatically improve both the way you manage employee turnover and the way you do business.
One of the best ways to decrease employee turnover is through scheduling. The effects of scheduling on turnover are twofold:
Those benefits make your business more attractive than other businesses that still hold to a 9-to-5 schedule and, ultimately, help you retain the talent you need in your company.
For example, you might choose to implement scheduling options such as:
Regardless of the schedule you choose, advanced scheduling software like Sling simplifies the process of organizing and arranging even the most complicated staff rota.
With Sling, you can sit down, make your schedule in a manner of minutes, and move on to more pressing matters.
All of Sling’s cloud-based features — from schedule creation to time clock to payroll calculations — make it easy for you to create the best schedule possible, distribute it with ease, make changes, and juggle time-off requests.
Sling even provides suggestions and warnings when you’ve double-booked a team member or created a conflict in another part of your schedule.
All of this — and much more — makes Sling the tool of choice to help you manage employee turnover in your business.
For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.
This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for specific advice.
Schedule faster, communicate better, get things done.