A high employee turnover rate, the rate at which employees leave a business, can affect the bottom line of businesses of all sizes. However, the negative effect on small businesses can be particularly harsh due to limited resources and the investment in employees. Because employees who are satisfied with their jobs generally don't give them up, high turnover is usually indicative of a problem.
That's not to say that every employee who leaves your company is unsatisfied — after all, some will retire, leave town, quit because of family circumstances, desire to change professions, or even start a business of their own. But if you have a lot of turnover and you're losing good employees, you may want to give some thought to the possibility that the cause of high employee turnover in your business is a morale problem.
Causes of High Turnover
The causes of turnover are related to the same factors that contribute to absenteeism — if workers are not interested in their jobs, they will either stay away or leave.
But being unhappy in a job is not the only reason why people leave one employer for another. If the skills that they possess are in demand, they may be lured away by higher pay, better benefits, or better job growth potential. While you can't control what's happening with other companies, how much they pay, or which benefits they offer, you can take steps to improve morale at your business and make those employees who are with you happy and productive. That's why it's important to know and recognize the difference between employees who leave because they are unhappy and those who leave for other reasons.
The following are some of the more common reasons for high turnover in businesses:
- A bad match between the employee's skills and the job. Employees who are placed in jobs that are too difficult for them or whose skills are underutilized may become discouraged and quit. Inadequate information about skill requirements that are needed to fill a job may result in the hiring of either underskilled or overqualified workers. The requirements of a specific job should be carefully studied for the required skills, and workers should be tested for the requisite qualifications. Use job analyses and job descriptions to minimize the chances of this happening.
- Substandard equipment, tools, or facilities. If working conditions are substandard or the workplace lacks important facilities such as proper lighting, furniture, restrooms and other health and safety provisions, employees will not be willing to put up with the inconvenience for long.
- Lack of opportunity for advancement or growth. If the job is basically a dead-end proposition, this should be explained before hiring so as not to mislead the employee. The job should be described precisely, without raising false hopes for growth and advancement in the position.
- Feelings of not being appreciated. Since employees generally want to do a good job, it follows that they also want to be appreciated and recognized for their work. Even the most seasoned employee needs to be told what he or she is doing right once in a while. Make sure your employees know that they are appreciated.
- Inadequate or lackluster supervision and training. Employees need guidance and direction. New employees may need extra help in learning an unfamiliar job. Similarly, the absence of a training program may cause workers to fall behind in their level of performance and feel that their abilities are lacking.
- Unequal or substandard wage structures. Inequity in pay structures or low pay are great causes of dissatisfaction and can drive some employees to quit. Again, a new worker may wonder why the person next to him is receiving a higher wage for what is perceived to be the same work. You should have a wage and job evaluation system in place not only so that you are sure to comply with legal requirements, but also to avoid this problem.
If you suspect that you have a either a turnover or a morale problem, look at your employees and ask yourself if any of the above apply.
Measuring and Preventing Turnover
While measuring turnover for large companies with many employees is usually more technical and the results more scientific, small businesses can also keep track of turnover and try to spot trends and potential problems.
A small business owner can follow these steps for tracking turnover:
- Keep a list or file of employees that leave. In the file, include:
- the length of time that the employee worked for you
- the position that the employee held
- the reason that the employee left (information from an exit interview can help here)
- Over time, try to spot trends in turnover.
- Are there positions that you have trouble keeping filled?
- Do employees tend to stay for the same length of time before they leave your employ?
- Do employees seem to be leaving for similar reasons (like receiving more pay or a more responsible position)?
- If you suspect there is a problem with one or more positions, try to remedy or prevent the problem. It is sometimes possible to redesign a job by adding more attractive duties and reassigning some less desirable ones.
- If you suspect that you're not paying enough, obtain information about what other businesses are paying for similar positions.
- If you suspect that people are leaving because positions elsewhere allow them more growth, you can emphasize to future employees that the position has limited growth potential so that they know what to expect, or you can try to find ways to expand the responsibilities of the position.
- If the problem seems to be with one specific position, look closely at the working conditions of that position. Were the employees in that position forced to adhere to impossible deadlines, given all the worst tasks, or forced to work with difficult customers or employees more than should be expected? There may be something specific about this position that is driving good employees away.
The Cost of Employee Turnover
When an employee leaves your business, it costs your company in:
- Productivity. When the employee leaves, productivity will usually take a downturn because other workers may have to add the former employee's duties to their own workload, at least temporarily.
- Money. In addition to the monetary costs associated with lower productivity, you may have to pay employees overtime to get them to take up the slack left by the former employee until a replacement can be found. You may also have to face unemployment claims and pay for the cost of recruiting and hiring a replacement.
- Time. Not only may you be distracted from your regular duties to cover for a former employee, but you will now have to spend time and money advertising, interviewing, and otherwise looking for a replacement employee. And don't forget the time that you spent training and hiring the former employee. When you lose a lot of employees, you're wasting time and money.
Once you find and hire a new employee, you will still experience flagging productivity while the employee learns his or her new job. Sometimes, depending on the job, temporary employees can pick up the slack.
In other words, it costs the business money every time an employee leaves because it takes even more resources to return to the same level of productivity or level of performance that you had before.
On the whole, you're going to want to prevent turnover as much as possible because of the high costs associated with it.
Preventing High Employee Turnover
If a business wants to ensure that employees remain with the business, it has to:
- Identify the positive aspects of the business that make employees want to stay.
- Emphasize those aspects.
Some internal factors that may influence your employees' desire to stay are:
- desirable benefits
- pleasant working conditions
- opportunity for growth/advancement
- job security
In addition to the internal factors that make employees want to leave or stay, there are also outside factors that can influence your turnover. You can't do much about these factors but what you can do is try to make the job as desirable as possible to minimize the chance that external factors will lure your workers away.
To minimize unwanted turnover, give employees perks that are perceived by them as benefits that "make or break" a job. Trade on your strong points. Job perks like flexible hours or better-than-average benefits might keep employees in a job that they would otherwise leave. Attempt to make work fulfilling and rewarding for your employees.
Sometimes the jobs that you have may not be particularly exciting or offer a great potential for growth, but they are still important and must be done. So how can you handle this potentially sticky situation? Some possible options are to hire temporary employees, or to use part-time workers who are simply looking for a low-effort paycheck.