Employee Turnover Can Always Be Reduced

. . . Never Eliminated

Case #22

The Challenge

Unplanned employee turnover is an expensive exercise with hidden costs including all of the ongoing recruitment expenses, training costs, and errors incurred by newer employees.

The Situation

Annually, our clients calculate their employee turnover rate. This is done by dividing the total number of W-2s issued by the number of current positions in the company. In this situation, the company calculated a turnover rate of 3 times the current number of positions.

The Analysis

A turnover rate of 3 implies that there were, on average, three different individuals in every position in the company. In reality, there are some positions which had no turnover during the year and other positions where there were many individuals in that job.

As a general rule, service-oriented companies have higher turnover rates than other industries experience. To some extent this has to do with the type of people that are hired e.g. students who come and go during the school year or who graduate and move on to other jobs.

Some of the turnover issues are unavoidable. Employees’ move, change occupations, spouses get transferred, or retirement comes around. In other cases, the issues may be avoidable or at least could be positively impacted.

A turnover rate of 3 times the number of positions creates a significant cost related to training, involving the cost of the new employee as well as the trainer, fixing errors that occur at a higher rate with new employees and all of the money related to ongoing recruitment efforts including want ad expense, applicant testing and interviewing.

The Recommendation(s) / Decision(s)

A conscious decision was made, by management, to reduce their turnover rate. Each employee’s file that had left in the last year was reviewed and the cause of the departure was identified, as best as possible.

Management determined that more emphasis and investment needed to be made on retaining employees. Significant and continuous training, even for long term employees, was initiated. Ongoing communications and involvement at all levels of the organization was improved with a company newsletter and departmental meetings. Pay scales were reviewed for market comparability and internal consistency. The personnel manual was updated and reissued. Every aspect of the employee’s work environment was evaluated and improved whenever possible. And most importantly, employees were empowered to make decisions on their own where appropriate and made to feel that they were an imperative part of the team.

The Outcome

Over a 2 year period, the employee turnover rate fell to 1.5. Recruiting relating costs dropped significantly. Quality has improved.