Types of Employee Turnover
Employee turnover is an issue that can affect every business – even those with a single employee. The average small business spends thousands of dollars each year to find and onboard new employees. When the costs associated with training a new employee are added up, replacing a single well-trained employee can get quite expensive. In fact, Gallup estimates the cost of replacing a single employee can be up to 1.5-2 times the employee's annual salary. For an organization with 100 employees, this can translate to up to $2.6 million in a single year. The simplest way to minimize turnover costs is to understand what is leading to your organization's turnover so you can take proactive steps to prevent it. Since there may be several factors affecting your company's turnover, it's important to understand, track, and analyze each type separately.
What Does Employee Turnover Mean?
Employee turnover is a metric businesses can use to determine how quickly employees are being "turned over" – that is, how often employees are leaving a current position that now needs to be filled. The general turnover calculation for employees includes all separations for any reason, which can often be misleading. For a more valuable metric, businesses can track different types of turnover and calculate separate turnover rates for each type of separation. When analyzed regularly, these figures can help identify issues within the business and improve retention techniques.
Calculating Employee Turnover
In addition to understanding the definition of turnover, it's important to understand how and when to calculate turnover rates. Employee turnover is usually expressed as a percentage of the company's total employees on a monthly or annual basis. For example, if a business had 50 employees and 5 employees left their current positions during the period, that would translate to an employee turnover rate of 10%.
After calculating the overall turnover rate for the period, calculating the rates for different types of employee turnover within the same period can give insight into why employees are leaving. While performing exit interviews can help you identify why an individual employee left, employee turnover data can help you identify patterns in employee behavior, such as a large turnover rate from a specific department. Turnover data is most useful when you understand how to categorize and collect it effectively.
Voluntary vs. Involuntary Turnover
The most common way to categorize turnover is as voluntary vs involuntary turnover. This distinction helps to identify whether employees are leaving based on the company's decision or their own. By analyzing the differences in these turnover rates, you can better determine what factors are leading to the turnover and how best to reduce it, if necessary.
What Is Involuntary Turnover?
Involuntary turnover is when an employee is asked to leave their current position by the employer. While involuntary turnover is typically against the will of the employee, involuntary turnover is not always negative. The business may ask an employee to make a lateral move or take a demotion if they are not performing well in the current position, which may be a better fit for the employee long term but still results in an increase to involuntary turnover.
This category also includes employees let go for poor performance or separated due to business layoffs or organizational changes. While the turnover in this metric may have a variety of different causes, the common thread is that they are initiated by the business, not the employee.
What Is Voluntary Turnover?
Voluntary turnover is when an employee leaves of their own accord. Voluntary turnover may be in the best interest of the employer, such as with an internal promotion, or may not be in the best interest of the employer, such as when the employee leaves for another position outside the organization. Voluntary turnover is generally more expensive to businesses because it typically involves the loss of a quality employee, which is why it should be tracked separately.
Functional vs. Dysfunctional Employee Turnover
Whenever employees are leaving their positions, it will ultimately cost the company money to hire and train a replacement. But sometimes this cost can be worthwhile if it leads to higher productivity in the long run. To distinguish between profitable and unprofitable turnover, organizations should track functional vs dysfunctional employee turnover.
What Is Functional Employee Turnover?
Functional employee turnover indicates that turnover numbers are primarily comprised of poor performers. Functional turnover can include both voluntary and involuntary turnover:
- Functional voluntary turnover indicates a poor-performing employee chooses to leave because they cannot maintain the company's performance standards and expectations.
- Functional involuntary turnover indicates the company is doing a good job of identifying and terminating or reassigning poor-performing employees.
What Is Dysfunctional Employee Turnover?
Dysfunctional employee turnover indicates that highly capable employees are leaving their positions within the organization. As with functional turnover, dysfunctional turnover can include both voluntary and involuntary separations:
- Dysfunctional voluntary turnover indicates an employee left the company due to unhappiness with the work environment, a better offer outside the organization, or both.
- Dysfunctional involuntary turnover occurs when high-performing employees are let go, such as with downsizing or restructuring efforts.
Internal turnover involves employees being moved to new positions within the organization. These internal transfers don't necessarily always indicate promotions, however. Internal transfers can be lateral moves to gain experience in new departments or simply requests to join a different team due to poor management, internal conflict, career development, or new opportunities for employees. To get the most insight from tracking internal transfers, organizations should look for patterns in different departments or levels within the company.
Tracking the various types of employee turnover involves more than a single monthly calculation. By investigating the root causes behind the various types of turnover within an organization, businesses can work to minimize poor decisions regarding their employees and make more effective hiring decisions from the beginning.