CIPD - Employee turnover and retention

HR practice

Revised July 2009

This factsheet gives introductory guidance. It:

summarises our latest figures on UK employee turnover levels
explains how to measure and cost employee turnover
sets out why people leave organisations voluntarily
provides advice on developing an employee retention strategy
includes the CIPD viewpoint.

Employee turnover levels

Our Recruitment, retention and turnover survey 2009 reported the overall employee turnover rate for the UK to be 15.7%.

View the full 2009 Recruitment, retention and turnover survey report

Turnover levels vary between industries. The highest levels of turnover (16.8%) are found in private sector organisations. Successive CIPD surveys of labour turnover show that the highest levels are typically found in retailing, hotels, catering and leisure, call centres and among other lower paid private sector services groups. Turnover stands at 16.4% in voluntary, community and not-for-profit organisations and the public sector has an average turnover rate of 12.6%.

Turnover levels also vary from region to region. The highest rates are found where unemployment is lowest and where it is unproblematic for people to secure desirable alternative employment.

The number of employees in the UK who have been in their current job for more than five years has increased from 20% in 2007 to 24% in 2008.

As a proportion of aggregate turnover, the percentage of people leaving organsiations through redundancy increased in 2008, which is to be expected given the economic climate.In 2008 26% of employers made more than 10 people redundant, 4 percentage points higher than the 2007 figure. . Similarly, the number of organisations operating recruitment freezes has risen from 21% in 2007 to 30% in 2008.

When does employee turnover become problematic?

There is no set level of employee turnover that determines at what point turnover starts to have a negative impact on an organisation’s performance. Everything depends on the type of labour markets in which you compete. Where it is relatively easy to find and train new employees quickly and at relatively little cost (that is where the labour market is loose), it is possible to sustain high quality levels of service provision despite having a high turnover rate.

By contrast, where skills are relatively scarce, where recruitment is costly or where it takes several weeks to fill a vacancy, turnover is likely to be problematic for the organisation. This is especially true of situations in which you are losing staff to direct competitors or where customers have developed relationships with individual employees.

Some employee turnover positively benefits organisations. This happens when a poor performer is replaced by a more productive employee, and can happen when a senior retirement allows the promotion or acquisition of welcome 'fresh blood'. The more valuable the employees in question the more damaging the resignation, particularly when they move on to work for competitors.

Moderate levels of staff turnover can also help to reduce staff costs in organisations where business levels are unpredictable month on month. When business is slack it is straightforward to hold off filling recently created vacancies for some weeks.

Measuring employee turnover

Most organisations simply track their crude turnover rates on a month by month or year by year basis. The formula is simply:

Total number of leavers over period x 100
Average total number employed over period

The total figure includes all leavers, even people who left involuntarily due to dismissal, redundancy or retirement. It also makes no distinction between functional (that is, beneficial) turnover and that which is dysfunctional.

Crude turnover figures are used by all of the major employee turnover surveys, including the annual CIPD and CBI surveys, as they are necessary for effective benchmarking purposes. However, it is also useful to calculate a separate figure for voluntary turnover and to consider some of the more complex employee turnover indices, which take account of characteristics such as seniority and experience.

Measuring employee retention

A stability index indicates the retention rate of experienced employees. Like turnover rates, this can be used across an organisation as a whole or for a particular part of it. The usual calculation for the stability index is:

Number of leavers with more than one year's service x 100
Total number of staff in post one year ago

Costing employee turnover

It is possible to compute a 'not less than' figure very easily by working out what it costs on average to replace a leaver with a new starter in each of your major employment categories. This figure can then be multiplied by the crude turnover rate for that staff group to calculate the total annual cost of turnover. The major categories of costs to take account of are:

administration of the resignation
recruitment costs
selection costs
cost of covering during the period in which there is a vacancy
administration of the recruitment and selection process
induction training for the new employee.

Many of these costs consist of management or administrative staff time (opportunity costs), but direct costs can also be substantial where advertisements, agencies or assessment centres are used in the recruitment process.

More complex approaches to turnover costing give a more accurate and invariably higher estimate of total costs. A widely quoted method involves estimating the relative productivity of new employees during their first weeks or months in a role and that of resignees during the period of their notice¹.

Less than 3% of respondents to the CIPD survey were able to provide figures relating to the estimated costs of labour turnover. Based on this small sample, the average cost per employee was £6,125, rising to £9,000 for senior managers or directors.

Why do people leave organisations?

Employees resign for many different reasons. Sometimes it is the attraction of a new job or the prospect of a period outside the workforce which 'pulls' them. On other occasions they are 'pushed' (due to dissatisfaction in their present jobs) to seek alternative employment. It can also be as a result of both ‘pull’ and ‘push’ factors. Another reason for voluntary turnover is a change in domestic circumstances outside the control of any employer.

CIPD research highlights the importance of front line managers and how their behaviour relates directly to employee engagement, job satisfaction, advocacy and performance.

Go to our survey How engaged are British employees

A poor relationship with a line manger can be the push factor behind an individual’s decision to quit their job and leave the organisation, but its significance can be masked as a result of the difficulties associated with exit interviews. More information on engagement issues can be found in our factsheet on that topic.

Go to our factsheet on employee engagement

A lack of training, development and career opportunities are also major reasons for voluntary turnover.

Premature departure

In high turnover industries in particular, a great deal of employee turnover consists of people resigning or being dismissed in the first few months of employment. Even when people stay for a year or more, it is often the case that their decision to leave sooner rather than later is taken in the first weeks of employment. Poor recruitment and selection decisions, both on the part of the employee and employer, are usually to blame, along with poorly designed or non-existent induction programmes. Our factsheets on selecting candidates and induction explain good practice in these areas.

Expectations are often raised too high during the recruitment process, leading people to compete for and subsequently to accept jobs for which they are in truth unsuited. Organisations do this in order to ensure that they fill their vacancies with sufficient numbers of well-qualified people as quickly as possible. However, over the longer term the practice is counter-productive as it leads to costly, unavoidable turnover and the development of a poor reputation in local labour markets.

Investigating why people leave

Obtaining accurate information on reasons for leaving is difficult. Where exit interviews are used it is best to conduct them a short time after employees hand in their notice. The interviewer should not be a manager who has responsibility for the individual or who will be involved in future reference writing. Confidentiality should be assured and the purpose of the interview explained.

It is important to appreciate that the reasons people give for their resignations are frequently untrue or only partially true. Individuals are likely to be reluctant to voice criticism of their managers, colleagues or the organisation generally, preferring to give some less contentious reason for their departure.

Using an external provider to conduct exit interviews will help employers capture more accurate data about why people are leaving, as individuals are more willing to tell the truth when there is reassurance of anonymity.

Alternative approaches to collecting exit data involve the use of confidential attitude surveys which include questions on intention to leave and questionnaires sent to former employees on a confidential basis around six months after their departure.

Improving employee retention

The first two steps to take when developing an employee retention strategy are to find out:

why employees in hard to recruit groups are leaving
what employee turnover among these groups is costing your organisation.

Data from exit interviews can be used to develop a costed retention strategy that focuses on particular causes of turnover in your organisation.

It is worth considering the following elements, all of which have been shown to play a positive role in improving retention:

Job previews - give prospective employees a 'realistic job preview' at the recruitment stage. Take care not to raise expectations only to dash them later. Advances in technology present employers with increasing opportunities to familiarise potential candidates with the organisation before they accept a position.
Make line managers accountable - for staff turnover in their teams. Reward managers with a good record for keeping people by including the subject in appraisals. Train line managers in people management and development skills before appointing or promoting them. Offer re-training opportunities to existing managers who have a high level of turnover in their team.
Caeer development and progression - maximise opportunities for individual employees to develop their skills and move on in their careers. Where promotions are not feasible, look for sideways moves that vary experience and make the work more interesting.
Consult employees - ensure wherever possible that employees have a 'voice' through consultative bodies, regular appraisals, attitude surveys and grievance systems. This will provide dissatisfied employees with a number of mechanisms to sort out problems before resigning. Where there is no opportunity to voice dissatisfaction, resigning is the only option.
Be flexible - wherever possible accommodate individual preferences on working hours and times. Where people are forced to work hours that do not suit their domestic responsibilities they will invariably be looking for another job which can offer such hours.
Avoid the development of a culture of 'presenteeism' - where people feel obliged to work longer hours than are necessary simply to impress management. Evaluation of individual commitment should be based on results achieved and not on hours put in.
Job security - provide as much job security as possible. Employees who are made to feel that their jobs are precarious may put a great deal of effort in to impress, but they are also likely to be looking for more secure employment at the same time. Security and stability are greatly valued by most employees.
Treat people fairly - never discriminate against employees. A perception of unfairness, whatever the reality when seen from a management point of view, is a major cause of voluntary resignations. While the overall level of pay is unlikely to play a major role unless it is way below the market rate, perceived unfairness in the distribution of rewards is very likely to lead to resignations..
Defend your organisation - against penetration by headhunters and others seeking to poach your staff. Keep internal e-mail addresses confidential, refuse to do business with agents who have poached your staff, and enter into pacts with other employers not to poach one another's staff.

CIPD viewpoint

It is important that employers have an understanding of their rates of labour turnover and how they affect the organisation’s performance and ability to achieve their strategic goals. Depending on the size of the business, an appreciation of the levels of turnover across occupations, locations and particular groups of employees (such as identified high performers) can help inform a comprehensive resourcing strategy.

Making sure that new joiners have realistic expectations of their job and receive sufficient induction training will help to minimise the number of people leaving the organisation within the first six months of employment. Tools such as confidential exit surveys and staff attitude surveys can help line managers understand why people leave the business, and enable appropriate action to be taken.

Measuring the costs of employee turnover is vital in building the business case for effective recruitment and retention initiatives. These costings can be a powerful tool for winning line manager and board-level support for resourcing activities.

Our factsheet on talent management covers related issues and our ‘War on talent’ survey may also be of interest as it examines the practical steps employers can take to manage their talent in the economic downturn.

References

PHILIPS, J.D. (1990) The price tag on turnover. Personnel Journal. Vol 69, No 12, December. pp58-61.

Employee turnover and retention