Managing staff turnover – plus tips to avoid it

Nobody likes to say goodbye – especially business owners. Every exit leaves managers with a hiring gap that costs money and lowers employee engagement. For startups, which are typically smaller, resignations can also directly impact their early-stage growth.

In the current climate, these are real threats. Post-COVID, and in the midst of an economic crisis, poor employee satisfaction has brought on a cross-sector phenomena of mass quittings dubbed the ‘Great Resignation’. Worryingly, a 2022 report by PwC found that 20% of UK workers planned to jump ship in the next 12 months.

Such constant upheaval creates onboarding and recruitment challenges, as well as scuppering organisational culture and staff morale. But there are ways to assuage staff members to control your turnover rate, instead of allowing it to run riot.

In the below guide, we’ll delve into the causes and consequences of staff comings and goings, as well as how to calculate your own staff turnover rate. After all, if you can’t measure it, you can’t improve it.

By the end, you’ll be able to design an effective management strategy that will turn a potential Great Resignation into a Great Retention.

How do you calculate staff turnover?

As a first step, it’s important to know exactly what you’re up against. Entrepreneurs can use a simple calculation to measure the pace of their current staff turnover rate, and evaluate whether it is higher or lower than average. This is usually defined as a monthly figure so you can maintain a close eye on quittings.

Total number of leavers in a month ÷ avg. number of employees in a month = staff turnover rate

To find this number as a percentage, simply times it by 100. So if seven people left your company in one month, and you had 40 employees, then you would have a monthly staff turnover percentage rate of 17%.

At the end of the year, you can use the same equation to work out your annual turnover rate for reporting.

Total number of leavers in a year ÷ avg. number of employees in a year = annual staff turnover rate

What is a good annual staff turnover rate?

Ten years ago, an annual attrition rate of 10% was considered to be good. However, resignations in the UK have been rising rapidly as a result of the hiring crisis, rewriting the rulebook on what makes a ‘good’ staff turnover rate.

According to the latest labour figures from the Office of National Statistics (ONS) the average annual turnover in 2017-18 was 28%. This number is likely much higher now, meaning a rate of 20% could technically be defined as exemplary.

For very small businesses, with teams of 10 or under, it’s trickier to define a statistically relevant staff turnover rate. After all, just three members of staff leaving a team of 10 within a year creates a 30% turnover rate. Though it is tempting to dismiss this from a statistical perspective, the impact such a loss has on a small team’s morale, as well as the company’s priority actions, can be significant.

Impact of high staff turnover

High staff turnover damages multiple aspects of a business. Some of the more immediate impacts are obvious – like the need to hire a new employee.

Consistent resignations across a longer period of time can have much more damaging, long-term consequences, however. Here are the major threats to guard against:

1. Financial hit

There are a number of associated costs when it comes to finding and recruiting new talent. Research by Oxford Economics estimates that, for firms with 10-49 employees, the average cost of losing and rehiring a role earning £25,000 a year is £26,000.

Contributing to this figure is onboarding and training costs, recruitment fees, and an overall loss of productivity while the organisation searches for a replacement.

Based on this statistic, even a business with 40 employees and an impressive annual turnover rate of 20% would incur a replacement cost of over £200,000.

2. Low staff morale

Teams run much more smoothly when their members get along. But, it’s difficult to form long-lasting colleague friendships (also known as ‘frolleagues’) if the coworker you just met two months ago announces they’re vacating the role.

On top of the social impact, high staff turnover will also inevitably lead to a drop in productivity. Once an individual has left, it can take some time to find their replacement, requiring colleagues to add any leftover responsibilities to their workload.

3. Knowledge and skills gap

Losing staff doesn’t just mean bidding a fond farewell to a colleague – business owners must also grieve the loss of the employee’s unique knowledge and skill set.

In a worst-case scenario, the person leaving is a senior manager or technical expert that will take years to find a replacement for. Succession planning is crucial here to ensure that prepared business owners already have an understudy who will accept the role on day one.

Trends in staff turnover

Data from the Labour Force Survey (LFS) shows that job-to-job moves in the UK (the number of people moving from one company to another) increased from 530,000 in the July to September 2020, to 994,000 in January to March 2022.

Nicknamed ‘The Big Quit’, this astonishing number should tell people managers a lot about the state of staff satisfaction in this post-pandemic era.

Multiple factors are driving the change. Taking the largest proportion of blame is the issue of Brexit. Net migration has suffered under EU visa restrictions, causing employers to pay for skilled worker visas to source talent from abroad.

Older people are also leaving the workforce earlier. In April to June 2022 there were 3.6 million people aged 50 to 64 who were economically inactive, an increase of 1.3 percentage points in the past year.

Meanwhile, younger workers are also prolonging their career. Statistics show that the number of 18 year olds moving straight into higher education, rather than apprenticeships or paid-work, increased by 1.3% between 2020 and 2021.

Industry influence on staff turnover

Retail and hospitality is easily the sector with the biggest employee loss in 2022. 25.9% of people who have moved jobs to a new industry came from this line of work, contributing to a net loss of 2.9%. Following closely behind is construction (20.5%) and the arts (19.9%).

Far from being particularly punishing sectors to work in, these three industries seeing the highest number of job changers is likely due to two key reasons: Brexit and inflation.

On the former, it is no coincidence that the UK’s construction sector, which historically has relied on overseas workers from the EU, has the second largest number of job changers. Since Brexit, construction managers have struggled to recruit, with vacancies in the industry hitting 48,000 on three occasions in 2022.

On the issue of inflation, retail and hospitality has the lowest average monthly wage by a country mile. On average, an employee working in this field earns £422 per week, compared to the cross-sector average of £642.

Real wages declined by 2.6% in the three months to November 2022, which is among the largest falls in growth since comparable records began in 2001. Pub, restaurant, and hotel workers are likely moving into a different sector to budget for this surge in living costs.

Regional influence on staff turnover

The areas with the lowest percentage of job stayers are the North East of England, Wales, and Northern Ireland – no doubt related to these also being the three regions with the lowest economic productivity and output in the UK.

Meanwhile, 27.7% of job stayers are based in the South East of England and London, the areas that are the most economically productive according to the same dataset.

Similar to the mass exodus from retail and hospitality, these figures demonstrate that today’s workers who aspire to earn higher wages are moving to more affluent UK areas to do so.

When will the staff turnover rate return to normal?

There is already evidence that the UK’s staff turnover rate is slowing down – but only slightly.

We might think of job-hopping as a young-person’s game. The latest government statistics show that the highest proportion of job changers were aged 25-34 (32.8%). But 35-49 year olds are not far behind, with 31.1% having changed roles between 2020 and 2021.

Like it or not, this is not a short-term trend for hiring managers to wait out. Driven by the younger Generation Z and Millennial workers, the behavioural shift towards exploring multiple industries and workplaces in a career is now a socially acceptable idea.

Savvy business owners need to stop thinking of a stuffed CV as a red flag when it comes to hiring.

Yes, you can – and should – strive to keep staff resignations down. But with the advent of the so-called ‘mercenary employee’, what’s classed as an above-average turnover rate now will no-doubt be considered the new normal in a few years’ time.

Reasons for high staff turnover (and how to fix them)

The exact reason why an employee might choose to leave their role will differ depending on their individual circumstances.

Speaking generally, however, there are three common causes for having a higher turnover than the market average. Here’s what they are, and how to manage them:

1. Lack of progression opportunities

Ambitious employees want to feel they are making progress on their career plan. They might need the incentive of a promotion to keep them motivated, or they might want to develop their skill set to qualify for a specialist role in future.

Either way, employees stuck in a so-called ‘dead-end job’ will eventually grow restless and begin looking elsewhere for an opportunity that gives them more growth paths.

How do I fix it? Investing in learning and development will go a long way to demonstrate how much employers value their employees.

Training workshops and conferences are one option, while more practical applications include cross-training and job-shadowing.

More bespoke (and therefore, costly) solutions include paid-for membership for a professional organisation, or enrollment in a mentorship program. Credit towards professional courses is another common provision.

2. Unfair compensation

Every manager would like to think that their employee is working a 9-5 out of pure enjoyment. But the truth of the matter is that, for most people, switching roles is the easiest route to a pay increase.

The latest figures from the Office for National Statistics (ONS) show that average hourly earnings growth was 6.6 percentage points higher for employees who had changed jobs compared with those who stayed in their jobs.

Paying staff the minimum wage inspires minimum effort. Yet, your most devoted employee will probably be tempted to leave if presented with a more attractive pay offer.

How do I fix it? We’ve written extensively about how to calculate employee salaries, but as a general overview, it’s a good idea to conduct regular market and competitor analysis to find out the average pay packets that rivals are offering.

Ensure you are hosting regular salary reviews and provide an appropriate setting/occasion for employees to feedback and negotiate. Clarify the timings with staff members to maintain transparency and avoid employee impatience.

3. Poor management

Incompetent or even antagonistic management can be a source of stress for staff. Senior leaders and line managers play a large role in supporting and guiding their reports.

On top of this, they have direct control over their report’s workloads – which, if improperly managed, can cause burnout. One of the main causes of employee turnover is being overworked – some 42% of workers state they would leave a job for this reason.

Bad leadership styles can also invite animosity amongst team members. For example, an autocratic leader who makes decisions without colleague input risks alienating subordinates.

How do I fix it? Management training is a fundamental part of supervising colleagues, yet it is often ignored by leadership teams. Provide managers with ongoing training and support to improve their soft skills like communication and empathy.

We also recommend that business owners conduct regular job satisfaction surveys to get a read on current attitudes within the workplace. Supplying an anonymous channel will also help reports to feel more confident about making complaints about a more senior colleague.

Another easy step is to carry out exit interviews with every leaver to assess their experience in the company. Similarly, monitoring employee review websites will ensure leaders stay aware of how the organisation is being perceived by potential hires.

What to do when managing high staff turnover

It’s one thing to talk about preventing high staff turnover. But as we’ve already touched on, lots of small businesses already feel snowed under by mounting resignations.

About now, you might be tempted to rush out to buy a goodbye card and a mourning veil. The good news is that there are lots of quick-action tricks that can guarantee your business holds onto talent – despite the risks.

Communicate career development opportunities to staff

What we don’t know can’t hurt us – but it can’t help us either. Any policies you have in place to support staff are useless if they are not being clearly communicated to the entire workforce.

Information on training and development, including budgets, should be freely available to a staff member either in a company intranet or a downloadable employee handbook.

Advancement pipelines, and the exact steps needed to move up a rung of the ladder, should also be clarified. If a staff member feels that promotions are being handed out arbitrarily, they’ll feel less-motivated to work hard when hard graft is not being fairly recognised.

Involve staff in decision-making processes

To build a positive organisational culture where employees feel respected and valued, senior leaders should be careful to involve all members of staff in any decisions relating to their job role.

Not to do so risks will cause individuals to feel infantilised – a surefire way to blemish employee engagement and heighten the threat of people handing in their notices.

If a large number of people are resigning from the business, organise meetings with existing staff members to ask what they want from their role. Actively listen to what they report back on, and analyse any problems they might allude to.

Chances are, the staff member will be grateful for the opportunity to find a solution to their problem. Meanwhile, the business leader gets specific suggestions they know will prove successful with the team member.

Implement staff rewards schemes

In the current climate, raising salaries or hourly wages is not an attractive offering for business owners. Budgets are stretched and you can barely afford to pay suppliers, let alone increase pay pots.

Benefit schemes are a more affordable way to provide tangible rewards for workers, incentivising them to stay with your company – without sacrificing cash flow.

For example, flexible working arrangements (whether hybrid or part-time) let employees decide if they want to work from home, enabling them to save money on office lunches or household bills. These must be offered once someone has been in the same position for at least 26 weeks.

Other valuable add-ons include subsidised travel, such as a paid-for bike, or an additional day of annual leave for every year in a role. Find over 50 employee benefits and perks in our full guide.

Conclusion

Particularly now, in the era of the Great Resignation, it’s important to keep an eye on the percentage of employees leaving your organisation. Resignations are always costly, and an especially high number could also point to underlying issues in your company that need to be addressed.

Still, don’t be deterred by thinking you need to make a huge strategic change to survive the crisis. Even small, simple actions can contribute sizable improvements by establishing a positive work environment that staff want to remain in.

From the information above, here’s our top five recommendations for businesses wanting to decrease their turnover rate, and increase staff satisfaction:

1. Review your employee salaries regularly to ensure they remain competitive
2. Explore alternative ways to reward employees and encourage stayers
3. Build a proper employee promotion structure and communicate it to staff
4. Provide learning opportunities to prevent staff from feeling stagnant
5. Design a succession plan to curb the negative impacts of an employee quitting