Find out what the impact of the turnover rate is on companies

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Forming a good work team is one of the great challenges of companies. It is a task that requires attention, as hiring a professional whose profile is inadequate and the loss of an excellent collaborator can cause financial losses. Therefore, it is necessary to be careful with staff turnover, which directly affects the turnover rate.

The amounts spent on admissions and dismissals tend to vary, but they can generate very high value for the company – especially if it is not financially prepared for these situations. The fact is that the care with the turnover rate should not come only from the Human Resources area. This is the duty of all managers of the company.

Want to know more? Read on and understand the impact of turnover on companies!

What is turnover?

Turnover is an original term in the English language and can be translated into London as “reversion” or “renovation”. In the Human Resources area, this word was incorporated in order to define the number of admissions and dismissals of employees in certain periods. This data can also be referred to as the turnover index.

The calculation of the turnover has the objective of expose the frequency with which employees are replaced by the company, or ask to be terminated. With this calculation, it is possible to evaluate the global and sectoral turnover of a company. For example, let's imagine that, in corporation “X”, the marketing sector has a low turnover rate and the general services sector undergoes personnel changes every six months.

With this analysis, the manager gets to know the sectors in which, probably, conflicts are greater or training is less efficient (even non-existent in some cases) and, in this way, can take measures to improve the sector and reduce so much change in personnel in short periods of time.

The high turnover rate generates insecurity in professionals, as they feel they have no stability in their positions, so their productivity drops and a toxic competitiveness begins to exist both in relation to the corporation and the employees.

What are the causes of turnover?

There are numerous causes that cause the turnover rate to increase and generate impacts for the company. Among the main ones are the poor working conditions, which make the professional exposed to unnecessary risks, for example. There is also poor remuneration, by offering a value below the market average for the work performed.

Bullying or lack of incentive to employees, in turn, make them feel undervalued by the corporation. In addition, we can cite as secondary causes the professional's dissatisfaction with the task, which can be motivated by differences of interests between leaders and subordinates and by a bad organizational climate.

Another factor that can increase the turnover rate is the heated job market, because, as a result, good professionals are more in demand, receive higher offers and more interesting benefits. Therefore, the corporation must be attentive to market changes to take faster and more strategic actions in relation to the retention of its talents.

Finally, we can mention the inadequacy of the position and little professional experience, linked to a training ineffective, which can increase turnover and make the employee feel inferior and misunderstood by the organization.

What are the impacts of turnover?

Labor charges costs

According to the explanation of the first topic, we saw that turnover happens when the corporation terminates an employee or when the employee himself asks for his resignation. In the first case, as the company was responsible for dismissing the professional, the labor charges will be borne by the company itself, except in cases of dismissal for just cause.

Paying for labor costs is a loss for the organization and, as we know, this amount is high. Now, imagine that amount having to be funded very often — this is the first impact caused by turnover.

Reduction in productivity

In addition to this explicit financial cost, there are implicit expenses to consider. One of them is the loss of labor and, consequently, decreased productivity. When dismissing a professional, it is necessary to replace him, therefore, it is spent on processes of recruitment and selection and training. Until the new employee adapts, errors increase, the work pace is lower and the results appear more slowly, that is, a loss for the company.

Worsening organizational climate

Another impact caused by the high turnover rate is the drop in the quality of the organizational climate. This is because, when observing the high rate of layoffs, professionals will feel insecure and will be taken by stress, which will make them lose focus and be less productive.

This situation can be compared to psychological terror and affects people's health, generating an increase in another index, absenteeism. In recent years, crises of anxiety, panic and depression have been the biggest causes of employee withdrawal and, with the great competitiveness, this number tends to increase. Given this, companies must be aware and take preventive actions.

When frequent, the unfair dismissal of employees causes other employees to divert their focus from results and become insecure, unstable, suspicious and in a defensive posture.

As a result, many will start looking for another job. Gradually, turnover becomes a snowball and starts to impact the quality of work, productivity, team commitment and negatively affects other relevant indices for the organization.

On the other hand, dismissal for just cause is viewed more mildly by the company and rarely impacts the organizational climate, unless the dismissal is motivated by an attitude frequently carried out by employees. To make this decision, the corporation must first apply collective feedback to align unacceptable practices.

How to calculate turnover?

For the company to create a solid and secure basis for the strategic actions that involve its own development, it is necessary to calculate the turnover rate. When this rate is high, an alert must be generated in the organization, otherwise, the corporation must strive in terms of continuous improvement and in maintaining the practices that are being efficient. Calculating and tracking turnover should be a frequent company action.

The most common calculation to identify your corporation's turnover rate is:

  • number of admissions + number of dismissals / 2 / total number of company employees.

The result obtained will be in percentage. For the purpose of comparison, the turnover rate in the UK in 2017 was 38.5% — the lowest rate in the last 10 years. The effects of the recession on the job market increased the unemployment rate and made UK citizens change jobs less.

Some scholars believe that the calculation presented above is not the most suitable for companies that have large fluctuations in personnel due to seasonality, such as industries, call centers, hotels and supermarkets. In this case, we can apply two new calculations.

The first is the churn rate calculation:

  • number of layoffs / number of active employees who were working until the last day of the previous month.

The second calculation considers substitutions:

  • number of dismissals that will have replacement + number of admissions for replacement / 2 / number of active employees who were working until the last day of the previous month.

How to fight turnover?

A corporation has many ways to combat the turnover rate. See some actions below!

Improve your hiring processes

It can start by improving the processes of recruitment and selectionso that the hired professionals have a profile compatible with that of the company, both in terms of specialization and in a psychological perspective.

Work on employee motivation

It is also essential to work on employee motivation. This can be done with:

  • establishment of a more competitive benefits policy;
  • a flexible working day;
  • well-designed training;
  • frequent recycling;
  • monitoring the evolution of each employee;
  • feedback application.

Improve job and salary policy

Improving the position and salary policy is another very wise strategy to reduce turnover in companies, because, in this way, the professional will be aware of where he is and where he can go in the corporation.

Furthermore, the employee will be aware of what knowledge, skills and attitudes he must work on to achieve advancement in his career within the organization and how long this will take. Therefore, it will make you more engaged.

Identify the company's strengths and weaknesses

Another way to combat turnover is to identify the company's strengths and weaknesses and what challenges and opportunities present themselves to it. Conducting an organizational climate survey is an excellent way to make this diagnosis and to identify the points of greatest risk and those that are working well in the company.

View the reduction of turnover as a joint effort

It is worth remembering that the fight against turnover is not an exclusive responsibility of the Human Resources sector, therefore, managers must be engaged to cooperate and work in order to minimize this index. It is useless to establish motivational policies for professionals if managers are resistant and do not care about their team. This is a task to be done together in order to achieve efficient and lasting results.

With the union of the areas, it will also be simpler to define the ideal profiles of candidates for each sector, avoiding the admission of professionals who do not adapt to the way of acting expected by the company.

As we have seen, controlling the turnover rate is essential for the corporation to remain competitive in the market. For companies that want to increase their results and retain their talents, it is recommended that they seek assistance in carrying out this strategic planning.

This service is performed by consulting companies, such as HR Consultantan organization consolidated in the market, which has a team specialized in increasing results and optimizing processes, including reducing the rate of turnover, absenteeism and improving the organizational climate.

So, did you like our article? What about contact HR Consultant right now and start your journey towards success? We are waiting for you!


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