Labor turnover is the rate at which a business cycles through employees. A high labor turnover signifies that there could be a problem with employee satisfaction, advancement opportunities or benefits packages. Companies generally want to avoid having high labor turnover in order to reduce costs, such as for recruitment of new employees, hiring, time for training and unemployment insurance. In contrast, businesses with too low of a labor turnover are more likely be lacking in fresh ideas, creativity and the ability to accept change. Some industries naturally have a high or low turnover rate, so benchmarking should be done using similar businesses.
Causes of labor turnover vary between businesses and can be attributable to both external and internal factors. External factors include economic conditions and better employment opportunities at other organizations. Internal factors could include employee fear of impending layoffs, unrealistic job expectations, low opportunities for advancement and employees not fitting in with the corporate culture. Even though businesses are not able to change factors such as economic conditions or new opportunities at other organizations, they can evaluate internal factors to develop plans to reduce turnover.
Reducing labor turnover requires a business to pinpoint the root cause of employees leaving the organization. This can be done by conducting anonymous surveys of current employees and exit interviews with those leaving. If employees are leaving because the economy is bad and they found new positions offering modest raises, the business can find out if simply offering raises would be sufficient to keep them from leaving. Increasing communications can also help businesses reduce labor turnover, especially if there are rumors of impending layoffs. If a layoff is evident, however, keeping communication lines open can help to reduce panic and keep employees calm so they will be less likely to leave after the layoffs are done.
Costs of having a high labor turnover can significantly affect a business’s profitability. Whenever the business must replace an employee who is leaving, it will usually have to spend money to advertise the open position and then spend time and resources interviewing, training and evaluating job candidates and new hires. High turnovers can also result in having to pay more in unemployment insurance and severance. Constant turnover of employees can cause the remaining staff to be less motivated and productive as well, especially if they must fix the errors made by new hires and take time to reinforce their training.