What is Voluntary Turnover? Definition, Causes, and Calculation
Voluntary turnover is a normal occurrence, as employees seek new opportunities or leave because they are unsatisfied with the current role for a multitude of reasons. However, it is still an expensive activity. Consider relocation costs, advertising of a new role, the costs of having a vacant role, the recruiting costs, onboarding, training of the new employee – you can understand why it’s essential to have a firm grip on what voluntary turnover means.
The Great Resignation has certainly caused employers to look at their HR practices and what is causing a mass voluntary turnover. Employees leave organizations for different reasons, which creates different types of employee turnover. One of them is voluntary turnover. Let’s look at its definition, examples, causes, and calculation. Then we will discuss how to prevent voluntary turnover.
What is voluntary turnover?
Voluntary turnover is an HR metric referring to an employee’s departure based on their own decision rather than the employer’s decision. The reason for departure could be for many reasons, including relocation, moving to a different organization or a role, or for any other reason. Voluntary turnover is not always a bad thing, as it does create opportunities for other talent and fresh ideas. But it is usually a costly exercise because it is often unexpected and can cause disruption in workflow.
HR professionals can learn a lot by calculating and analyzing voluntary turnover rates. Consider the Great Resignation trend, where up to 40 percent of the global workforce are considering leaving their employer this year. The reasons for the mass exodus vary, with the stand-out reasons including employees searching for a better work-life balance or the lack of flexibility at their current jobs. Voluntary turnover is thus a good indicator of employee satisfaction.
Voluntary vs. involuntary turnover
Involuntary turnover is the termination of employment by the employer, whereas voluntary turnover is the departure of the employee by their own decision. The difference here is the decision-maker.
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- Involuntary = Decision made by the employer. Involuntary turnover includes actions such as dismissal, layoffs, retrenchments, retirement.
- Voluntary = Decision made by the employee.
Functional vs. dysfunctional turnover
Not all voluntary turnover is bad. In an ideal scenario, you want to have more functional turnover and less dysfunctional turnover.
- Functional turnover = Poor performers that leave your organization. Example: An employee who consistently does not meet their set goals over a long period of time, even after assistance with a performance improvement plan. Or an employee that always comes late to meetings. Or an employee that makes others feel uneasy and lowers the team morale. If these employees voluntarily resign, this would be an example of functional turnover.
- Dysfunctional turnover = this is when top performers leave your organization. An example of this would be a good employee leaving to another organization for more favorable working hours. Or if they were to leave for a better salary.
Functional turnover is something that should be encouraged, whereas ideally, dysfunctional turnover should be avoided. The performance management system that is implemented should be able to help underperformers and identify high performers.
Another metric is total turnover, which includes all the employees who have left in a certain period of time for any reason.
What are the main causes of voluntary employee turnover?
Let’s look at some of the common reasons for voluntary employee turnover:
- Career progression
- Management issues
- Job dissatisfaction
- Toxic organizational culture
- Lack of flexibility
- Lack of learning opportunities
- Poor compensation
- Fatigue / exhaustion
The above are voluntary turnover examples that an organization can relatively control. That is why voluntary employee turnover is an indication of employee satisfaction because an organization should be able to make changes. By taking action and fixing or preventing these issues, organizations can decrease their voluntary turnover levels (more on that below).
However, there are many instances that are outside of the control of the employer. For example, if an employee wants to relocate to another continent and the employer cannot provide an opportunity on that side of the world. Or for example, an employee wants to pursue something entirely outside of their current job (e.g., an economist pursuing a singing career).
How to calculate voluntary turnover rate
Let’s start at the simple voluntary turnover formula:
That’s the general formula. The ‘period’ is something that you need to define. Usually, turnover is calculated quarterly, bi-annually, or annually. The annual formula would look like this:
As an example, let’s say an organization starts the year with 500 employees. During the year, 75 employees voluntarily leave. The employee turnover rate would be 75 / 500 = 0.15, or 15%.
You can also calculate your voluntary turnover as a percentage of all turnover. In that case, you would divide the number of employees who left voluntarily by the number of all employees who have left in a given time period.
How to prevent voluntary turnover
Pay employees more? Provide more learning opportunities? Increase the strength of your management team? These are all known strategies to reduce high voluntary turnover, but what actually works, and where do you start?
Determine if there is really an issue with the voluntary turnover. You can do this by measuring against industry benchmarks.
If the answer is:
- Yes – then conduct a voluntary turnover analysis.
- No – still monitor employee engagement and make improvements. The worst thing you can do is make no changes and become complacent with your HR practices.
Conduct your turnover analysis by answering some of these questions:
- Why are people leaving? (have clear categorized exit reasons to ensure your data is actionable. Leaving for ‘career advancement’ is a reason, but it is ambiguous. Dig a bit deeper with your categories. What type of career advancement? Horizontal moves? To a different industry? (Look at the reasons listed in the above question “What are the main causes of voluntary employee turnover?’ to create your exit categories)
- Who is leaving? Look at the level of people level, age, position, department, gender.
- Understand the cost-benefit of people leaving – how much does it cost you each time someone leaves?
You can collect some of the data for the above questions through:
- Exit interviews
- Stay interviews (interviews with high performing talent to ‘check in’)
- Employee satisfaction surveys.
The cost of turnover is high, that’s why you need to develop a retention strategy to prevent voluntary turnover. Based on the data collected above, you now have a few factors you can create solutions with. Look at the ‘easy wins’ based on your data, and see if you can implement that. Then look at the items that are achievable. For example, you may not always be able to provide someone with a relocation opportunity, but you can analyze if they are being underpaid. Below are some initiatives that could be part of your retention strategy:
- Improve your hiring process – Review your selection process and see where the problems could be. Maybe the new people you’ve hired don’t have the necessary skills to perform the job (and you subsequently failed to provide adequate learning opportunities), which might result in job dissatisfaction and disengagement, followed by the employees’ exit. The issue can also be that you set unrealistic expectations about the job in the recruiting process. In these cases, you might want to incorporate a practical case into your hiring process to verify whether or not the candidates have the skills you’re looking for, and, at the same time, provide the applicants with a realistic job preview.
- Review your compensation and benefits program – You need to keep it in line with the competitors and continuously adapt it. Be creative in the ways you recognize and compensate employees – paying employees more is not always possible. As an example of this, The Trade Desk provided employees that hit significant work anniversary milestones with a wide menu of hand-curated experiences (e.g., pottery lessons, glamping trips, hot air balloon rides). The initiative worked well because it was personalized to each employee’s preference.
- Work on improving employee engagement – Engaged employees are less likely to quit. So it’s imperative to build strategies to engage and motivate your employees. Ericsson, for example, realized that employees are happiest when they are working comfortably. Since 2015, they have implemented various flexible options, including working from home, working flexible working hours, and working part-time. Considering lack of flexibility is one of the main reasons for the Great Resignation, Ericsson was well ahead of the curve.
- Support your employees’ growth and career goals – Build career paths, provide ample opportunities for training and learning. You can also do things that don’t require much budget, like job shadowing, peer learning, etc. Whole Foods Market realized this and implemented low-cost strategies to retain employees. Some of the initiatives include encouraging employees to move to a different department or even to another store location.
- Conduct stay and exit interviews – Learn why employees are staying at your organization and see if there is anything you can double down on. And if they’ve already made a decision to leave, learn why. Then make an action plan to address the pain points. As employees exit, use the opportunities to hire the right talent. Accenture, one of the leading companies of employee engagement, recruits’ liquid’ employees. These are employees who are considered coachable and adaptable – which deeply aligns with their values of growing people to grow the business.
- Build an inclusive work environment – Employees are more likely to stay in an environment where they feel heard, respected, and valued. Invest your effort into building such an environment. Credit Suisse, one of the world’s leading banks, understood the importance of this and has shown remarkable retention rates. With employees in 169 different locations, managers are tasked with ensuring diversity and inclusion are deeply embedded in their annual plans and part of their performance reviews. They also developed diversity and inclusion councils to ensure that appropriate measures are implemented to create an inclusive work environment.
Evaluate these initiatives over a period of time. See the cost of implementation and if it has any direct impact on your voluntary turnover rate.
Over to you
Understanding the voluntary turnover at your organization helps you develop strategies to keep your employees on board for longer and build an engaged, motivated workforce. The worst response to voluntary turnover is thinking ‘there is nothing we can do’. There is always something that the HR department can do – and a personalized approach to understand each employee’s intrinsic and extrinsic motivators is necessary.