Consider the full impact of turnover on an organization, on its clients and customers, and on workforce morale.
Talking to a local business leader recently, I heard a couple of interesting comments:
“Employee turnover is about 30 percent” (in an organization of approximately 120 employees).
“We’re really careful to challenge our unemployment claims, and we win many of them.”
This person wanted to convey that employee selection and relations were under control in the organization—essentially because they were carefully managing this financial measure. I reacted neutrally at the time, yet kept thinking.
Did that “30-percent turnover” figure startle you as you read it? Right—employee turnover of 30 percent does seem high. One national benchmark shows voluntary employee turnover in 2013 at 13 percent and involuntary turnover at eight percent. I am hard-pressed to identify an industry in which 30-percent turnover is standard. It’s difficult to acknowledge that figure is acceptable, barring an organization’s intentional efforts to reduce its workforce. Yet this organization was not planning such a reduction.
I’ll refer here to my earlier article (February 2014 iBi, page 30), which outlined the direct and indirect costs of turnover. It is important to measure employee turnover. The highest value of that measurement results in practices put in place to manage selection, employment and retention for the benefit of the organization.
Is 30-percent turnover an accurate measurement? Is it the best turnover rate this organization can manage? Is it acceptable? Let’s review the math.
In Illinois, unemployment insurance taxes (2013) are paid by employers on employees’ first $12,900 in wages, regardless of when an employee is hired during the year. This business expense would end approximately nine months after minimum wages are paid to a (current, newly hired or replacement) full-time employee. Continuing to restart payment of unemployment taxes as replacement employees are hired keeps this tax expense current. Roughly estimating federal and state tax rates, unemployment insurance taxes paid on each employee in 2013 would range from approximately $624 (new business) to $1,282 (maximum rate). In an organization of 120 employees with a 30-percent turnover rate, those unemployment insurance taxes could amount to tens of thousands of dollars each year.
Consider a not-for-profit organization, where the option exists to self-fund unemployment benefits, rather than paying the taxes. In this scenario, an organization is on its own; unemployment benefits paid to beneficiaries are not shared with other organizations. Under these circumstances, it seems all the more important to wisely spend.
The organization is liable for the first full 26 weeks of unemployment benefits and half of additional benefit week payments to those 30 to 40 employees who leave the organization in a year of 30-percent turnover. Even while winning unemployment challenges to prevent some of these payments, they could be significant financial costs at this rate of employee turnover.
As this organization plans its workforce strategies, I wonder whether these dollars could be better directed toward reducing the significant direct and indirect costs of high employee turnover. What improvements might be made in employee selection? Is the best strategy to manage the workforce or to manage costs? Or might this be a false choice: Can we manage the workforce in order to manage costs?
Doing the math—considering the full impact of turnover on the organization, on its clients and customers, on its potential growth, on workforce morale, etc.—would make us want the highest value. iBi
Raylana Anderson, CEBS, SPHR, MBA of Anderson Consulting is an experienced HR partner who has collaborated with executives in for-profit and not-for-profit organizations of all sizes.