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Causes of Employee Turnover

Turnover is influenced by many factors that generally come from two directions: external forces and internal forces. We have a bigger impact focusing on internal forces within the company’s control.

We’ll start with external forces, though, because it helps to be aware of how much they contribute to fluctuations so that you can make effective decisions about retention. It also helps assess how important turnover is to your company when you see how you stack up against your competitors.

watching-the-clock

Average turnover rate

The U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey is based on a monthly survey of approximately 16,000 U.S. businesses. They report the average total turnover rate around 3.5% with voluntary turnover around 2% monthly.

As unemployment rates have declined over the past decade, the U.S. has gone from over six unemployed people per job opening in 2009 to less than one in 2019. That means employees have more options.

When there is more confidence in the economy and lower unemployment, voluntary turnover tends to rise and involuntary turnover tends to fall.

Mercer’s annual survey of 150 organizations in the US reported voluntary turnover at 16% in 2018 – lower than the 26.9% that the federal government reported, which may be a reflection on the types of organizations that participate in Mercer’s more in-depth study.

Overall, turnover does not vary greatly based on organizational size, although larger organizations can have slightly lower rates. And smaller organizations tend to feel more of an impact when someone quits.

Geographically speaking, the South tends to have the highest quit rates while the Northeast has the lowest in the US.

The biggest variances by far, though, are seen between industries. Hospitality and retail have the highest turnover rates while manufacturing and finance have among the lowest in the private sector.

Industry5-Year Average 
Voluntary Turnover
Hospitality51%
Retail35%
Professional Services34%
Leisure34%
Construction24%
Transportation21%
Real Estate21%
Healthcare21%
Information18%
Manufacturing15%
Education15%
Finance14%
Government9%

Source: U.S. Bureau of Labor Statistics, 2014-2018 

When LinkedIn analyzed their half-a-billion users, they found 11% indicated they left a company in 2017. This turnover rate is likely lower than the government and Mercer reports because of the types of professionals that use the platform and the dependence on an individual updating their profile.

Still, LinkedIn showed how turnover reflects current industry trends. Retail is a high turnover industry and now software is too. However, tech employees usually move to another tech company while retail employees often move to a new industry, likely due to the rise of online shopping.

When LinkedIn ranked job functions, those with the highest turnover (17%) were marketing and research, followed by media and communication, HR, and support functions (15%). Sales, engineering, and operations also have above average turnover (13%), likely a reflection of high demand for their skills. Meanwhile business development has the highest retention (6%).

While turnover trends are valuable, insights into your industry and overall economy are likely enough to anticipate when you need to invest more in recruitment and retention. Besides, long-term investment in retention is the most effective approach regardless of fluctuations in the market.

And while it can be helpful to benchmark externally based on industry, function, and region, the most important benchmark is internally based on department, job level, location, and other segments of your organization over time. So let’s now look inward.

Key drivers

Certain aspects of employee experience tend to be the biggest drivers of turnover (why employees leave) and retention (why employees stay).

Work Institute reports that 77% of voluntary turnover is avoidable. They found the top reason for leaving is career development, followed by work-life balance and manager behavior. Compensation, job, and workplace were also common reasons.

Based on industry research, the key drivers are consistent:

  • Total rewards
  • Onboarding
  • Leadership
  • Learning and development
  • Growth and advancement
  • Wellness and work-life balance

Total rewards

Total rewards goes beyond base pay, bonuses, and compensation overall. It includes health benefits like insurance and financial benefits like retirement savings. For many companies, it also includes any gifts or bonuses received due to a recognition program.

In sum, total rewards encompasses all that an employer offers an employee in exchange for joining, contributing, and staying with the company.

Recognition

When we talk about total rewards, we should also keep in mind the power of recognition. At its core, employee recognition is the open acknowledgment and expressed appreciation for employees’ contributions to their organization.

When organizations decentralize employee recognition and empower their workers to engage in peer-to-peer and 360-degree recognition (that is, not solely top-down recognition), they increase the frequency with which employees can receive recognition and get a more nuanced understanding of what individuals, teams, and departments consider valuable.

Onboarding

Employees tend to be the most positive about their employer before their first day on the job. Onboarding is a way to build on that momentum, but it’s often a place where companies fall short.

A BambooHR survey found that 31% of employees have quit a job within the first six months and the top reason was a poor onboarding experience, which is generally defined as the first 90 days on the job.

Onboarding includes orientation to the workplace and the job, yet it’s so much more than that. This is the time to integrate the new employee into the team and culture: the core values underlying everyday behavior.

Leadership

We know how critical managers are to the employee experience. The immediate supervisor directly influences many key drivers of engagement and retention like development and recognition. If your manager doesn’t recognize your work, how can you trust them to support your career growth and success? 🤔

Senior leadership also plays an important role. Executivesmustclearly articulate the company’s vision and values. They’re responsible for the that makes people feel secure and that the work they do is meaningful.

Learning and development

When people think about job learning, they think training, and that’s certainly a key part, whether in-class workshops or bite-sized videos on-demand.

However, the majority of career development comes from on-the-job learning. It’s an organic way we share knowledge. Plus it’s often the most effective way to learn: in a real environment with a real task.

Employees want to strengthen their skill sets to do better in their job, career, and sometimes just for the challenge and stimulation that keeps coming to work every day interesting.

Growth and advancement

While learning and growth are highly related, we separated them because they can satisfy different needs and can be accomplished in different ways.

Nobody wants to feel stuck. No matter how much education you provide, many people are not satisfied unless they can move to progressively more challenging jobs. And simply changing someone’s title from junior to senior hardly makes them feel more confident and capable.

Wellness and work-life balance

We define wellness as a holistic way to look at employee health, that includes both physical and mental health.

Work-life balance is a way to support employee wellness, and an increasingly more common method is flexible work arrangements. Research from Owl Labs and TINYpulse showed companies that support remote work have 25% less turnover.

burnout

Now that you know the factors that cause turnover, what can you do to fix it? 

When Is It Time to Fire an Employee?

No one likes firing employees. It’s a difficult decision, but any HR manager or business owner will eventually have to make the choice to do what’s best for the company. While it’s important to give problem employees a chance to improve, there may eventually reach a point at which the only option is to let an employee go.

But how do you know when it’s time to fire an employee?

They Don’t Improve

If an employee isn’t meeting your expectations, it’s important to let them know. Provide feedback and training as needed and give the employee opportunities to correct their mistakes, whether they’re producing poor-quality work or behaving badly in the workplace. It’s when no improvement is made or when the employee has no interest in improving that you may consider firing as the next step.

They Bring Down Other Employees

When an employee’s behavior or lack of work ethic affects other employees, it’s a sign that it’s time to fire that employee. If one employee can bring down the morale of the entire office, department, or even company, and the behavior hasn’t improved, then it’s time for that employee to go. The other employees will thank you for it and will be happier, less stressed, and more productive for it.

They Affect Productivity

If a poorly-performing employee isn’t improving, despite corrections and opportunities to do so, that can affect the productivity of your other employees as well. If one employee fails to complete his or her part of a project or doesn’t provide needed information to coworkers in a timely fashion, the productivity of the entire office can fall. Ridding the company of the unproductive employee will give you the opportunity to replace him or her with someone who will do the job right.

They’re Often Late or Absent

If an employee is regularly late to or absent from work or takes extended breaks, that’s something that can’t be left unaddressed. Employees that are frequently absent are equally unreliable. Perhaps they call in sick too frequently or use up their allotted vacation time too early in the year. These are signs that the employee may have problems with attendance.

Your other employees will notice the behavior and at best, believe their coworker is unreliable. At worst, they may believe the company is tacitly encouraging such behavior by failing to correct it. This could cause productive and timely employees to lose productivity and morale and even consider moving to a company that didn’t allow such bad behavior.

How to Fire a Problem Employee

Once you’ve decided to fire an employee, it’s important to do it right. If your company has a policy on the number of opportunities to improve each employee gets before they’re let go, make sure you’ve followed that policy exactly. Once the employee has reached the requisite number of “strikes” and you don’t see any hope of improvement, make sure that you have thoroughly documented the problem behavior.

You may want to engage your HR person to assist in the process to help you avoid a wrongful termination lawsuit.

How to Prevent Employees from Faking Sick Days

Flu season is right around the corner, and with it, employees calling in sick. Not all of these call-ins will be real, however. Up to 40% of employees actually call in and pretend to be sick in order to get the day off. For some companies, this can affect productivity and the ability of the other employees to do their jobs properly.

While companies can make do for when employees are genuinely sick, it can feel like a slap in the face to discover later on social media that an employee was actually at a concert and not at home sick after all. Many employees who have faked a sick day have actually ended up fired as a result of the dishonesty.

But what can companies do to prevent their employees from faking sick days?

Require a Doctor’s Note

Some companies require sick employees to provide a doctor’s note before they allow the absence to be counted as a sick day. This does require employees to prove that they are really ill, but it has the opportunity to backfire, especially if the employee is sick with something run-of-the-mill that doesn’t actually require a trip to the doctor.

Getting a doctor’s note for something like a cold or the flu would require employees to make unnecessary trips to the doctor, increasing health care costs. On the other hand, if the employee chooses not to get the doctor’s note and instead comes into work sick, they could infect the rest of the office. Even mild illnesses like a cold can affect employee productivity and morale.

Check up on Employees

Some managers take the time to actually check in on employees who have called in sick, especially when they have noticed a pattern of supposed illness around holidays or weekends. Some employees who have faked sick will post about it on social media, making this job a lot easier. Others are smarter about faking sick, but a drive-by of their home or a call to their residence could prove they’re not actually sick.

The downside of this is that it wastes the manager’s time. Your company’s managers should have better things to do than driving past an employee’s house to make sure they are actually sick. Plus, this sort of policy could make employees who really are sick feel like they aren’t trusted and encourage employees to come into work when they are sick.

Examine Company Culture

It’s also worth the time to look at how your company culture views taking time off. Employees may feel pressured to make up an excuse to take a day off so that they’re not looked at as unproductive. Employees have earned their PTO days and have every right to take them, but in a company that frowns upon actually taking time off, they may feel that they have to lie about it.

New Requirements and Looming Deadlines in October 2019: What New York Employers Need to Know

The New York State Senate and Assembly passed Senate Bill 6549, which amended Section 194 of the New York Labor Law to prohibit wage differentials based on any protected class. As we also reported, the State Senate and Assembly also passed an omnibus bill that overhauled New York’s anti-discrimination laws. Governor Andrew Cuomo signed these bills into law on July 10 and August 12, 2019, respectively. As a result, several new laws are slated to take effect in October 2019.

October 8, 2019: Expanded Pay Equity Requirements Take Effect

Effective October 8, 2019, New York’s equal pay law, which currently applies only to sex, also will prohibit any differentials in pay because of an individual’s age, race, creed, color, national origin, sexual orientation, gender identity or expression, military status, disability, predisposing genetic characteristics, familial status, marital status, and/or domestic violence victim status. In addition to continuing to prohibit differentials among individuals who perform “equal work,” the amendment also will prohibit differentials among individuals who perform “substantially similar work.”

Specifically, New York law will prohibit all employers from paying an employee in one or more protected class or classes at a wage rate that is less than the rate at which an employee without that status is paid for:

  • equal work on a job, which requires equal skill, effort, and responsibility, and which is performed under similar working conditions; or
  • substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.

As with the existing law, a pay differential would be permitted when such differential is based on:

  • a seniority or merit system;
  • a system measuring earnings by quantity or quality; or
  • a bona fide factor other than status within one or more protected class or classes that is job related and consistent with business necessity, such as education, training, or experience.

However, employers cannot use a factor that is based on status within one or more of the protected classes to justify a differential, and any factor that an employer uses to justify a differential must be job related with respect to the position in question and consistent with business necessity. Furthermore, consistent with the existing law, an employee would be able to overcome a stated explanation by demonstrating that:

  • an employment practice causes a disparate impact on the basis of status within one or more protected class or classes;
  • an alternative practice exists that would serve the same purpose and not produce such differential; and
  • the employer refused to adopt the alternative practice.

October 9, 2019: Deadline for Sexual Harassment Prevention Training

Since October 9, 2018, the state of New York has required all employers to (i) establish a sexual harassment prevention policy and (ii) provide all employees with annual sexual harassment prevention training.

The state guidance requires sexual harassment policies to include specific examples of conduct that constitutes unlawful sexual harassment, a written complaint form, and information regarding employees’ legal rights and available forums to adjudicate sexual harassment complaints with federal, state, and local agencies.

The deadline for completion of the initial training is October 9, 2019 (i.e., one year after the law’s effective date). New York state has published a model anti-harassment policy, model complaint form, and model training program that employers may adopt. Alternatively, employers may adopt policies and training programs that meet or exceed the detailed minimum standards provided by the state.

New York’s guidance contains minimum requirements for sexual harassment training, including that the training be “interactive.” Notably, New York does not require trainings to be of a specific minimum duration, provided that trainings meet or exceed the state’s minimum standards. Additionally, since August 12, 2019, employers have been required to provide employees a notice containing the “employer’s sexual harassment prevention policy and the information presented at such employer’s sexual harassment prevention training program” (in English and in the primary language of the employee) upon hire and at every annual sexual harassment prevention training program.

October 11, 2019: Changes to the New York State Human Rights Law Take Effect

On October 11, 2019, several changes to the New York State Human Rights Law (NYSHRL) will take effect.

All private-sector employers will be subject to the antidiscrimination provisions of the NYSHRL, and the prohibition against unlawful discrimination based upon each of the protected categories identified in the NYSHRL will extend to nonemployees.

Additionally, harassment will be considered “an unlawful discriminatory practice when it subjects an individual to inferior terms, conditions or privileges of employment” because of his or her protected characteristics. Employers will have a seemingly narrow affirmative defense to liability if “the harassing conduct does not rise above the level of what a reasonable victim of discrimination with the same protected characteristic would consider petty slights or trivial inconveniences.” “The fact that such individual did not make a complaint about the harassment to [his or her] employer . . . shall not be determinative of whether such employer [is] liable.” Claims by domestic workers will be subject to the same standard.

As a result, the NYSHRL will permit the prevailing claimant to recover both attorneys’ fees and punitive damages from private employers.

October 11, 2019: New Requirements Regarding Nondisclosure Agreements

Effective October 11, 2019, New York employers will be barred from requiring nondisclosure clauses in any settlement, agreement, or other resolution of any claim where the factual foundation involves discrimination, including, but not limited to, under the NYSHRL, unless the condition of confidentiality is the complainant’s or plaintiff’s preference. Any nondisclosure term or condition must be provided in writing to all parties in plain English and, if applicable, the primary language of the complainant, after which he or she will have 21 days to consider such term or condition and 7 days to revoke the acceptance after execution of such agreement.

Additionally, effective October 11, 2019, any nondisclosure term or condition will “be void to the extent that it prohibits or otherwise restricts the complainant from: (i) initiating, testifying, assisting, complying with a subpoena from, or participating in any manner with an investigation conducted by the appropriate local, state, or federal agency; or (ii) filing or disclosing any facts necessary to receive unemployment insurance, Medicaid, or other public benefits to which the complainant is entitled.”

Key Takeaways

In light of these changes in New York laws, employers may want to carefully review their current practices and consider taking the following steps:

  • reviewing all agreements, including, but not limited to, employment, separation, and settlement agreements, to ensure any nondisclosure clauses meet the requirements of the new law;
  • ensuring that all employees have received the required sexual harassment prevention training, the required notices regarding the employer’s policy, and the information presented in the training program;
  • informing and training all employees involved with employee relations about the new requirements; and
  • evaluating existing pay practices to ensure compliance with the expanded pay equity requirement.
2020 Payroll Taxes Will Hit Higher Incomes

Starting Jan. 1, 2020, the maximum earnings subject to the Social Security payroll tax will increase by $4,800 to $137,700—up from the $132,900 maximum for 2019, the Social Security Administration (SSA) announced Oct. 10. The SSA also posted a fact sheet summarizing the 2020 changes.

Additionally, the SSA announced that Social Security benefits for nearly 69 million Americans will increase 1.6 percent in 2020.

The taxable wage cap is subject to automatic adjustment each year based on increases in the national average wage.

About 178 million U.S. wage earners paid Social Security taxes this year. Roughly 6 percent of workers earn more than the current taxable maximum, according to the SSA.

Payroll Taxes: Cap on
Maximum Earnings
Type of Payroll Tax2020 Max
Earnings
2019 Max
Earnings
Social Security$137,700$132,900
MedicareNo limitNo limit
Source: Social Security Administration.

FICA Rates

Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax law.

Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent. 

For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent—with only the Social Security portion limited to the taxable maximum amount.

2019 FICA Rate (Social Security + Medicare Withholding)
Employee7.65%
(6.2% + 1.45%)
Employer
7.65%
(6.2% + 1.45%)
Self-Employed
15.3%
(12.4% + 2.9%)

Adjust Systems, Notify Employees

Employees whose compensation exceeds the 2019 maximum of $132,900 will see a decrease in net take-home pay if they don’t receive an annual raise to compensate for the payroll tax’s bigger bite.

By the start of the new year, U.S. employers should:

  • Adjust their payroll systems to account for the higher taxable wage base under the Social Security payroll tax.
  • Notify affected employees that more of their pay will be subject to payroll withholding.
  • Take into account the increased taxes that must be paid for affected positions.
  • Expect some pushback from employees who may want to be “made whole” for their share of the increased tax.

Additional Medicare Tax

The tax rates shown above do not include an additional 0.9 percent in Medicare taxes paid by highly compensated employees.

Under a provision of the Affordable Care Act, the employee-paid portion of the Medicare FICA tax is subject to the 0.9 percent additional Medicare tax on amounts over statutory thresholds that are not inflation-adjusted and thus apply to more employees each year.

The threshold annual compensation amounts that trigger the additional Medicare tax are:

  • $250,000 for married taxpayers who file jointly.
  • $125,000 for married taxpayers who file separately.
  • $200,000 for single and all other taxpayers.

Additional Medicare tax withholding applies to wages and self-employment income in excess of the thresholds in a calendar year. These threshold amounts are not indexed for inflation.

This added tax raises the wage earner’s Medicare portion of FICA on compensation above the threshold amounts to 2.35 percent; the employer-paid portion of the Medicare tax on these amounts remains at 1.45 percent.

The additional Medicare tax should not be confused with the alternative minimum tax on high incomes, which does not involve mandatory payroll withholding. To learn more, see the IRS webpage Questions and Answers for the Additional Medicare Tax.

Social Security Earnings Test Limits

The SSA also announced upward adjustments in the Social Security earnings test limit. For those who collect Social Security retirement benefits before reaching their full retirement age, benefits are reduced by $1 for every $2 they earn over the earnings limit.

For 2020, the earnings limit for workers who are younger than full retirement age (age 66 for people born in 1943 through 1954) will increase to $18,240 per year (meaning SSA deducts $1 from benefits for each $2 earned over $18,240), up from $17,640 in 2019.

The earnings limit for people turning 66 in 2020 will increase to $48,600 (SSA deducts $1 from benefits for each $3 earned over $48,600 until the month the worker turns age 66), up from $46,920 in 2019.

There is no limit on earnings for workers who have reach or passed their full retirement age for the entire year.

‘Paycheck Checkups’ to Adjust Withholding

As the year ends, HR departments should remind employees, especially those with children and other dependents, to use the Tax Withholding Estimator on the IRS website to do a “paycheck checkup.” It’s especially important to use the estimator now if an employee:

  • Incurred an unexpected tax bill or a penalty when filing this year.
  • Has or will experience a change in marital status, dependents, income or jobs this year.

Employees who decide to change their withholding amounts should calculate the appropriate amounts, enter them on Form W-4, and submit the form to their HR or payroll departments so that paycheck adjustments can be made. 

Employees can submit the current 2019 Form W-4 through the end of the year or wait until the new 2020 Form W-4 is finalized and released, likely in November. The new form is expected to include major revisions designed to make accurate income-tax withholding easier for employees

By adjusting their withholding amounts, “taxpayers can ensure that the right amount is taken out of their pay throughout the year,” the IRS advised. “Having the correct amount withheld from paychecks helps to ensure that taxpayers don’t pay too much tax during the year—and that they have money upfront rather than waiting for a bigger refund after filing their tax return.”

Inexpensive Perks You Should Offer Your Employees

Employee turnover costs companies thousands. There’s the cost of lost productivity, recruitment, hiring, and training. But what can a company offer to keep employees from leaving?

Employees stay or go for a variety of reasons, but what benefits a company offers can make a difference. Not all employee perks need to be big or expensive. There are a lot of less expensive benefits that companies can offer to make their employees feel valued. Sometimes a little can go a long way.

Keep Your Employees Nourished

A well-nourished employee is a productive employee. Providing free or at-cost snacks can provide much-needed energy during the workday. If the available snacks are healthy, the company can help employees reach health and nutrition goals.

Celebrate Birthdays

On special occasions like employee birthdays, offering cake to celebrate can show employees that they’re appreciated. The rest of your staff will enjoy the break and camaraderie. The value of providing birthday celebrations far outweighs the actual cost of the cake.

Free Coffee

The world runs on coffee. Some employees don’t function well until they’ve had their first cup in the morning. Providing free coffee can help your employees be productive more quickly. Not charging for the coffee can go a long way towards earning loyalty and motivation from your employees.

A well-caffeinated workforce is a productive and happy workforce. Keep the coffee flowing and your business will benefit in profits.

Help Them Avoid Burnout

Burnout can seriously affect an employee’s productivity. It can also cause up to 50% of staff turnover. Fortunately, many of the benefits that can help employees avoid burnout are inexpensive to offer.

Flexible Hours

Offering flextime allows employees to make their own schedule to best fit their needs. Employees may come in early to leave early, or stay late to make up for having arrived late. Some may take breaks in the middle of the day for appointments or to pick up kids from school.

The key factor is allowing employees to make their own schedules. They’ll feel trusted and valued and their schedules will be optimized to fit their lifestyles.

Working from Home

Allowing employees to telecommute shows that you trust them to work productively from home. Studies show that employees are more productive at home, away from the distractions of coworkers. It costs the company nothing to offer this benefit and video conferencing software means that employees don’t miss anything away from the office.

Telecommuting doesn’t have to be a full-time benefit. Employees could be allowed to work a few days a week from home. Or specific days could be set aside for all employees to work from home. The more employees work from home, the less the company has to spend on office expenses.

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