Employee turnover is defined as employees who voluntarily leave their jobs and must then be replaced. Turnover is shown as an annual percentage, so if 25 people leave a company with 100 people, that is 25 percent turnover a year. Employees often leave companies for higher pay elsewhere, but many other factors contribute as well, and the negative effects of employee turnover should motivate managers to increase retention.
A study published in "Entrepreneur" magazine in 2001 looked at the effects of hotel employee turnover and discovered the high price of recruiting, interviewing and hiring new workers, in addition to lost productivity (see Resources).
The U.S. Department of Labor estimates that it costs about 33 percent of a new employee's salary to replace the worker who left. This means major companies can spend millions of dollars a year on turnover costs.
Lack of Staff
High turnover rates can create a lack of staff to complete essential daily functions of a company. This can result in overworked, frustrated employees and dissatisfied customers.
Loss of Productivity
New employees take some time to get up to speed, particularly in complex jobs.
For service-oriented careers such as account management and customer service, high turnover can lead to customer dissatisfaction. Newer representatives lack expertise and knowledge, and customers have no way to build a relationship with one particular service representative.