What is Employee Turnover and How Can Background Checks Help Reduce It

Turnover is a metric used to measure the rate of employee inflow and outflow in a company over a specific period. It is calculated based on the number of dismissals and hires, reflecting the team’s stability or fluidity.

One of the main challenges companies face today is keeping their employees engaged and attracting new ones when necessary. This is due to the high turnover rate and new market dynamics, which have intensified these flows of entries and exits in organizations.

In this context, companies are focusing on creating strategies and actions that attract and maintain their employees’ interest in staying, or establishing a positive brand image, increasingly becoming an attractive, comfortable, safe, and positive place to work and build partnerships.

But What Exactly is Turnover?

The word Turnover originates from the English language and means renewal, turn, and change. In the Brazilian market, the concept is understood as employee churn and their movements within the company. This is why turnover is also known as the turnover rate.

In practice, Turnover is an index that calculates the number of internal employees and external contractors who leave the organization in a specific time period. This metric provides insight into the institution’s organizational culture and whether the recruitment process is being conducted effectively.

Why Does Turnover Happen?

This flow of people is related to the expectations of the selected person or partner regarding the organization, as well as the organization’s expectations of the new employee.

This means that turnover is directly connected to the relationship between the company and its staff/partners, which can break down for various reasons and situations.

Some of these reasons include:

• Lack of recognition;
• Non-payment of salaries or invoices;
• Unfair salaries;
• Inefficient supply of resources;
• Lack of training and company onboarding;
• Excessive workload;
• Money laundering and/or theft;
• Ineffective leadership;
• Lack of feedback and poorly executed work.

The Types of Turnover

As there are various causes for turnover, it can be classified into six types: involuntary, voluntary, functional, dysfunctional, avoidable, and unavoidable. See more about each of these types and their examples below.

Involuntary Turnover

In contrast to voluntary turnover, with involuntary turnover, the company is the one to terminate the employee/partner.

This decision is influenced by several factors that justify this relationship breakdown and generally occurs when there is a mismatch of expectations from the company regarding the employee, due to:

• Inefficiency at work;
• Low engagement in tasks;
• Changes in the work area;
• Money laundering;
• Breach of contract clauses;
• Team conflicts;
• Low-quality service;
• Just cause.

👉 See how to prevent this with Know Your Employee (KYE).

Voluntary Turnover

This occurs when the employee decides to leave the organization. This happens for many of the reasons already mentioned, but in this case, the main ones include:

• Dissatisfaction with the current workplace;
• Dissatisfaction with the contracted service;
• A new and better job offer at another organization;
• Lack of a career plan.

In this situation, the employee, of their own volition, decides to leave the organization for personal reasons or unhappiness with the job in that environment.

This type of turnover can also be subdivided into two other types: functional turnover and dysfunctional turnover.

Functional Turnover

This is when the employee’s voluntary departure does not cause significant loss to the organization, as this employee has low performance and was not contributing adequately to the company’s growth. In this sense, they are easily replaceable.

Dysfunctional Turnover

Dysfunctional turnover, however, causes significant losses for the company, as it represents the loss of a high-performing, high-quality employee.

In this case, it is very difficult to find another professional in the field who can easily replace them, and if found, this professional will come at a much higher cost.

Avoidable and Unavoidable Turnover

In addition to these classifications, we can also label turnover as avoidable and unavoidable. See when this occurs:

Avoidable Turnover

This occurs when the organization is capable of influencing the employee’s decision to leave the company. This can be done through internal actions that improve the organizational environment.

Unavoidable Turnover

This is when a personal life change influences the employee’s departure from the company. This includes cases of people returning to school, starting a family, or needing to move to another city, for example.

In this way, the organization does not have much influence or means to convince the employee to continue operating in their organization.

However, today, it is already possible to see some organizations making rules and schedules more flexible to adapt to these workers’ new routines and lives, as strategies to avoid turnover but also to improve the organizational climate.

When is Turnover Considered High?

Now that we understand the concept of turnover, its classifications, and its causes, we can now understand how to assess when this index is high. For some experts, the ideal average turnover rate would be 5% to 10% over a one-year period.

But How is the Turnover Rate Calculated?

There are a few ways to perform this calculation, but the most common one uses the Turnover formula expressed by the following elements:

Turnover = [(Hires + Separations) / 2 / Total Employees] x 100

If the result of this equation exceeds 10%, the index may be signaling problems and obstacles in the organization that could lead to financial losses and require significant time to resolve. However, it is worth noting that this parameter varies depending on the context of each company and its position in the market.

The Average Monthly Turnover Rate

Knowing that the ideal is to reach a maximum index of 10% over a year, we can conclude that the average monthly turnover rate should be 1%. This, therefore, would be the “healthy” turnover rate in a company over 30 days.

High Turnover Rate

Although it is a challenge for the organization to solve, a high turnover rate can motivate the team to find new talent who will enhance the work and increase company performance.

This, of course, requires a good recruitment program capable of finding quality and high-integrity professionals.

The Importance of Calculating Turnover

It is very important to calculate your company’s turnover rate to identify, recognize, and correct problems. This makes it possible to change what isn’t working and avoid the loss of new employees who are essential for operations and management.

Furthermore, turnover ends up generating a large financial loss, as the cost to conduct a new recruitment is extremely high for the company.

👉 According to the FGV, the hiring process can cost up to 3 times the employee’s salary. And this includes not only the salary but also training, integration, and the time invested for the new collaborator to adapt to the team and the company.

Thus, this calculation, by predicting this event or helping to avoid it, allows the company to ensure satisfactory and continuous financial growth, without the need to invest in new processes.

How to Avoid and Reduce Turnover in Your Company

As we’ve seen, replacing and changing employees is not a simple or practical process, as it demands time and generates significant financial costs. In this case, it becomes much more interesting and viable to invest in strategies that reduce or avoid the turnover rate in your organization.

📖 Read also: Candidate Assessment: 5 Factors You Should Consider

See below for some examples of how to avoid turnover in your company:

1. Create a well-structured career plan;
2. Implement campaigns and actions that motivate employees;
3. Propose wellness campaigns and initiatives;
4. Build a benefits policy;
5. Establish more flexible schedules;
6. Create a more horizontal relationship with your employees;
7. Provide constant feedback;
8. Recognize your team’s achievements as a leader;
9. Conduct training and development programs;
10. Develop a quality recruitment program.

Data Verification as a Way to Avoid Turnover in Your Company

It is crucial and necessary to know who you are hiring for your company. This is because, by knowing your partners and collaborators, it is possible to reduce risks and avoid problems for your company, such as turnover.

Our Background Check solution can be essential in reducing these turnover rates. The data verification technology checks information such as people’s backgrounds/information using employment, financial, watchlists, and other sources.

This entire process is done comprehensively, generating results on a single platform and in just a few minutes.

This allows the user to get to know their collaborators accurately and broadly, analyze their data, and quickly make a decision about their hiring, with the certainty that the risks of partnering with that person or institution are non-existent and that their company is secure.

Thus, the main advantages of using our technology are:

• Unified data on a single platform;
• Ease and speed in decision-making;
• Fraud prevention;
• Automated screening;
• Security and transparency for your business.

Did you like our content? Also check out:

• Background check: what it is, its importance, and types of checks

Want to know more about our solutions? Request a demo on our site.