Reducing employee turnover rates: Measures for your company

Calculating turnover rate: Status quo of your company

The fluctuation rate is the key benchmark that helps companies to differentiate between low, healthy, and high fluctuation. Depending on the industry, a healthy turnover rate is between 8 and 12 percent. A fluctuation rate in this range ensures stability within the company structure and at the same time guarantees a breath of fresh air with new employees. In 2022, however, the average fluctuation rate in Germany was 33.2 percent.

You can calculate your company’s fluctuation rate using the following formula:

The fluctuation rate always depends on the size of the company and the number of people who leave it. This is a quantitative factor, as parameters such as employee motivation are not measured.

Causes of employee turnover: poor mental health, working atmosphere & general employee dissatisfaction

Declining employee satisfaction, struggles with superiors, high stress levels: reasons for leaving can be as varied as they are surprising, but often reflect the general working atmosphere in a company.

Negative stress in particular is increasingly cited as the main reason for termination. According to the “Working 2023” study, around a fifth of those currently employed in Germany fear burnout. And this is likely to increase further in the coming years: Last year, mental illness was one of the main reasons for taking sick leave. It is not uncommon for this to be followed sooner or later by dismissal.

According to the Future Forum, 55% of Germans say that they will be looking for a new job within the next 12 months. The reason: burnout, dissatisfaction, lack of flexibility. To prevent employee turnover, companies should therefore focus on mental health in particular. 

As the Wall Street Journal reports, resignations can be “contagious”, meaning that even a single resignation can lead to a wave of resignation. These waves of resignation can be due to the fact that certain internal company actions provide the final impetus to resign for those employees who are already in quiet quitting mode due to existing dissatisfaction. It is precisely at this point that it is important to take a closer look and introduce measures to reduce fluctuation.

Reducing employee turnover rates: Measures with a focus on mental health

We all want them: motivated employees who are happy and committed to making a major contribution to the company’s success. The following effective measures focus on establishing mental and psychological health in your company in order to achieve a healthy turnover rate in the long term. 

The rule of thumb: Satisfied employees are loyal employees.

Quick measures to reduce employee turnover

At first glance, you can probably think of the following factors to increase employee satisfaction:

• Limiting overtime: A good work-life balance is essential for employee wellbeing. Setting clear limits on overtime not only signals appreciation, but also promotes job satisfaction.
• Ensuring sufficient vacation days: Providing adequate recovery time allows employees to recharge their batteries and contributes significantly to long-term satisfaction
• Salary adjustment: Fair renumeration in line with performance and market standards is not only a financial incentive, but also a sign of recognition that strengthens employee loyalty.

Sustainable measures for a low fluctuation rate

In order to achieve not only short-term effects, but also a sustainable and long-term reduction in employee turnover, it is worth counteracting the causes of employee turnover and addressing the actual needs of employees. Instead of just fighting the symptoms, you can establish the following measures in your company.

“In order to maintain the performance of employees in the long term, their mental resilience must be permanently strengthened”, a study by TK summarizes it bluntly. “A yoga course alone is not enough.”

✔ Attractive working conditions:

• Offer not only competitive salaries, but also additional benefits such as psychological counselling or work-life-balance support.
• Create flexible working time models and home office options to minimize stress in your professional and private life.
• Provide high-quality technological equipment such as powerful laptops, screens, fast internet and noise-canceling headsets

✔ Feedback and recognition

• Encourage regular and constructive feedback, as this also contributes to mental health.
• Recognizing performance through rewards, praise and employee awards helps to boost self-esteem.
• Align expectations: The greater the congruence between employees’ expectations and their perceived reality, the greater their overall satisfaction.

✔ Social integration

• Don’t just organize team and company events, but also support activities that help with psychological integration: Instead of gathering in a conference room, employees could go for a walk together in the fresh air. This not only creates an informal environment, but also helps to strengthen relationships through the combination of physical activity and social interaction.
• Encourage the formation of cross-departmental collaboration to build social bonds and a supportive environment.

✔ Health and wellness programs: 

• Implement programs to promote physical and mental health.
• Provide access to preventative health and stress management resources that are accessible to all employees.

✔ Flexibility in the face of life changes

• Show understanding for employees’ life changes, especially in the context of mental health.
• Provide supportive measures such as parental leave and flexible leave arrangements to minimize stress during challenging life phases.

✔ Career, development and further training

• In addition to employee training, provide clear paths with long-term growth opportunities and promotion opportunities to increase employees’ self-esteem and job satisfaction.
• Management development: In addition to training on topics such as “leadership”, ensure that managers act empathetically and create a supportive environment.

A combination of these measures will help you both reduce the turnover rate and lay the foundation for lasting employee satisfaction and a productive corporate culture. Overall, reducing the turnover rate through targeted measures, especially the promotion of mental health, is not only an investment in the well-being of employees, but also a strategic step towards strengthening long-term loyalty and productivity within the company.

Mental health as a success tool for a healthy turnover rate: Fact check

According to a report by Gallup in 2023, 72% of employees surveyed in Europe said they were not engaged in their current job. Quiet quitting at work is due to negative emotions such as anger (14%) and stress (39%) about the workplace, according to the report.

Another study from 2023 found that 50% of all employees would quit their current job in favor of a better work-life balance.

This can cost companies dearly, especially if they do not respond to their employees’ wishes and implement measures to reduce the fluctuation rate. In addition to sports programs, mental health in the workplace is increasingly in demand, including work-life balance, stress prevention and individual coaching or sessions for entire teams.

Mental health also makes a big difference at management level – both for managers and their leadership style, as this also needs to be learned. Currently, 60% of German managers state that they have not undergone any leadership training.

With employee benefits such as Likeminded, you help your employees to grow personally and professionally and support HR, managers, and executives to lead their teams even more confidently. This not only increases productivity and reduces absenteeism, but as soon as topics such as mental health are given a higher priority at management level, this leads to a trickle-down effect on the entire company, which in turn has a positive influence on the corporate culture and counteracts fluctuation.

What does it cost companies not to introduce measures for a healthy turnover rate?

A high turnover rate means enormous costs for companies. The vacant position must be advertised, candidates interviewed, and a suitable replacement trained. Especially if the right person is not found during this process – possibly due to time constraints – this can lead to the position having to be filled once again very soon.

“It costs twice as much to find new employees than to keep existing ones.”
This guiding principle seems to apply not only to customers, but also to employees.

Fluctuation costs can vary depending on the industry and size of the company. The costs incurred are made up of direct and indirect costs, which makes it difficult to put an exact figure on them.

Direct costs include, for example, costs for:

• Recruitment costs: The expense of placing job advertisements, external recruitment agencies, job fairs and other recruitment methods.
• Onboarding costs: Resources required for onboarding new employees, such as training, manuals, and mentoring.
• Severance or termination benefits: Payments or benefits provided to an employee who is leaving the company.
• Termination process costs: Costs for legal advice, administrative effort and formal processes related to terminations.

Indirect costs include:

• Lack of productivity during the transition period: The loss of work performance and efficiency during the time between an employee leaving and their successor being hired.
• Morale impact: A high turnover rate can have a negative impact on the morale and motivation of remaining employees.
• Loss of knowledge: The departure of experienced employees can lead to a loss of know-how and institutional knowledge.
• Business disruption: Employee turnover can cause interruptions in the workflow, especially when key positions remain unfilled.
• Fluctuation cycle: Indirect costs can also arise when low employee retention (at the start of recruitment) leads to further turnover, causing the process to be repeated.

Every year, companies worldwide pay around 630 billion US dollars (around 583 billion euros) in fluctuation costs (as of 2020). According to a study by the IO Group, this amounts to around 43,000 euros per company (as of 2016). This is often more than 100% of the gross annual salary of the person who has left. It is also estimated that a suitable replacement earns an average of 50-100% of the original salary.

Conclusion: A focus on mental health prevents fluctuation in the long term

The use of mental health benefits has proven to strengthen employee loyalty and ensure employee satisfaction. Employee satisfaction is made up of various components such as appreciation, work-life balance, meaningfulness and support. It has been shown that mental health in particular is a decisive factor in reducing the fluctuation rate and is becoming increasingly relevant.

And the use of preventive and acute measures to promote mental health pays off: the World Health Organization (WHO) assumes an impressive ROI of 1:4: every euro invested will soon generate a fourfold increase in performance.

Likeminded helps your company efficiently and sustainably on the way to long-term high employee satisfaction, committed and high-performing employees and a reduction in staff turnover in your company.

FAQ

What is a healthy turnover rate?

A rate below 15% is considered standard, but ideally your turnover rate should be between 8 and 12%.

How is the turnover rate calculated?

The turnover rate indicates how many employees leave a company each year, taking into account the total number of employees.

You can calculate your company’s turnover rate as follows:

Staff turnover rate = number of employees leaving / number of employees x100

How are fluctuation costs calculated?

You can use the following formula to determine your company’s turnover costs:

Turnover costs = costs incurred x (number of employees x turnover rate).

What can be the reasons for a high turnover rate?

The reasons can vary from case to case, but in general, negative employee satisfaction (e.g. due to lack of work-life balance and increased stress) and a lack of employee loyalty are key factors that can contribute to a high turnover rate.

What is negative stress?

Negative stress, also known as distress, refers to the harmful effects of stress on a person’s physical and mental health. In contrast to positive stress, which can increase performance in the short term, distress occurs when stress persists over a longer period of time or becomes too intense.

Why is mental health key to reducing employee turnover rates?

A lot of things come together in everyday working life: Stress with deadlines, dissatisfaction in the team, lack of recognition and missing your child’s fest steps at home. A solution to promote mental health helps to overcome these challenges, identify opportunities for compensation in discussions and prevent stress and burnout. This is precisely where companies can start to prevent employee turnover.