How it works at the moment:
Only those who started the fight and are well aware of each other's presence are entering the turn-based mode. Rest of the party and the world keep working in real-time.
How I suggested before and am trying to insist that it should work:
Whole area and all party-members are entering the turn-based mode, if someone started the fight. All party-members should roll for initiative as soon as the fight starts.

On PH2 Swen drew some attention how he splitted the party, entered the fight only with one character far-far away from others and then could run to help that character with another without "losing" turns. And that was his example on how the current scheme of work is helpful. Youtube stream recording with Swen's explanation at 1:58:47. To be honest I nearly felt personally addressed, cause I didn't see anyone else criticizing the scheme (ofc, maybe I just missed those posts). So here I'll try to bring all my arguments and lure others into the conversation.

First let me say that I highly doubt that anyone would leave their party members so far away not for demonstration or exploit purposes. But I would like to see some comments from other players on the matter. Maybe someones playing style is all about scattering the party around the map.

Second here are my examples on how the scheme makes it harder from playing experience in BG3, DOS1, DOS2 (single player and coop):
1. A few enemies are in a room. One more enemy is patrolling the area, entering the room once in a minute. It takes 1-2 turns for me to kill those few, that's supposed to be equal to 6-12 seconds. But even if I started the fight right after the patrolling enemy left the room, it's more likely that he will enter the room again during the fight and alarm the rest of the area. That's because in a turn-based mode my turns do not really last 6 seconds each, I'm controlling each character one by one and waiting for enemies to do their turn one by one, while the patrolling enemy walks at his normal speed.
2. There are a few enemies, who can be approached in stealth from different angles, and that's exactly what I'm doing. My first character to engage gets his initiative roll appropriately. After that I need to switch to each one of the rest of my characters to get them engaged, they are now considered to be late for the fight and forced to skip their first turn. That doesn't feel even partially fair, they were right there and prepared for the fight. Why are they late for the fight?
3. Me and my pal are playing DOS2 on the highest difficulty, we are preparing for some fights: drinking potions, approaching in stealth and so on. Each time we are forced to start with very precise coordination and a countdown, otherwise one of us may stay out of the fight with buffs ticking at real-time speed.
4. Me and my pal in DOS2 trying to walk together everywhere to experience everything together, but delegating certain tasks. For example I'm the one who does all trading and potions managing. So we tend to be a few meters away from each other, but not the whole map away from each other, being able to see each other and what's going on. It happens that one of us is late for the fight and placed at the end of the queue just because of a slightly bigger distance than the distance that triggers the turn-based mode.

I’m perfectly ready to trade getting rid of such annoyances for not being able to act in real-time with some characters while others are in a turn-based fight. And even if there are many players that are enjoying it as it is, I can imagine some compromises like allowing the player/players to decide if the whole party engages or not, while "pausing" for the initiative roll.