The rate at which employees join and leave a company is an important indicator of the organisation's health. One of the human resource professional's key tasks is to measure the rate of labour turnover and compare it with the rate in other relevant organisations.
It is important to note that any organisation is constantly changing and developing and its ideal rate of labour turnover may alter over time. For example, low rates of turnover may inhibit internal progression. On the other hand, a high rate of turnover may be useful in a company that needs to reduce its size or change the mix of its workforce. Usually, however, high turnover is undesirable because of the cost of recruiting replacement employees and the loss of skill, knowledge and experience from the organisation.
Costs
The costs associated with turnover are as follows:
- Costs associated with the employee leaving:
- exit interviewer's time;
- extra administration costs of payroll and pension scheme;
- unscheduled payments such as outstanding holiday pay.
- Vacancy costs:
- cost of providing cover until replacement found;
- lost knowledge, skill and experience;
- lost sales/customers.
- Replacement costs:
- fees of advertising/recruitment agencies;
- extra administration costs for payroll, human resources, support functions;
- time spent interviewing;
- travel expenses for interviewees;
- relocation expenses;
- cost of induction training;
- time spent by current employees on training new starter;
- cost of the performance differential between an experienced employee and a new recruit.
Measures of labour turnover
The usual method of calculating labour turnover is:
Number of leavers
__________________________ x 100 = separation rate
Average number of employees
This is a crude measure and will need to be refined if it is to identify the picture in particular departments, over specific periods of time or by type of leaver. It is usual to analyse only leavers who leave voluntarily rather than at the instigation of the employer.
Another measure is the stability index, which gives an indication of the extent to which experienced employees are being retained. It is calculated as follows:
Number of employees with one year's (or more) service
______________________________________________ x 100 = stability index
Total number of employees
A third measure is survival rate, which is particularly useful for tracking the retention of graduate intakes. It is calculated as follows:
Number of employees recruited in a specific period
still in employment at a later date
__________________________________________ x 100 = survival rate
Number of employees recruited in a specific period