Study Notes: People Management

Labour or staff turnover

What is "labour turnover"?

Labour turnover refers to the movement of employees in and out of a business. However, the term is commonly used to refer only to ‘wastage’ or the number of employees leaving.

High labour turnover causes problems for business. It is costly, lowers productivity and morale and tends to get worse if not dealt with.

Measuring labour turnover

The simplest measure involves calculating the number of leavers in a period (usually a year) as a percentage of the number employed during the same period. This is known as the "separation rate" or "crude wastage rate" and is calculated as follows:

Number of leavers / average no employed x 100

For example, if a business has 150 leavers during the year and, on average, it employed 2,000 people during the year, the labour turnover figure would be 7.5%

An alternative calculation of labour turnover is known as the "Stability Index" . This illustrates the extent to which the experienced workforce is being retained and is calculated as follows:

Number of employees with one or more years’ service now / Number employed one year ago x 100

Labour turnover will vary between different groups of employees and measurement is more useful if broken down by department or section or according to such factors as length of service, age or occupation.

Patterns of labour turnover

The highest rate of labour turnover tends to be among those who have recently joined an business.

Longer-serving employees are more likely to stay, mainly because they become used to the work and the business and have an established relationship with those around them.

Causes of labour turnover

A high level of labour turnover could be caused by many factors:

• Inadequate wage levels leading to employees moving to competitors

• Poor morale and low levels of motivation within the workforce

• Recruiting and selecting the wrong employees in the first place, meaning they leave to seek more suitable employment

• A buoyant local labour market offering more (and perhaps more attractive) opportunities to employees

Costs of labour turnover

High rates of labour turnover are expensive in terms of:

- Additional recruitment costs

- Lost production costs

- Increased costs of training replacement employees

- Loss of know-how and customer goodwill

- Potential loss of sales (e.g. if there is high turnover amongst the sales force)

- Damage that may be done to morale and productivity (an intangible cost)

Benefits of labour turnover

Labour turnover does not just create costs. Some level of labour turnover is important to bring new ideas, skills and enthusiasm to the labour force.

A "natural" level of labour turnover can be a way in which a business can slowly reduce its workforce without having to resort to redundancies (this is often referred to as "natural wastage".

HRM Strategy

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Organisational Structure

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Motivation at work

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Communication

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