2.2 - Measuring Labour Turnover
The definition and calculation of labour turnover
Labour turnover measures the rate at which employees leave a business over a specific period, typically a year.
Formula for labour turnover
Where:
- Number of employees leaving in 1 year = Total staff who depart voluntarily during the year
- Average number of people employed = Mean number of staff employed over the year
This calculation focuses on voluntary departures and does not include redundancies.
Worked example - Calculating labour turnover
A business had an average of 300 employees over the year. During that time, 30 employees left voluntarily. Calculate the labour turnover rate.
Step 1: Identify the values
- Number of employees leaving in 1 year = 30
- Average number of people employed = 300
Step 2: Apply the formula
Step 3: Perform the calculation
Indicators of high labour turnover
High or increasing labour turnover often signals underlying problems within a business.
Signs and implications of high labour turnover:
- Employee discontent - Workers may feel unhappy with working conditions, pay, or management, leading to higher departure rates.
- Low morale - A workforce with poor motivation can result in more staff seeking opportunities elsewhere.
- Flawed recruitment policy - Ineffective hiring processes might bring in unsuitable employees who leave quickly.
Costs of high labour turnover
High labour turnover can impose significant financial and operational burdens on a business.
Key costs associated with high labour turnover:
- Recruitment and training expenses - Costs involved in advertising vacancies, interviewing candidates, and providing induction and training for new hires.
- Reduced productivity - Lower output and poorer customer service during periods when positions are vacant or new staff are learning the role.
- Challenges in customer relationships - Difficulty in building loyalty as customers may not have consistent contact with the same employees.
- Team-building issues - Harder to foster strong team spirit when staff are frequently changing.
Benefits of high labour turnover
While often viewed negatively, high labour turnover can sometimes bring advantages by refreshing the workforce and introducing improvements.
Potential advantages of high labour turnover:
- Replacement of underperforming staff - Opportunity to hire more skilled or productive workers in place of those who leave.
- Introduction of fresh ideas - New employees can bring innovative practices and perspectives from previous roles.
- Workforce downsizing - Businesses can reduce staff numbers by choosing not to replace departing employees.
Factors influencing labour turnover rates
Labour turnover rates vary based on external economic conditions and industry-specific characteristics.
Economic and regional influences on labour turnover:
- Low unemployment areas - Turnover is higher where job opportunities are plentiful.
- Industry differences - Rates naturally differ across sectors:
- High-turnover industries, such as fast-food services, may exceed 100% annually.
- Low-turnover sectors, like law firms or research organisations, often have stable rates.