How to Calculate Employee Turnover? [with Methods]| Cost Accounting

Employee Turnover Rate:

Employee turnover refers to the change in the labour force during a specified period. Vari­ous methods are used to measure the labour turnover rate.

The following are the popular methods for measuring employee turnover rate:

Causes of Employee Turnover:

Causes of employee turnover may be grouped under the following categories:

(a) Personal causes

(b) Unavoidable causes

(c) Avoidable causes

(a) Personal Causes:

The following are the examples of personal causes:

(i) Dissatisfaction with the industry, job, locality or environment

(ii) Domestic reasons

(iii) Change of job for betterment

(iv) Retirement due to old age or ill health

(v) Death of a kin

(b) Unavoidable Causes:

The following are the examples of unavoidable causes:

(i) Seasonal nature of business

(ii) Shortage of resources, like material, power, fund, etc.

(iii) Market recession

(iv) Plant relocation

(v) Discharge on disciplinary grounds

(c) Avoidable Causes:

The following are the examples of avoidable causes:

(i) Dissatisfaction with compensation package, fringe benefits (e.g. housing facilities), job, working conditions, etc.

(ii) Lack of career planning

(iii) Dissatisfaction with management policies

(iv) Strained relationship with superiors and co-workers

Remedial Steps:

Turnover can be managed by introducing:

(i) A system for correct assessment of overall personality and family background at the time of recruitment.

(ii) An effective system of job analysis and evaluation for proper placement of workers.

(iii) A career plan for each employee.

(iv) A system for human resource development including training and retraining.

(v) A system of counselling on personal problems.

(vi) An effective system of conflict resolution.

(vii) A system for benchmarking compensation packages with those offered by compa­rable firms.

(viii) Transparency in implementing the personnel policy.

Costs of Employee Turnover:

Cost of employee turnover may be grouped under two broad headings:

(a) Preventive costs; and

(b) Replacement costs

(a) Preventive Costs:

Preventive costs are those which are incurred to manage the employee turnover. Exam­ples of preventive costs are costs of personnel administration, costs of medical services, costs of welfare activities, cost of human resource development, cost of better retirement benefits (difference between the benefit being provided by the firm and industry average), and better remuneration (difference between the remuneration being provided by the firm and industry average).

(b) Replacement Costs:

Replacement costs are those which arise because of high labour turnover. Increase in preventive costs is likely to reduce labour turnover and, consequently, replacement cost should come down. Management is required to trade-off between preventive costs and replacement costs so that the total costs of labour turnover can be kept at a minimum.

Examples of replacement costs are costs associated with inefficiency of new employ­ees, expenses of recruitment, training and induction of new employees, loss of output due to delay in obtaining new employees, costs associated with abnormal breakage of machines and tools, costs associated with abnormal scrap and spoilt work, and increased cost of accidents.