Labour turnover refers to the ratio of the number of employees in the beginning and that in the end of the year. This ratio signifies the extent to which employees leave and new employees join in a given period.
Labour turnover is a one kind of discontent is expressed not by striking work but by quitting the job. It is directly affected the stability of employees. Business organisation cannot enjoy the stable workforce. It is an expensive affair because trained and experienced workers leave the organisation.
Moreover a lot of money would be spending on recruitment and selection procedure. There is no guarantee that all the time company will get good suitable workmen.
The rate of turnover may be calculated on the basis of persons coming to and going from the organisation composed to the total number of workers on the pay roll. It is generally expressed in a number of different formulas such as accessions, separations, replacements and average workforce.
ADVERTISEMENTS:
Learn about:-
1. Introduction and Meaning of Labour Turnover 2. Features of Labour Turnover 3. Importance and Cost 4. Treatment 5. Measurement 6. Causes 7. Effects 8. Measures / Remedies to Control.
Labour Turnover: Introduction, Meaning, Features, Methods, Importance, Causes, Measures, Ratio, Effects and Measurement
Contents:
- Introduction and Meaning of Labour Turnover
- Features of Labour Turnover
- Importance and Cost of Labour Turnover Rate
- Treatment of Labour Turnover
- Measurement of Labour Turnover
- Causes of Labour Turnover
- Effects of Labour Turnover
- Measures/Remedies to Control Labour Turnover
Labour Turnover – Introduction and Meaning
HRP has an important aspect of turnover. Workers sometimes leave the firm or industry at their own instance and occasionally they are ousted from the firm or industry. New workers are employed in their places and thus the composition of labour force changes from time to time. Hence, turnover is the rate of displacement of the personnel employed in an organisation due to resignation, retirement, retrenchment and so on.
ADVERTISEMENTS:
If the rate of labour turnover is high, then this is a sign of instability and it adversely affects the efficiency of employees as well as the profitability of the firm. According to Flippo, ‘Turnover refers to the movement into and out of an organisation by the workforce. This movement is an index of the stability of the workforce’.
Experienced workers go out of the firm and new and inexperienced workers come in who are to be trained. The work suffers thereby, and the cost of labour increases. Therefore, the labour turnover proves to be very costly for the business, and every effort should be made to keep its level as low as possible.
However, a moderate labour turnover is always good for the firm. It equips the firm with new, young and energetic blood. New people bring new ideas, experience and new outlook with them.
Industrial revolution is a landmark of industrialisation. Production is carried on large scale in large factories. A number of workers work together under the one roof of factory premises. It is very difficult to manage and keep the control on men through human relations approach.
ADVERTISEMENTS:
Every individual is differing from other, a number of problems are created by worker such as absenteeism, labour turnover, strikes etc. The employer has to face all the problems, labour turnover is a leading one. Employees constantly join and leave the business organisation for one reason to the other is simple meaning of Labour Turnover.
Labour turnover has been defined as the rate of change in the working staff of a concern during a definite period. In other words it signifies the shifting of the workforce into and out of an organisation. It is a measure of the extent to which old employees leave and new employees enter into service in a given period.
Labour turnover is a one kind of discontent is expressed not by striking work but by quitting the job. It is directly affected the stability of employees. Business organisation cannot enjoy the stable workforce. It is an expensive affair because trained and experienced workers leave the organisation. Moreover a lot of money would be spending on recruitment and selection procedure. There is no guarantee that all the time company will get good suitable workmen.
The rate of turnover may be calculated on the basis of persons coming to and going from the organisation composed to the total number of workers on the pay roll. It is generally expressed in a number of different formulas such as accessions, separations, replacements and average workforce.
ADVERTISEMENTS:
Labour Turnover = (No. of workers joined & left / Average No. of workers on payroll) X 100
Labour Turnover = (Total replacement / Average working force) X 100
Labour turnover is expressed as the ratio of yearly or monthly separations to the average number of full time workers for that period.
Labour Turnover – Important Features
The term labour turnover refers to the ratio of the number of employees in the beginning and that in the end of the year. This ratio signifies the extent to which employees leave and new employees join in a given period.
ADVERTISEMENTS:
The important features are:
1. Labour turnover is more or less localized or found among certain classes of workers such as in operative level, semi-skilled, unskilled workers, the reasons behind this is non-availability of better opportunities for development in the existing organisation, no job security, discrimination in wages or remuneration.
2. It is a higher among female employees in comparison to male employees.
3. It is more common amongst the youngsters, unmarried girls, unskilled and casual or badli workers.
ADVERTISEMENTS:
4. It is high among the less attractive jobs.
Labour Turnover – Importance and Cost of Labour Turnover Rate
The study and calculation of turnover rate is very significant in HRP It helps the management in preparing manpower inventory sheet for future, in determining the type and number of workers required at a time and in future, in proper recruitment, selection, training and so on.
The management should always keep a strict eye on its rate and should prepare HRP policies accordingly. The management must also try to keep turnover rate as low as possible because an excessive movement is undesirable and expensive.
When the employee leaves the firm, the following costs are incurred:
1. Hiring costs involving time and facilities for recruitment, interviewing and examining a replacement.
2. Training costs.
3. The pay of a learner is in excess of what is produced.
4. Accident rates of new employees are often higher.
5. Loss of production in the interval between separation of the old employee and replacement by the new one.
6. Production equipment is not fully utilised during the hiring interval and the training period.
7. Scrap and waste rates rise because of new employees.
8. Overtime pay may be raised to get the work completed with alienated number of employees. Keeping in view all the costs, the firm should try to control it as far as possible.
The cost of labour turnover can be divided under two heads:
1. Preventive Costs.
2. Replacement Costs.
1. Preventive Costs:
These are costs which are incurred to prevent excessive labour turnover. The aim of these costs is to keep the workers satisfied so that they may not leave the factory.
The costs may include:
i. Personnel administration.
ii. Medical services.
iii. Welfare—e.g. provision for subsidized canteen meals, sports facilities, etc.
iv. Gratuity and Pensions Schemes.
v. A portion of high wages, bonuses, perquisites, etc. which are paid in excess of the average amount paid in the industry to discourage labour turnover.
As “Prevention is better than cure”, preventive cost should be increased to arrest excessive labour turnover. This cost of labour turnover should be apportioned among different departments on the basis of average number of employees in each department.
2. Replacement Costs:
These costs are associated with replacement of workers and include:
i. Cost of recruitment, training, induction, etc.
ii. Loss of output due to –
a. Time-lag between defection and recruitment.
b. Inefficiency of new workers.
iii. Cost of tool and machine breakages.
iv. Cost of scrap and defective work.
v. Cost of additional supervision necessitated by inexperience of new workers.
Labour Turnover – Treatment
The cost of labour turnover is generally treated as overhead. When costs are segregated into preventive costs and replacement costs preventive costs should be charged as a works overhead item and apportioned to different departments on the basis of number of workers engaged in each department.
Replacement costs should also be treated on the same basis if they arise because of the short sighted policy of the management. However, if they arise on account of the fault of a particular department, they should be directly charged to the department.
It may not be out of context to point out here that labour turnover cannot be completely wished away but its rate can be kept at a moderate level by taking such steps like – good working environment, fair rates of pay and allowances, encouragement to competent and efficient workers, encouraging workers to participate in important organisational matters etc.
1. Holiday Pay:
The Factories Act lays down that an employee should be entitled to weekly holidays for which he will be paid. Besides, there are certain statutory holidays such as Republic Day, Independence Day etc. for which also wages are paid. The payment made for these holidays is unproductive.
It is treated as an indirect expense and charged to Factory Overheads Account and thus recovered from production. The amount of holiday wages to be charged to factory overheads is generally estimated by the management for the whole year after considering the normal holidays in a year.
2. Leave Pay:
Workers are entitled for leave with pay every year such as medical leave, casual leave etc. In certain circumstances encashment of leave not availed is also permitted. The leave with pay should be treated in costing in the same manner as suggested for Holidays with pay.
Alternatively, both the Holiday Pay and Leave Pay can be charged at an inflated rate of wages to the concerned jobs.
3. Learner’s Wages:
A worker, generally, takes more time to perform a job during his training period than a trained worker. So, to avoid loading the job with excess labour cost, half his wages may be charged to the job direct while the other half allocated to overhead. Where the wages cannot be identified with a particular job, they should be treated as overhead.
4. Night Shift Allowance:
Sometimes, due to pressure of work, workers may be asked to work in night shifts, at an additional cost. Such expenses are charged to the general works overhead and absorbed by all cost units. Where the work is executed during night shift at the request of the customer, the extra payment is charged to the job.
Labour Turnover – Methods for Measurement
Labour turnover within normal level or industry average poses no problem. Once it becomes excessive, management has to step in with right intervention.
The following methods are used for computing the rate of labour turnover.
These are:
1. Separation method
2. Accession method
3. Flux method or combination method
4. Replacement method.
1. Separation Method:
In this method, employee turnover is measured in terms of total number of separations from the organization and the average number of employees employed during the year.
2. Accession Method:
Employee turnover is expressed in terms of total number of employees hired during a year and the average number of employees during the year.
3. Flux Method or Combination Method:
This method is the combination of the accession and separation method.
4. Replacement Method:
Under this method, net amount of employee mobility is taken into account which is obtained by the difference between total number of employees hired and the total number of employees separated.
It may be caused as per the wish of the labour or it may be caused by organisation.
The following are the leading causes of labour turnover:
It includes both avoidable and unavoidable causes. It is an outcome of resignations, dismissals, badli system etc.
(1) Reduction in the Quantum of Work- The quantum of work may be reduced due to a number of reasons such as, industrialised depression, seasonal fluctuations, temporary jobs, change in industrial process, discontinuance of business, seasonal character business etc. Whenever the work is not available in the factory, employees will leave the organisation or company will remove him from the job.
(2) Shortages of Material or Other Factors of Production- If raw material or other required factors of production is not available, then forcibly employees have to leave the organisation.
(3) Inadequate or Faulty Planning- If the production and overall planning of the factory is inadequate or faulty it increases the labour turnover rate.
(4) Job Factors- These factors are purely related with job such as its nature which employee does not like, it may be hazardous type, more chances of accidents, working hours, bad working conditions will not satisfy the employees and force them to leave the organisation.
(5) Personal Factors- It includes fair and just remuneration, better facilities in some other organisation attracts the employees towards it.
(6) Constant Illness- If there is constant illness on the part of the employees, company would not entertain such employees any longer.
(7) Wilful Resignation- If the employee is not happy and satisfied with company or with its working condition will resign and join some other concern.
(8) Insufficient Wages /Salaries- If the employer is not paying satisfactory wages and salary employee may leave the organisation.
(9) Old Age and Family Circumstances- Due to the old age or some family problems like debts etc. employees prefer to leave the organisation.
(10) Agricultural Operations- In the context of India many workers are coming from villages and have their own farm and fields, factory work is their part time job. Therefore they are joining and leaving so many companies every year.
(11) More Attractive Opportunities Elsewhere- If in some other organisation more attractive opportunities like better position, higher wage rates, salary, bright future is available, employees will attracts towards it and leave the earlier business organisation.
(12) Dismissals- Sometimes company may dismiss the workers due to participation in strikes and in trade union activities, misconduct, insubordination, negligence, carelessness, inefficiency etc. But dismissal is a minor lesser cause of labour turnover.
(13) Badli System- In India there are so many establishments where badli system is followed. It contributes to a high turnover, because it provides work for badli workers, under this system many workers are forced to leave.
(14) Inadequate Retirement Benefits- It includes pension, gratuity, provident fund etc. which is inadequate.
(15) Unhealthy Relation- If there is unhealthy relation between the employee and his superior (supervisor), he will prefer to leave the organisation and join elsewhere.
(16) Inadequate housing and transportation facility.
(17) Retirements, deaths etc. also contribute in higher labour turnover rate.
Labour Turnover – Effects: Cost to the Company and Cost to the Employee
Effect # 1. Cost to the Company:
Excessive labour turnover triggers the following adverse effects:
i. Employee attrition upsets the regular flow of work and it results in inability to adhere to its plan.
ii. Frequent hiring and training of newcomers result in escalating cost of operation.
iii. Employee attrition lowers the morale of existing employees.
iv. Rough handling of machines by newcomers leads to faster wear and tear. They may waste materials during the learning period.
v. There may be production loss during the lag period between the date of attrition and date of replacement.
vi. Ignorance, incapacity and non-observance of safety practices of new hires may laid to industrial accidents.
vii. New hires require close supervision and supervisor’s precious time is spent on educating and instructing newcomers. This necessitates more supervisors thereby increasing supervision cost.
viii. The quality of work done by freshers may not be adequate.
ix. Turnover dents team spirit.
x. Labour turnover tarnishes the image of the employer who loses his brand value. Inefficient and ineffective work turnout by newcomers may lead to reduced output and lower productivity.
Effect # 2. Cost to the Employee:
i. Frequent job change is a black mark on the profile of the employee.
ii. Frequent dislocation may affect his family and his physical health.
iii. Socialization process with new work environment results in lower productivity.
iv. Frequent job hopping results in loss of long term benefit like PF, gratuity, pension, etc.
Labour Turnover – Measures / Remedies to Control Labour Turnover
1) To provide security of employment.
2) Provide proper opportunities for worker/employee advancement and welfare.
3) Proper career planning and advancement.
4) To adopt sound recruitment placement, training and promotion, policies.
5) Improved and hygienic working conditions
6) Clear cut and sound personnel policies regarding wages, salary, transfer, promotion, leaves/holidays, education and training, welfare facilities, social security measures such as insurance, gratuity, pension, provident fund etc.
7) To adopt prompt grievance handling procedure.
8) Develop positive attitude among the managers towards the workers.
9) Job enlargement and enrichment.
10) Develop proper communication with employees.
11) Workers should be participated in management.
12) Change the attitude and tendency among the employees.
Usually a high rate of turnover is unhealthy for both workers and industry. Therefore efforts should be made to reduce it to some extent because total elimination of turnover is impossible, but its minimization is possible. However, labour turnover is certain and even natural.
The management should study the causes of turnover and take necessary steps to remove them. High rate of labour turnover may collapse organisation any time. It is a one of the serious phenomena. Therefore, it must be timely solved by the management by searching out the reasons and by suggesting right remedies on it.
The following are the ways and means of addressing labour turnover:
1. Exit Interview:
It is an interview held with an employee who is to leave an organization. Companies should designate authority to conduct exit interview and design a structured questionnaire in this regard. It is better if it is held on the last day of employees tenure or sometime earlier to it. The results of exit interview need to be analysed and action plans should be chalked out to address lapses, if any, on the part of organization.
2. Retention Strategy:
Exit interviews, if properly conducted, indicates the reasons for turnover. Organizations should seek to retain the human resources based on such information. There are various alternatives which can be pursued to retain the employees.
a. Package for Long-Term Stay:
Where an employee feels that his market value is higher elsewhere, this feeling can be overcome by designing a suitable long term package which includes Employee Stock Option Plan (ESOP), increasing financial incentives over a period of time, increasing emphasis on deferred payment of financial incentive in the long run like superannuation, allowance or long term stay bonus.
b. Intangible Benefits:
In order to develop a sense of belonging or loyalty among employees, companies offer intangible benefits like overseas training, short tenured foreign assignments, holiday trips for employees, dinner meetings in posh hotels, arranging get-together functions, greeting on birthdays and wedding anniversaries of employees, etc.
c. Work Environment:
Work environment is one of the key factors determining job satisfaction. It is so modified to enable the employee to strike a balance between work life and home life. Work alternatives like flexi time, work from home, compressed week, telecommuting, etc. go a long way in retaining the talented employees.
d. Matching Job and Job Holder:
Many employees change organizations because of mismatch between them and their jobs. Career planning and career counselling initiatives contribute a great deal to arrest attrition triggered by this mismatch. Further, job enrichment, job enlargement and job rotation go a long way in addressing job monotony experienced by job holders. Besides switching the employee from line function to staff function and vice versa, changing the employee from fast track project to slow track project help in reducing job stress and monotony.
e. Recognition Event:
Companies can operate honour club scheme in which employees who show outstanding performance can be honoured by rewards and awards. This would promote a healthy competition among the employees besides nurturing their creativity and innovations.
f. Persuasion:
HR Manager, Chief Executive or HR Director can persuade the key employees to stay back with the company.