Employee turnover
Employee Turnover Rate: The employee turnover is a measure of the loss of employees and creates new job openings requiring to be filled. It is a ratio of the number of employees replaced over a given period of time to the total number of employees. It has a negative connotation and results in many important consequences in the organization affecting the normal atmosphere apart from incurring expenditures. The employee turnover rate indicates to the management of the appropriateness of the personnel policies. There are many factors causing employee turnover such as the wages, the company benefits, employee attendance and interest, and job performance. Normally, the employee turnover rate is higher in lower paying jobs.
Employee Turnover Cost: The cost of the loss of an employee’s skills, procedural knowledge and customer knowledge are all the loss to the company when an employee leaves the organization. It is difficult to figure out such a loss which would create big problem for corporations and devastating for small businesses. Not only this, the replacement of another worker would incur many other direct and indirect expenses. These expenses might be the cost of advertising or agency fees, human resource costs, loss of productivity, new hire training, and customer retention. Knowing the cost of losing and then replacing an employee would help an organization to determine how much it can afford to invest in keeping them. It also helps to analyze its investment in keeping the employees adding to its bottom line. The costs which are incurred when an employee leave the organization are as follows.
- The exit interview costs
- Termination costs including separation or severance pay
- Administration costs
- Unemployment compensating costs
The costs which are incurred when a new employee has to be recruited are as follows.
- The cost of advertisements
- The cost of tests
- The cost of interviews
- The cost of traveling and moving
- The cost of administration
- The cost of medical examinations
- The cost of acquisition and dissemination of information
- The cost of both formal and informal training
Employee Turnover Decrease: Many companies provide lot of benefits to its employees in order to decrease the employee turnover rate. Even when the employee problems or issues are addressed, the employee turnover rate is reduced. It plans to reduce the replacement and the training costs so that productivity can be increased lessening the supervisory workload and stress for enhancing better customer service and improved product quality. It is obvious that the companies which offer more benefits to its employees have lower employee turnover rates. Many companies plan to retain employees by providing benefits such as reasonable flexibility with work and family balance, performance reviews, and performance based incentives, along with traditional benefits such as paid holidays or sick days.
Employee Turnover Formula: In order to determine the turnover costs there is a formula which computes the costs incurred for separation, vacancy, replacement and training. The formula can be expressed in the following way.
Turnover costs = separation costs + vacancy costs + replacement costs + training costs.
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