How to Measure Labour Turnover? – Answered!
In its quantitative aspect ‘labour turnover’ may be defined as the rate of change in the number of employees of a concern during a definite period, commonly a month.
In other words, it is a measure of the extent to which old employees leave and new employees enter the service of the concern.
In its sociological aspect labour turnover is understood to mean a process of change in the size of the work force. This meaning deals with the reasons which cause this phenomenon to occur in any industrial unit.
Labour turnover studies are helpful in manpower planning. Commenting on their significance, Frederic J. Gaudet observes: “Just as the high reading on a clinical thermometer is a sign to the physician that something is seriously wrong with the human organism, so is a high index of labour turnover rate a warning to management that something is wrong with the health of the organisation.
But just as the clinical thermometer merely indicates that something is wrong – not what is wrong – so does the turnover rate merely warn not diagnose. A high turnover rate may mean poor personnel practices, poor supervisory practices, or poor company policies. Nor should we forget that too low a rate of turnover, like a below normal reading on the thermometer, can also be a danger signal”.
According to Pigors and Myers, labour turnover involves costs not only in human values but also in money.
These include:
(a) Costs incurred in hiring and training each new employee.
(b) Costs of overtime work required from regular workers in order to maintain the required level of production until the new employee can do his share.
(c) Loss of production in the interval between separation of the former employee and the time when his replacement is fully broken in.
(d) Expense in equipment or facilities not being fully utilised during the training period.
Measurement of labour turnover:
Turnover can be computed for each type of movement in and out of the company. Following formula are generally used to measure the extent of labour turnover:
(i) Accession formula:
Labour turnover ratio according to this formula is arrived at by dividing the total accessions of a unit during a specified period by the average labour force of that unit during the same period. Total accessions are all permanent and temporary additions to the employment roll, whether new or retired employees. Transfers from other establishments of the company are also counted.
The average labour force of a specified period may be calculated by dividing the total number of employees on the payroll at the beginning and at the end of the period under consideration by 2. Another measure which is occasionally used to calculate this average is the number of employees on the payroll on the middle day of the specified period. Given month is 300 (385 at the beginning plus 215 at the end divided by 2) and if during the same period it has taken on 50 employees, then
Turnover rate = 25/30 x 100 = 8.33 per cent.
(ii) Separation formula:
In this formula total separations (and not total accessions) during a specified period are taken into account. Total separations’ means all the terminations of employment of persons who have quit or have been taken off the rolls for reasons such as layoff, discharge, retirement, death, physical disabilities, etc.
Transfers of employees to other establishments of the same company are also included. If 20 employees were separated from the payroll during the same period in the above example, then the turnover rate according to this formula will be
20 /100× 100 = 33.3 per cent
(iii) Compromise formula:
Neither of the above two formulae gives a useful measurement of turnover during wide cyclical and seasonal swings. Thus, during periods of prosperity when the number of separations may be nil the separation formula would show no turnover; and during periods of depression when the number of accessions may be nil the accession formula would show no turnover.
As a means of minimising cyclical effects upon turnover calculations, some companies average the accession and succession figures and then divide by the average working force. Based upon both accessions and separations, turnover according to this formula will be
(25+20)/2/300×100=5.83 percent
(iv) Replacement formula:
Also known as ‘Net Turnover Rate’ or ‘Wastage Rate’, this formula uses the total accession or total separation whichever is lower. Based upon this formula turnover in our example would be the same as given by the separation formula.
Retention profile:
It should be noted that the formula for measuring labour turnover used by most companies is the separation formula. This formula suffers from one serious drawback, namely, it takes no account of the length of service of the work force but only of its size. As a result of this drawback a personnel manager who is using this formula as a means of assessing morale cannot distinguish between a situation, on the one hand, where every man in a department of 100 men has left and been replaced once (Index =100 per cent) and, on the other hand, where 10 posts have each had 10 different occupants, but 90 posts are still held by men who have been with the company for years (Index =100 per cent).
Both situations may call for action, but certainly not the same action. Therefore, some method of measuring labour turnover which is service-specific is required. This is achieved by computing ‘retention profile’ of the staff Retained staff at the end of the year is divided into groups or cohorts by their year of joining and the number in each group is expressed as a percentage of the number who could have been retained from the cohort, i.e., all who joined that cohort in the beginning of that particular year. One can make such profiles for different years and for different departments for purposes of comparison.