Labour Turnover – Meaning, Methods causes and cost


Labour Turnover – Meaning, Methods causes and cost

Meaning: Labour turnover may be defined as change in labour force i.e., percentage change in the labour force during a specific period. High labour turnover indicates that labour is not stabilised and there are frequent changes by way of workers leaving the organization. High labour turnover is to be avoided. At the same time very low labour turnover indicates inefficient workers are being retained in the organization.

Measurement of Labor Turnover: It is essential for any organisation to measure the labor turnover. This is necessary for having an idea about the turnover in the organisation and also to compare the labor turnover of the previous period with the current one. 

The following methods are available for measurement of the labor turnover.

Additions Method: Under this method, number of employees added during a particular period is taken into consideration for computing the labor turnover. The method of computing is as follows:

Labour Turnover = Number of additions/Average number of workers during the period X 100

Separations Method: In this method, instead of taking the number of employees added, number of employees left during the period is taken into consideration. The method of computation is as follows:

Labour Turnover = Number of separations/Average number of workers during the period X 100

Replacement Method: In this method neither the additions nor the separations are taken into consideration. The number of employees replaced is taken into consideration for computing the labour turnover.

Labour Turnover = Number of replacements/Average number of workers during the period X 100

Flux Method: Under this method labor turnover is computed by taking into consideration the additions as well as separations. The turnover can also be computed by taking replacements and separations also. Computation is done as per the following methods:

Labor Turnover = ½ [Number of additions + Number of separations] /Average number of workers during the period X 100

Causes of Labour turnover

 The causes for labour turnover can be broadly classified under three heads.

(1) Personal Causes

(2) Unavoidable Causes

(3) Avoidable Causes

i) Personal Causes: Some of the employees may leave the organization on account of personal reasons as given below:

(a) Circumstances of family.

(b) Retirement on reaching the prescribed age.

(c) Change in material status in case of women employees.

(d) Dislike for the job or place;

(e) Death of the employee.

(f) Employee getting recruited in a better job.

(g) Permanent disability due to accidents.

(h) Involvement of employee in activities of moral turpitude.

ii) Unavoidable Causes: In certain instances the organization may discharge the employees due to unavoidable reasons as mentioned below:

(a) Termination of workers on account of insubordination or inefficiency

(b) Discharge of workers on account of irregularity or long absence.

(c) Retrenchment of workers by the company on account of shortage of work.

iii) Avoidable Causes: Some of the employees may leave the organization account of the following reasons:

(a) Non availability of promotion opportunities

(b) Dissatisfaction with incentive schemes

(c) Unhappy with remuneration

(d) Unsuitable to job due to wrong placement

(e) Unhappy with working conditions

(f) Non availability of accommodation, health and recreational facilities

(g) Lack of stability of Tenure.

Remedial steps to minimize labour turnover

 The following steps are useful for minimizing labour turnover:

1. Exit interview: An interview is arranged with each outgoing employee to ascertain the reasons of his leaving the organization.

2.  Job analysis and evaluation: to ascertain the requirement of each job.

3. Organisation should make use of a scientific system of recruitment, placement and promotion for employees.

4. Organisation should create healthy atmosphere, providing education, medical and housing facilities for workers.

5.  Committee for settling workers grievances.

Impact of ‘Labour Turnover’ on a manufacturing organization’s working

 The impact of labour turnover on a manufacturing organization’s working is many folds. In fact the labour turnover increases the cost of production in the following ways:

1.       Even flow of production is disturbed.

2.       Cost of recruitment and training increases.

3.       Breakage of tools, wastage of materials increases.

4.       Overall production decreases due to the time lost between the leaving and recruitment of new workers.

5.       Reduction in sales accounts for loss of contribution and goodwill consequently.

Types of costs associated with labour turnover are

Preventive costs: These costs are incurred to keep the labour turnover rate at a low level. They include costs of accommodation, transport facilities, medical services, welfare schemes, pension schemes, environment improvement, lighting, heating, air-conditioning etc. The rate of labour turnover is usually low, if a company incurs higher preventive costs.

Replacement costs: These costs arise due to high labour turnover, e.g. cost of advertising, recruitment, selection, training & induction, abnormal breakage and scrap, extra wages & overheads etc., caused as a result of in efficient and inexperienced newly recruited workers.