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Calculation of Employee Turnover

Employee turnover has been a cause of worry to the employers over the period of time. The cost on the loss of the employees varies with their contribution to the company revenue. The more vital the role played by the employee, the greater the loss and vice versa. Though there is no uniform system of calculating the loss on turnover, they must include all costs, whether direct or indirect which can pull down the company revenue.

Calculation of the rate of employee turnover can provide an insight on the criticality of modifications that are to be made. The attrition rate can be calculated by dividing the number of employees who left during a period by the average number of employees during the same and multiplying it by 100. For example, if the number of employees who left the organisation was 300 on an average of 3000, the attrition rate is 10%. A turnover rate that is higher than the industrial average is alarming and calls for an immediate investigation on the cause of the same and the introduction of modifications in the company outlook.

Computing the hit on the revenue on account of the employee turnover helps to speed up the measures to overcome it. The cost on turnover consists of direct and indirect costs. The direct costs on employee turnover include the following:

• It starts with the cost on finding a new recruit from within the entity or from outside sources for filling the gap created by the departing employee. The expense on advertisement, processing of applications including the time spent on it, reference check, charges on interviewing including the travel expense, etc are to be included.

• Administrative cost on absorbing the employee into the entity.

• Cost of training which includes the amount spent on trainer, the loss of time on account of it if training is provided by experienced employees from within the entity, provision of infrastructure facilities like room space, training manuals, etc.

• Loss on account of the money spent on the employee until he breaks even like salary.

• Amount spent on the supervision of the employee until he gains grip over the company procedures.

• Separation cost of the employee which consists of the time spent on exit interview, processing and evaluating the same, separation pay, etc.

• The overtime pay which has to be paid to the existing employees to make good the loss of effort of the departing employee also add up to the turnover cost.

All the costs resulting from the attrition are not that easy to compute. Whenever a new recruit joins an organisation, the expense involved on supervision, low production, salaries, etc is charged on the customer until he breaks even. But if attrition is a phenomenon experienced very frequently the customer will refuse to compensate until the employee starts to be productive. This requires the company to compensate the employee from its revenue during that period. The inability to detain the employee within the entity can lead to a delay in the delivery of the product resulting in the disbursement of penalty to the customer. A delay in the submission can bring down the level of customer satisfaction, thus creating a negative impact on the goodwill and future relationship with the customer. Losing a customer can lead to a loss of millions to the company.

The cost of the labour turnover varies with the role of the employee in the organisation. If the performance appraisal includes the employee in the top bin, the replacement of the same will be very expensive. If the exiting employee is an expert on a particular domain, the employee replacement may not be easy. The substitution may not be easily available in the market and the loss incurred until the inclusion of a similar expert to fill the gap and the cost spent on the man hunt can turn out to be exorbitant. The years of experience of the exiting employee determines the cost on turnover. The expense incurred on the loss of an employee with five years of experience will be a lot more than that of a two year experienced one. High attrition rates also take the toll on the stock prices of the firm and employee morale.

Identification of the cause of the labour turnover and introducing measures to overcome them is, thus, critical for the sustenance of the company in the highly competitive market.

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Posted: 14/07/2011 22:51:35

It was dark when I woke. This is a ray of susnhnie.

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