Labour Turnover and Retention Rates

• What does labour turnover refer to?

  Percentage of people leaving an organization
• What do retention rates indicate?

  Extent to which an organization retains employees
• How is labour turnover calculated?

  No of employees leaving divided by average number employed
• What is the formula for calculating retention rates?

  Retention rates are not explicitly defined in the text
• What problems arise from high labour turnover and low retention rates?

  • High recruitment costs
  • High induction and training costs
  • Need to redesign jobs
  • Reduced productivity
  • Low morale among colleagues
  • Increased pressure on remaining staff
  • Difficulty maintaining standards and customer service
• What is a consequence of high recruitment costs?

  Replacing staff who leave
• Why are induction and training costs high with high turnover?

  Employees need to quickly learn job skills
• What might be necessary in industries with high turnover?

  Redesigning jobs to simplify tasks
• How does high turnover affect productivity?

  It reduces productivity due to disruptions
• What impact does high turnover have on employee morale?

  It lowers morale among existing colleagues
• What pressure does high turnover place on remaining staff?

  Increased pressure on remaining staff
• What is a challenge in maintaining standards with high turnover?

  Hard to maintain high standards and customer service
• What are the internal causes of high labour turnover?

  • Ineffective leadership and management
  • Poor communications
  • Lower wages than comparable jobs
  • Poor selection procedures
  • Boring work with no opportunities
  • Poor working conditions
• What are the external causes of high labour turnover?

  • Improving economy increases job opportunities
  • More attractive jobs with better pay and conditions
  • Jobs that are more interesting or closer to home
• What strategies can improve labour turnover and retention rates?

  1. Monitoring and benchmarking
  2. Exit interviews
  3. Recruitment and selection
  4. Induction training
  5. Reducing turnover of long-term workers
  6. Providing competitive pay and incentives
  7. Rewarding staff loyalty
• Why is monitoring and benchmarking important for firms?

  To understand labour turnover costs and trends
• What can exit interviews help identify?

  Problem areas in the organization
• How can effective recruitment and selection save costs?

  By reducing future labour turnover expenses
• What is the benefit of induction training?

  Helps employees feel part of the firm quickly
• Why is it vital to retain long-term employees?

  They accumulate valuable firm-specific human capital
• What should businesses examine to retain long-term employees?

  Career progression and remuneration competitiveness
• What types of incentives can improve retention rates?

  Competitive pay and other incentives
• What is a way to reward staff loyalty?

  Service awards for long-term employees
• What does employee cost as a percentage of turnover measure?

  Percentage of turnover needed to cover labour costs
• How is employee costs as a percentage of turnover calculated?

  Employee costs divided by sales turnover, times 100
• What components are included in employee costs?

  Salaries, wages, payroll taxes, and benefits
• What happens to the percentage if employee costs increase while sales turnover remains the same?

  The overall percentage will increase
• What happens to the percentage if employee costs decrease while sales turnover remains the same?

  The overall percentage will decrease
• If sales turnover is £500,000 and employee costs are £100,000, what is the employee costs as a percentage of turnover?

  20%
• What is the employee costs as a percentage of turnover for a bread manufacturer with labour costs of £500,000 and turnover of £1,600,000?

  31.25%
• If sales turnover is £600,000 and employee costs are £100,000, what is the employee costs as a percentage of turnover?

  16.67%
• What are the benefits of measuring employee costs as a percentage of turnover?

  • Determine if the right number of employees are hired
  • Ensure employee costs do not consume too much earnings
• Why is it important to compare employee costs against industry benchmarks?

  To see if costs and profits are acceptable
• What should be considered if employee costs are too high and profits are low?

  Increase labour productivity and reduce costs
• What might indicate that staff are underpaid or there is a shortage of qualified workers?

  Employee costs against turnover are too low
• What actions should be taken if employee costs against turnover are too low?

  Attract more talent and ensure proper pay
• What is the significance of ensuring employees receive suitable training?

  To improve productivity and reduce turnover