Employee Turnover : types and cost of employee turnover

Employee Turnover

Employee turnover refers to the rate of change in the workforce of an establishment during a given period of time. It is the time to the time change in the composition of the workforce that results from hiring, release, and replacement of employees. The higher the retention rate, the lower will be the turnover levels and hence the turnover cost. The highest levels of turnover are found in private sector institutes. The high turnover rate has a negative impact on an establishment’s performance which adds hundreds of thousands of money to an establishment’s expenses. “Avoidable” turnover is distinguished from “unavoidable” so that
proper emphasis can be placed on the avoidable portion.

Types of employee turnover

Employee turnover exists across two categories: Involuntary turnover, instigated by the employer, and voluntary turnover, prompted by the employees.

Involuntary turnover is either by discharge or downsizing. Discharging turnover concerns the removal of poor performing or dishonest employees from an establishment, while downsizing is a necessary activity to increase the effectiveness of an establishment and its ability to meet the shareholder targets.

Voluntary turnover is separated into two further types: avoidable and unavoidable turnover. Voluntary turnover is separated into two further types: avoidable and unavoidable turnover. Avoidable turnover concerns the exit of an employee from an establishment under circumstances that could have been avoided if the employee had felt more valued, for example. Conversely, unavoidable turnover relates to employee exit that occurs independently of any action that the establishment could have taken, such as, an employee passing away unexpectedly, or compulsory relocation.

The cost of employee turnover

The cost of replacing an employee is expensive. This includes a wide variety of expenses or cost such as:

Administration of the resignation with exit interviews.
Recruitment and selection costs. The cost during hiring new faculty includes: a) time spent on sourcing recruitment b) administration of recruitment and selection process c) from advertising to the time spent interviewing and selecting.
Cost of covering during the period in which there is vacancy.
Loss of knowledge, productivity, employee morale etc.

A new employee operates between 25% – 50% of productivity levels for the first three months, not including the time spent by existing employees to assist.

When an employee voluntarily terminates his/her employment, huge amount of expenses occur and the establishment has to bear the responsibility for both the direct and indirect expenses associated with the turnover costs. Exit interviews, recruitment, selection including applicant testing and interviewing along with the placement of new employees are the direct cost to the establishments. Further, all those indirect costs like loss of knowledge, productivity, employee morale have serious implications for the success of every establishment. So, it is clear that if an employee resigns, the establishments experience loss incurred in productivity, positions vacant, etc. by the resignation and then the expense of hiring a new employee. New hiring could cost in the range of 25% to 35% or more of the average employee salary. A study published in the Journal of Applied Psychology revealed that as rates of voluntary turnover increases, receivers of service are more likely to report poor service. Another challenge that an establishment faces is that of the new employees’ loyalty.