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Wednesday, May 29, 2024

What is the attrition rate?

In a small company, the business owner, who is often the head of the business, knows why employees are leaving. He always knows the real reason that prompted a person to leave the team. This is important because it allows him to train new personnel on time, minimizing losses. When it comes to a medium or large company with a staff of 200 or more people, it is much more difficult to track the specifics of each employee, but this does not affect the need for such a thing.

 

A manager should know what the employee turnover rate is considered the norm and what the actual rate is in each of his company’s departments to find the problems that are driving the costs. At the same time, the more employees, the more difficult it is to trace the reasons for an individual’s departure and to perform an analysis.

 

For example, if a hotel has to change receptionists frequently, the total loss can be as much as 30 percent of the annual payroll for these professionals. Let’s analyze why this happens and how to calculate the exact amount of losses when any employee changes in the company further in the article together with https://layboard.in/vacancies/jobs-in-saudi-arabia

Types of employee turnover

The turnover rate is an indicator that tells the percentage ratio of the number of dismissed employees to the average number of people in the company when calculated over a certain period.

The turnover rate itself and its deviation from the norm for an industry or a company only serves as a signal of a problem, but does not speak directly to the costs the firm incurs because of this phenomenon.

There are two types of staff turnover:

  • Active – dismissal of employees is caused by their dissatisfaction with the conditions or policies of the company;
  • Passive – caused by dissatisfaction of the company’s managers with the employees’ performance of their job duties.

 

Depending on the level of staff turnover, a distinction is made:

  • Natural – characteristic of a certain sphere and level of employee position;
  • Excessive – the indicator is higher than normal for the organization or industry.

 

Excessive staff turnover is a sign of problems within the company, which leads to loss of profits due to frequent changes of personnel. Finding the causes of this and their elimination can significantly increase efficiency and improve the climate in the team.

Attention!

When calculating, you should keep in mind that the true reason for dismissal is not always specified in the employment record book or in the company’s internal documentation. This is why one of the HR department’s responsibilities is to selectively interview dismissed employees in person or by phone.

How do I calculate the turnover rate?

The formula for the turnover rate is as follows:

Personnel turnover coefficient = (Number of dismissed persons / Number of employees) x 100%.

 

To calculate separately the active and passive turnover rate, you need to clarify the reason for each employee’s departure. To determine whether everything is in order at the company or the department, the result is compared to the norms and the same indicator of the company for the corresponding period last year.

The personnel turnover rate is calculated both for the company as a whole and for individual departments or levels of personnel. Depending on the industry, the period for which the data is taken varies. Most often it is a year, but for companies with high staff turnover the calculation period can be half a year or three months, and for companies with low staff turnover – two or three years.

 

For example, employee turnover for seasonal jobs can be as high as 80-100%. In companies where corporate values are strong and a lot of time is devoted to personnel selection, this figure even among rank-and-file employees can be up to 5%.

In large companies, recruiters independently set standards for individual positions and departments, based on the experience of competing firms and company data. This makes it easier to find problem areas when tracking employee turnover and to identify what a large number of layoffs are related to.

 

Causes that affect employee turnover

Several reasons may influence the employee’s decision to voluntarily leave the company, the most common of which are the following

  • the actual salary is lower than expected, taking into account the volume and complexity of the work
  • poor working conditions;
  • problems in relations with the management or colleagues;
  • lack of career advancement opportunities;
  • low motivation to work in the company or in a particular position;
  • ineffective candidate selection procedure, which leads to the hiring of unsuitable people;
  • weak adaptation policy in the first three months after employment;
  • irregular and excessively intensive work.

The experience of many recruiters has shown that there are certain risk factors that are likely to lead to employee termination:

  • Age under 25 – this is the period when people are most likely to change jobs frequently;
  • Long commute to work and back – this provokes the search for options with less time and financial expenses for transportation;
  • Length of service at the company is less than three years – if the employee has not resigned during this period, the risk of such behavior is considerably reduced.

In order to understand what exactly causes the staff turnover, you should conduct an analysis: compare the conditions provided by the company with its competitors, talk to the dismissed employees, talk to the head of the division where there is an excessive number of layoffs. Based on this, “work on mistakes” should be done to minimize losses due to the search for new employees and their training.

How do you calculate turnover losses?

Replacing an employee is always accompanied by losses. They can be expressed in monetary terms by using certain formulas.

  1. Losses due to interruptions in the work process:

Npr = V * T * Ht, where

C – the average daily income from the work of one person;

T – the number of days an employee was absent due to hiring a new one;

Ht – total number of dismissed employees during this period.

  1. Losses due to training of a new employee are caused by the fact that no new person in the company will be able to perform all the same duties to the full extent as his predecessor from the first day:

Po = Zo*Di*Ki, where

Zo – the total cost of training of new employees during the accounting period;

D – excessive staff turnover;

Ki – turnover rate for the reporting period.

  1. Losses due to low productivity of an employee before dismissal are caused by the unwillingness of a person to spend much effort for the good of the company from which he/she is leaving:

Ppu = Cpu * Csp * Chu, where

Srv – the usual average earnings, taking into account the position;

Ksp – the coefficient determining the decrease in productivity relative to the usual;

Chu – the number of days when the decreased productivity was observed.

The minimum KPI is 1 day.

Some companies regularly track KPIs for each employee so they don’t keep those who like to take time off from work on the payroll. Other companies have gone further – they track employees’ happiness levels through cameras, which can affect their productivity.

  1. Losses due to low productivity of a new employee are due to the fact that during the adaptation period he is undergoing training and can not perform all functional duties in full:

Pns = Srva * Km * Chm, where

Srva – normal average output for a certain position;

Km – the coefficient determining the decrease in productivity during the adaptation period relative to the usual for this position;

Hm – number of days of the adaptation period.

  1. Costs of personnel search should also be included in losses due to personnel turnover:

Zorg = (Zn * Dt ) * Kizm, where

Zn – all the costs of the search and hiring personnel in the accounting period;

Dt – the turnover coefficient in the accounting period;

Kizm – the coefficient of change in the number of employees from the beginning of the period in relation to its end.

By understanding how the coefficient of personnel turnover is calculated and what costs the company incurs because of this phenomenon, as well as by summarizing the results in time, the manager can improve the situation in the company in order to avoid unnecessary expenses, increase profitability and improve the reputation.

When all the conditions for normal work are arranged, people tend to work in such a company, and the number of those dismissed on their own initiative decreases dramatically.

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