ACCA MA Syllabus C. Cost Accounting Techniques - Labour Turnover - Notes ^{15 / 22}

Labour Turnover

- is the rate at which employees leave a company relative to the average number of people employed. 

This rate should be kept as low as possible.

Illustration

A Co. had 80 direct production workers at the beginning of last year and 60 direct production workers at the end of last year. 

During the year, a total of 45 employees has left the company.

What is the labour turnover ratio?

Solution:

Employees at the start -Those left + Those Replaced = Number of employees at the end

80 at the start  - 45 (left)  + Replacement = 60 at the end

Replacement = 25

Avg no of employees = (80 + 60) / 2 = 70

Labour turnover = (25 / 70) x 100% = 35.7%

Causes of Labour Turnover

Some employees will leave their job and go to work for another company or organisation. 

Sometimes the reasons are unavoidable.

• Illness or accidents

• A family move away from the locality

• Marriage, pregnancy or difficulties with child care provision

• Retirement or death

However, some other causes can be avoidable

Examples:

• Poor remuneration

• Poor working conditions

• Lack of promotion prospects

• Bullying at the workplace

Costs of Labour Turnover

The costs of labour turnover can be large and management should attempt to keep labour turnover as low as possible so as to minimise these costs.

The cost of labour turnover may be divided into the following

• Preventative costs

• Replacement costs

Replacement costs

These are the costs incurred as a result of hiring new employees. 

These include:

• Cost of selection and placement

• Inefficiency of new labour; productivity will be lower

• Costs of training

• Loss of output due to delay in new labour becoming available

• Increased wastage and spoilage due to lack of expertise among new staff

• The possibility of more frequent accidents at work

• Cost of tool and machine breakage

Preventative costs

These are costs incurred in order to prevent employees leaving and they include

• Cost of personnel administration incurred in maintaining good relationships and eliminating bullying in the workplace

• Cost of medical services including check-ups, nursing staff and so on

• Cost of welfare services, including sports facilities and canteen meals

• Pension schemes providing security to employees

• Investigate high labour turnover rates objectively

How can high labour turnover be reduced?

• Paying satisfactory wages

• Offering satisfactory hours and conditions of work

• Creating a good informal relationship between employees

• Offering good training schemes and career or promotion ladder

• Improving the content of jobs to create job satisfaction

• Proper planning so as to avoid redundancies

• Investigating the cause of an apparently high labour turnover