measurement of labour turnover

HRM – Workforce Planning, Recruitment, Turnover and Motivation (Cambridge 9609)

1. Purpose and Roles of HRM (Syllabus 2.1.1)

• Strategic alignment: Ensures people policies support the organisation’s overall objectives.
• Workforce provision: Guarantees the right number of staff with the right skills are available at the right time.
• Employee relations: Manages motivation, communication, welfare, health & safety and dispute resolution.
• Learning & development: Provides training, career planning and succession pathways.
• Compensation & benefits: Designs pay structures, bonuses and non‑financial rewards.
• HR information: Supplies data (e.g., labour turnover, absenteeism) for budgeting, recruitment and performance management.

2. Workforce Planning (Syllabus 2.1.2)

Workforce planning = forecasting future staffing needs, analysing gaps, and taking action to meet those needs.

2.1 Why it matters

• Prevents shortages or surpluses of staff.
• Controls labour costs and improves productivity.
• Supports organisational growth, restructuring or new product launches.
• Provides the basis for recruitment budgets and training programmes.

2.2 Link to turnover

Turnover data predicts the number of vacancies that will arise, allowing more accurate demand‑supply forecasts.

2.3 Key steps (with a simple forecasting tool)

1. Analyse the current workforce – size, skills, demographics, contract type.
2. Forecast future demand – use ratio analysis (e.g., sales ÷ staff) or a spreadsheet model that incorporates growth targets, new markets and technology changes.
3. Forecast future supply – consider retirements, promotions, internal transfers and expected turnover (voluntary + involuntary).
4. Identify gaps – calculate “required staff – expected supply = gap”.
5. Develop action plans – recruitment, training, redeployment, outsourcing or redesign of jobs.

2.4 Example of a workforce‑plan table

Department	Current staff	Projected demand (12 months)	Expected supply	Gap
Production	120	130	125 (incl. 5 expected leavers)	+5
Sales	40	38	38 (no leavers)	0
R&D	30	35	32 (3 leavers, 5 new graduates)	+3

3. Recruitment & Selection (Syllabus 2.1.3)

3.1 Job analysis – description & person specification

• Job description: title, purpose, duties, reporting lines, working conditions.
• Person specification: essential & desirable qualifications, experience, skills, behaviours and physical requirements.

3.2 Sources of candidates

• Internal recruitment: promotions, transfers, employee referrals, internal job boards.
• External recruitment: adverts (online, newspaper, social media), recruitment agencies, university fairs, head‑hunters.

3.3 Selection methods (full syllabus list)

Method	Typical use	Strengths / Limitations
Application form / CV	Initial screening	Quick, easy; may be embellished.
Written test	Assess technical knowledge or numeracy	Objective; limited to knowledge.
Interview (structured)	Evaluate knowledge, experience, attitudes	Standardised; interviewer bias possible.
Interview (behavioural/ competency‑based)	Predict future performance	Focus on past actions; requires training.
Assessment centre	Group exercises, role‑plays, case studies	Comprehensive; costly and time‑consuming.
Psychometric testing	Personality, aptitude, situational judgement	Objective; must be validated.
Reference checks	Confirm past performance and reliability	Useful for verification; depends on honesty of referee.

3.4 Employment contracts (key clauses)

• Job title and duties.
• Place of work and hours of work.
• Salary, overtime, bonuses.
• Probation period.
• Notice period (termination).
• Confidentiality, non‑compete and disciplinary procedures.

3.5 Using turnover data in recruitment

• Forecast the number of vacancies for the next 12 months.
• Identify roles with the highest attrition – may need better person‑specs or realistic job previews.
• Measure the effectiveness of sourcing channels (e.g., % of hires from internal promotions vs. external adverts).

4. Redundancy & Dismissal (Syllabus 2.1.4)

4.1 Definitions

• Redundancy: Involuntary termination because the job no longer exists or the employer needs fewer employees.
• Dismissal (sacking): Termination for performance or conduct reasons.

4.2 Legal and procedural considerations

• Consultation with employees or trade unions (minimum 30 days for large redundancies).
• Selection criteria must be objective (e.g., attendance, skills, length of service).
• Statutory redundancy pay (based on age, length of service and weekly pay) – see local legislation.
• Right to appeal against dismissal decisions.
• Written notice and final pay (including accrued holiday).

4.3 Recording separations

Separate voluntary exits (resignations, retirements) from involuntary exits (redundancy, dismissal) to enable meaningful turnover analysis.

4.4 Cost implications

• Direct costs – severance, legal fees, out‑placement services.
• Indirect costs – loss of expertise, reduced morale, impact on employer brand.

5. Morale, Welfare and Employee Relations (Syllabus 2.1.5 & 2.1.7)

• Turnover is a leading indicator of morale – sudden spikes often signal dissatisfaction with pay, conditions or management style.
• Welfare initiatives (health programmes, employee assistance, flexible working) can improve job satisfaction and lower unwanted turnover.
• Effective communication, grievance handling and constructive union relations help maintain a stable workforce.

6. Training & Development (Syllabus 2.1.6)

• Analyse turnover by department to spot skill‑gap areas – frequent exits may indicate inadequate training or poor career prospects.
• Training options: on‑the‑job coaching, mentorship, e‑learning, external courses, apprenticeships.
• Link training to retention by offering clear progression routes and recognising achievement.

7. Motivation – Needs, Theories and Rewards (Syllabus 2.2)

7.1 Maslow’s Hierarchy of Needs

• Physiological & safety needs → salary, job security.
• Social & esteem needs → teamwork, recognition.
• Self‑actualisation → career development, challenging work.

7.2 Herzberg’s Two‑Factor Theory

• Hygiene factors (pay, policies, working conditions) – absence causes dissatisfaction and can drive turnover.
• Motivators (achievement, responsibility, advancement) – presence increases satisfaction and retention.

7.3 Financial motivators

• Base salary, performance bonuses, profit‑sharing, commission, overtime rates.

7.4 Non‑financial motivators

• Career progression, training, recognition programmes, autonomy, work‑life balance, job enrichment.

8. Performance Management & Reward (Syllabus 2.3)

8.1 Performance appraisal

• Purpose: align individual objectives with organisational goals, identify development needs, support reward decisions.
• Methods: management‑by‑objectives (MBO), 360° feedback, rating scales, behavioural checklists.
• Link to turnover: poor appraisal outcomes can signal disengagement; high‑performers who feel undervalued may leave.

8.2 Reward systems

• Direct monetary rewards: salary, bonuses, commissions, overtime.
• Indirect monetary rewards: pension schemes, health insurance, company car.
• Non‑monetary rewards: flexible hours, remote work, recognition awards, training opportunities.

8.3 Pay‑performance relationship

• Equity theory – employees compare their input‑output ratio with peers; perceived inequity can increase turnover.
• Market‑based pay benchmarking helps keep turnover competitive.

9. Measuring Labour Turnover

9.1 Definition

Labour turnover (employee turnover) measures the rate at which employees leave an organisation and are replaced, expressed as a percentage of the average workforce over a specified period (normally 12 months).

9.2 Why measure it?

• Diagnoses problems in recruitment, training, morale or compensation.
• Estimates direct costs (recruitment, induction) and indirect costs (lost productivity, loss of expertise).
• Indicates organisational stability; useful for benchmarking against industry averages.
• Feeds directly into workforce‑planning forecasts.

9.3 Core formula (required by the syllabus)

Labour Turnover Rate (%) = (Number of separations during the period ÷ Average number of employees during the period) × 100

“Separations” include resignations, retirements, redundancies, dismissals and any other exits.

9.4 Calculating the average workforce

• Simple method: (Employees at start + Employees at end) ÷ 2
• More accurate method: Sum of head‑counts at the end of each month ÷ 12 (or quarterly for seasonal firms).

9.5 Step‑by‑step procedure

1. Select the analysis period (usually the previous 12 months).
2. Count all separations in that period and classify them as voluntary or involuntary.
3. Calculate the average workforce using the chosen method.
4. Insert the figures into the formula and multiply by 100.
5. Interpret the percentage in relation to industry norms and internal targets.

9.6 Worked example

Item	Value
Employees on 1 Jan 2024	250
Employees on 31 Dec 2024	260
Total separations during 2024	30
Average workforce = (250 + 260) ÷ 2	255
Labour turnover rate = (30 ÷ 255) × 100	≈ 11.8 %

9.7 Interpreting the result

• Low turnover (≤ 5 %): May indicate high satisfaction but could also suggest limited career progression.
• Moderate turnover (5 %–15 %): Typical for many sectors; monitor trends and reasons.
• High turnover (> 15 %): Signals potential problems – poor management, low pay, inadequate training, weak morale.

9.8 Limitations of the turnover rate

• Does not differentiate between voluntary and involuntary exits unless recorded separately.
• Ignores the quality of replacements (skill level, experience).
• Average workforce can mask seasonal peaks or troughs.
• Provides no direct financial figure – a separate “cost‑per‑turnover” analysis is needed for budgeting.

9.9 Extending the analysis – cost of turnover (optional)

Typical cost components:

• Recruitment advertising and agency fees.
• Time spent on interviewing and selection (HR + line manager).
• Induction and training of the new employee.
• Lost productivity while the post is vacant.
• Potential loss of customer relationships or specialist knowledge.

Example: If the average cost per hire is £3 000 and 30 people left, total turnover cost ≈ £90 000.

10. Strategies to Reduce Unwanted Turnover

1. Improve recruitment fit: competency‑based selection, realistic job previews and clear person specifications.
2. Offer competitive remuneration: regular market salary surveys, performance‑related pay and benefits package reviews.
3. Provide clear career pathways: succession planning, regular promotion reviews and transparent job ladders.
4. Boost employee engagement: annual engagement surveys, regular one‑to‑one feedback, recognition programmes.
5. Invest in training & development: on‑the‑job coaching, mentorship, funded external courses and tuition reimbursement.
6. Promote work‑life balance: flexible hours, remote‑working options, wellbeing initiatives (e.g., gym membership, mental‑health support).
7. Maintain good employee‑management relations: transparent communication, early grievance handling, constructive union dialogue.

11. Linking Turnover Analysis to Other HRM Areas

HRM Area	Use of turnover data
Recruitment & Selection	Forecast vacancy numbers; evaluate sourcing channel effectiveness; adjust job‑person fit.
Training & Development	Identify departments with high attrition for targeted skill‑gap training; assess impact of training on retention.
Compensation & Benefits	Benchmark turnover against pay scales; justify salary adjustments or new benefit schemes.
Performance Management	Correlate turnover with appraisal results to spot disengaged high‑performers or under‑performers.
Industrial Relations	Use spikes in turnover as early warning of potential union disputes or collective bargaining issues.
Workforce Planning	Incorporate expected voluntary and involuntary exits into supply forecasts.

12. Summary

Measuring labour turnover provides a quantitative snapshot of workforce stability. Understanding how to calculate the rate, interpret its meaning, recognise its limitations, and link the findings to recruitment, training, remuneration, performance management and industrial relations equips students to answer a wide range of Cambridge 9609 exam questions. Accurate turnover analysis supports effective workforce planning, reduces unnecessary costs and helps align people with the organisation’s strategic objectives.