the implications of high and low labour turnover for a business

2.1 HRM – Workforce Planning

Purpose and Roles of HRM

Human Resource Management (HRM) exists to ensure that an organisation has the right people, with the right skills, in the right jobs, at the right time. It links directly to business objectives by:

• Supporting growth – recruiting staff for new markets or product lines.
• Controlling costs – matching staffing levels to demand and avoiding over‑staffing.
• Improving quality and productivity – developing skills and motivation.
• Enhancing reputation – fair treatment, health & safety, corporate social responsibility.
• Ensuring legal compliance – equality, data protection, health & safety legislation.

Workforce Planning

Workforce planning is the systematic process of analysing current and future staffing needs and ensuring they are met.

Why it matters

• Aligns staffing with strategic goals (e.g., expansion, new product launch).
• Reduces the risk of skill shortages or surpluses.
• Provides a basis for recruitment, training, succession and redundancy decisions.
• Helps control labour costs.

Quantitative tools

• Staffing forecast – uses sales/production forecasts, productivity ratios and turnover rates to calculate the number of staff required.
• Skill inventory – a database of current employee skills, qualifications and experience.
• Succession planning – identifies key roles and potential internal candidates to fill them.

Worked example – staffing forecast

Company X expects sales of 12 000 units next year.
Current productivity = 20 units per employee per month.
Turnover forecast = 8 % (annual).

1. Required employees for production:
   12 000 ÷ (20 × 12) = 50 employees

2. Adjust for turnover (add 8 %):
   50 × 1.08 = 54 employees (rounded up)

Result: Company X should plan to have **54 employees** in the production department at the start of the year.

Measuring Labour Turnover

Definition: The rate at which employees leave an organisation and are replaced, expressed as a percentage of the average workforce over a given period.

Standard formula:

(Number of separations ÷ Average workforce) × 100

Worked example (same as in the original notes):

• Separations in the year: 45
• Workforce at start of year: 480
• Workforce at end of year: 520
• Average workforce = (480 + 520) ÷ 2 = 500
• Turnover rate = (45 ÷ 500) × 100 = 9 %

Turnover data are used to spot trends, benchmark against the industry and evaluate HR policies.

Implications of High Labour Turnover

• Recruitment & training costs – advertising, interviewing, onboarding and initial training expenses rise.
• Loss of organisational knowledge – experience, client relationships and tacit skills leave with departing staff.
• Reduced productivity – new hires need time to reach previous performance levels.
• Lower employee morale – remaining staff may feel over‑worked, insecure or undervalued.
• Reputational damage – high turnover can signal poor working conditions to potential recruits and customers.
• Increased absenteeism & stress – constant change can heighten pressure on teams.

Implications of Low Labour Turnover

• Retention of expertise – valuable skills and institutional knowledge are preserved.
• Stable productivity – experienced staff maintain high output.
• Risk of skill obsolescence – without fresh hires, the workforce may fall behind industry developments.
• Reduced influx of new ideas – innovation can stagnate.
• Higher wage/benefit pressures – long‑serving employees may expect pay rises, promotions or enhanced benefits.
• Limited career progression – few vacancies restrict promotion opportunities, possibly lowering motivation.

Comparative Summary

Aspect	High Labour Turnover	Low Labour Turnover
Recruitment & training costs	High – frequent hiring and onboarding	Low – fewer hires needed
Organisational knowledge	Loss of experience and skills	Retention of expertise
Productivity	Short‑term decline as new staff learn	Stable or high, but may stagnate
Employee morale	Often low – workload and uncertainty	Generally higher, but risk of complacency
Innovation	New ideas may enter with newcomers	Risk of idea fatigue without fresh perspectives
Wage/benefit pressures	Variable – many junior staff keep costs down	Higher – senior staff expect higher remuneration

Recruitment & Selection

Recruitment Process (six‑stage model)

1. Analyse the job and produce a job description (duties, reporting lines, location).
2. Develop a person specification (knowledge, skills, abilities, personal attributes).
3. Choose sourcing methods (internal promotion, external advertising, agencies, online portals, social media).
4. Invite applications and create a shortlist using objective criteria.
5. Carry out selection procedures (interviews, tests, assessment centres, reference checks).
6. Make a job offer, negotiate terms and complete pre‑employment checks (right‑to‑work, DBS, GDPR consent).

Legal & ethical considerations

• Equality legislation (e.g., Equality Act 2010 in the UK) – no discrimination on gender, race, disability, age, religion, sexual orientation, etc.
• Data protection (GDPR) – obtain consent to store applicant data, keep records secure and delete when no longer needed.
• Right‑to‑work checks – verify immigration status before employment.
• Fair advertising – job adverts must be accurate and not misleading.

Common sourcing methods

Method	Typical use
Internal promotion/transfer	Motivates staff, fills senior roles quickly.
Employee referrals	Leverages existing networks; often yields high‑quality candidates.
Online job portals & social media	Wide reach; fast application process.
Recruitment agencies	Specialist or senior roles; saves time.
University career fairs	Entry‑level or graduate positions.

Selection tools

• CV / résumé screening – quick filter for qualifications and experience.
• Structured interview – same questions for all candidates; improves reliability and fairness.
• Psychometric tests – assess aptitude, personality, or situational judgement.
• Assessment centre – group exercises, role‑plays, presentations; high predictive validity.
• Reference checks – verify past performance and reliability.

Advantages / Disadvantages of common methods

Method	Advantages	Disadvantages
Internal promotion	Motivates staff; low recruitment cost; knowledge of culture.	Limited fresh ideas; creates vacancy elsewhere.
Online advertising	Wide reach; quick application process.	High volume of unsuitable applications; can be impersonal.
Recruitment agency	Access to specialist talent; saves time.	Agency fees; less control over initial screening.
Assessment centre	Comprehensive view of competencies; high predictive validity.	Expensive; time‑consuming; may intimidate candidates.

Case‑study: Successful graduate recruitment campaign

Company: TechNova Ltd.
Objective: Hire 20 graduate software engineers for a new development hub.
Approach:

1. Partnered with three universities and attended career fairs.
2. Ran a targeted online advertising campaign on LinkedIn and university job boards.
3. Used a two‑stage selection: an online aptitude test followed by a half‑day assessment centre (coding challenge, group discussion, structured interview).
4. Ensured compliance with Equality Act by using blind CV screening (removing names and photos).

Result: 85 % of offers accepted; turnover in the first year was only 4 % compared with the industry average of 12 %.

Redundancy & Dismissal

Definitions

• Redundancy – the job is no longer required (e.g., due to technological change, restructuring, or a drop in demand).
• Dismissal – termination of employment for performance or conduct reasons.

Types of redundancy

• Voluntary – employees opt for severance packages, early retirement, or reduced hours.
• Involuntary – employer selects staff using objective criteria.

Objective selection criteria for redundancy (example)

1. Attendance record (percentage of scheduled days attended).
2. Performance appraisal score (average over the last 12 months).
3. Skill relevance to future business needs.
4. Length of service (used only as a tie‑breaker to meet legal fairness).

Dismissal procedure (flow‑chart description)

1. Identify performance or conduct issue.
2. Investigate (gather evidence, interview employee).
3. Hold a formal disciplinary meeting and give the employee the right to be accompanied.
4. Issue a written warning (if appropriate) and set a clear improvement plan.
5. Monitor progress; if no improvement, hold a second meeting.
6. Issue final warning or dismissal notice.
7. Provide right to appeal and, if the appeal fails, confirm termination.

Legal checklist (UK context – applicable to many jurisdictions)

• Provide written notice (or pay in lieu of notice) as per contract.
• Consult employees or their representatives where required (e.g., collective redundancies).
• Apply objective, non‑discriminatory selection criteria.
• Offer suitable alternative employment where possible.
• Calculate and pay statutory redundancy pay (if applicable).
• Maintain full records of the process for possible tribunal review.

Morale & Welfare

• Work‑life balance – flexible working hours, remote‑working options, reasonable overtime limits, and paid leave.
• Diversity & equality – recruitment, promotion and reward policies that avoid discrimination on gender, ethnicity, disability, age, sexual orientation or religion.
• Employee wellbeing – health & safety programmes, employee assistance schemes, stress‑management training, and access to fitness or mental‑health resources.
• Employee involvement – suggestion schemes, regular team meetings, representation on decision‑making bodies (e.g., works council or staff forum).

Managing Turnover Effectively

1. Conduct exit interviews to identify root causes of departures.
2. Offer competitive remuneration, benefits and clear career pathways.
3. Provide regular training, development and job‑enrichment opportunities.
4. Promote a positive organisational culture that values work‑life balance, inclusivity and recognition.
5. Use workforce‑planning tools (staffing forecasts, skill inventories, succession plans) to anticipate future needs and avoid reactive hiring.
6. Monitor turnover statistics, benchmark against industry averages and set targets for improvement.