Labour Turnover & Retention
Business Management: IB Diploma, topic 2.1.3
Labour Turnover Rates
Human resources managers need to analyse data to understand their employees’ performance. Human resources managers use calculations to analyse data about labour turnover, retention, productivity, and costs.
Labour turnover
- Labour turnover refers to the percentage of staff that leaves the business per year. Retention refers to the percentage of staff that stays at the business per year.
Calculating labour turnover
- Labour turnover is expressed as a percentage. It is calculated using the following formula:
- Labour turnover = (Total number of staff leaving ÷ Average number of total staff) × 100
- To calculate the average number of total staff, use the following formula:
- Average number of total staff = (Number of staff at the beginning of the year + Number of staff at the end of the year) ÷ 2
Example of calculating labour turnover
- For example, in January 2017 a business employs 100 staff and in December 2017 the business employs 90 staff. During the year, 10 of these staff left.
- Total number of staff leaving the business is 10.
- The average number of employees throughout this time is calculated by adding the number of staff at the beginning of the year with the number of staff at the end of the year and dividing by two. 100 employees at the beginning of the year plus 90 employees at the end of the year equals 190 employees, divided by 2, equals an average of 95 employees.
- Therefore, 10 staff leaving divided by 95 average staff multiplied by 100 gives 10.53% labour turnover. 10.53% of the business’ staff left during the period of one year.
Labour turnover percentage
- The higher the labour turnover percentage, the higher the number of staff leaving during the period calculated. This could be because:
- If competitors offer higher wages and salaries, employees may leave.
- If employees are demotivated, they may leave.
Advantages and disadvantages of staff turnover rates
- Low staff turnover means that experienced employees remain within the business.
- Low staff turnover means that training and recruitment costs are low as there are fewer vacancies to be filled.
- Low staff turnover means that there are fewer opportunities for the business to recruit new talent, skills, and ideas.
Retention Rates
When labour turnover is high, the number of employees leaving the business is high, which means that retention, the number of employees choosing to stay at the business, is low.
Calculating retention rates
- Retention rates are expressed as a percentage. They are calculated using the following formula:
- Retention rates = (Total number of staff who worked at a business for the whole period of time ÷ Total number of staff at the beginning of the period of time) × 100
Example of calculating retention rates
- For example, in December 2016, a business employs 90 staff. During the year, 15 of these staff left.
- Total number of staff leaving the business is 15.
- Total staff at the end of the year = 75.
- Total staff at the start of the year = 90.
- Staff at the end of the year ÷ staff at start of the year = 0.833.
- 0.833 X 100 = 83.33%.
- A retention rate of 83.33% shows that the business retained 83.33% of its staff during the time period.
Causes of high retention rates
- High retention rates could be because the business pays a higher salary or wage than its competitors.
- High retention rates could be because employees are motivated, empowered and valued.
Test yourself on Labour Turnover & Retention
Which of the following is the formula for labour turnover?
A business has 300 staff. 15 of these staff left. What was the labour turnover?
At the start of the year, a business employed 45 staff. During the year, 5 people leave. What is the retention rate?
A business employs 540 members of staff. 30 left at the end of the year. What is the retention rate?