Every time an employee quits and a new one joins, the company quietly bleeds money — job ads, interviews, training, and weeks of low productivity from the fresh hire. Labour Turnover measures how frequently this churn happens, and costing it correctly is a core skill in labour cost control.
Labour Turnover Rate is expressed as a percentage of the average workforce. There are three methods to calculate it, and the exam regularly asks you to apply all three on the same data set:
1. Separation Method (BIM Method): Rate = (Separations ÷ Average Workers) × 100. Separations means everyone who left — resigned, retired, dismissed, or retrenched. This is the most widely used method.
2. Replacement Method (NLT Method): Rate = (Replacements ÷ Average Workers) × 100. Counts only those vacancies that were actually refilled. If a position was eliminated after the worker left, it is not counted.
3. Flux Method: Rate = (Separations + Total New Joinings ÷ Average Workers) × 100. Captures both exits and all fresh hires (replacements plus any additions to the workforce). It is the most comprehensive but inflates the rate.
Average Workers = (Opening workforce + Closing workforce) ÷ 2.
Now here is the part that directly hits the P&L — costs of labour turnover fall into two buckets:
Preventive Costs are spent before workers leave, to retain them: welfare activities, subsidised canteens, sports facilities, medical schemes, fair wages, and grievance redressal. These are proactive investments.
Replacement Costs arise because a worker has already left: advertising, recruitment and selection fees, onboarding paperwork, training expenses, loss of output during the learning curve, extra scrap and wastage from trainees, and overtime paid to existing staff to cover the gap.
High turnover means replacement costs spiral — so even expensive welfare programmes (preventive costs) are often justified on a pure cost-benefit basis. This is a favourite examiner comment to ask for.
This is asked frequently as a 4–6 mark question. Typical format: give you opening/closing strength, separations, replacements, and new joinings, then ask all three rates plus a brief comment on which method is most appropriate (answer: Separation/BIM is most widely accepted for inter-firm comparisons).