# Cost Due to Labour Turnover
## Why Compute This?
Labour turnover isn't just a workforce metric — it has a monetary cost. Both letting people go and bringing replacements on board generate costs that the organisation absorbs. Cost accounting splits these into two buckets.
## (A) Cost Due to Separation
Costs borne when an employee leaves:
1. Settlement costs — payment of Provident Fund, Gratuity, leave encashment, notice-period dues, etc.
2. Loss of profit due to the time gap between separation and the replacement actually becoming productive (the seat is empty or under-staffed).
## (B) Cost Due to Accession (New Hiring)
Costs borne when bringing in a new employee — whether a replacement or a new joinee:
1. Recruitment costs — advertising, agency fees.
2. Training costs — onboarding, skill development.
3. Interview and selection costs — assessment, panel time.
## Computing Loss of Profit from Idle Time
When seats remain unfilled or under-productive, the company loses the profit those hours would have generated. Two equivalent formulas:
If profit per hour is given:
$$\text{Loss} = \text{Hours lost} \times \text{Profit per hour}$$
If profit per unit and standard time per unit are given:
$$\text{Loss} = \frac{\text{Hours lost}}{\text{Standard time per unit}} \times \text{Profit per unit}$$
The second formula essentially converts hours lost into units lost, then multiplies by profit per unit.
## Important Note on Splitting Joiners
When the question provides both new joinees and replacements mixed together:
1. First, fill the seats vacated by separations → these are Replacements.
2. Second, all remaining hires are New Joinees.
This ordering matters because separation-related costs and accession-related costs may be tagged to different categories of hires.