Employee Turnover Affecting Your Operation?

By Tracey Erickson

Lots of conversations at World Dairy Expo focused around labor or the lack of a labor pool of employees. This was the case not only for dairy farms but also within the industry. In self-reflection, it does raise the question, “Is it me or my operation, is there simply a lack of employees, or is it both”? To examine these questions we first need to understand how to calculate turnover rates.

There are two types of turnover, voluntary and involuntary. Voluntary is when employees choose to leave a place of employment of their own free will. Involuntary turnover is when employees are either laid off or dismissed by a decision made by the employer (Reh, 2014). It is important to note that voluntary turnover is often the rate used to compare employers and is also a direct reflection of employee job satisfaction. Involuntary turnover on the other hand, especially lay-offs, is more a reflection of the overall long-term business management, especially where lay-offs are concerned. But don’t be fooled, employee job satisfaction can also impact a business long-term and its viability.

So how do I calculate voluntary, involuntary and total turnover rates? First select a period of time, then divide the number of employees who left by the total number of employees at the beginning of the period for each given measure.
Example Scenario

Dairy A had 45 employees at the beginning of the year, 7 voluntarily leave the operation, and 2 are dismissed throughout the entire year.

Voluntary Example:

7 left voluntarily ÷ 45 total employees at the beginning of the year = 15.5% voluntary turnover rate

Involuntary Example:

2 left involuntarily (dismissed or laid-off) ÷ 45 total employees at the beginning of the year = 4.4% involuntary turnover rate

Total turnover:

9 total employees left (7 voluntarily + 2 involuntarily) ÷ 45 total employees at at the beginning of the year = 20% turnover rate

Why is this important to measure? Employee turnover costs money and the higher the turnover rate the more money you are losing! We can estimate conservatively that hourly employees cost 100 to 150 percent of a position’s salary and salaried positions (which are often management positions) a conservative estimate is 200 to 250 percent (Moore, 2012). Let’s put that in perspective using the example above.

All are hourly employees earning around $12/hour, working 50 hours/week which calculates to an annual salary of approximately $31,200 for 52 weeks considering no overtime is paid. The estimated cost of turnover for one position is $31,200 at 100 percent to $46,800 at 150 percent. Now take that times the 9 employees that left either voluntarily or involuntarily and had to be replaced in the previous example. That equates to an estimated total turnover cost of $280,000 to $421,200 per year.

Total turnover costs accumulate in a variety of ways such as the following: (Moore, 2012)

• Costs associated with the person leaving (losses in productivity, extra management time spent covering for the open position, filling out necessary paperwork, lost employee expertise, unemployment insurance premiums, etc.)
• Hiring and recruiting costs: (advertising, interviewing, screening, background checks, etc.)
• Training costs: (materials and time training)
• Lost Productivity: (It will take a new employee time to learn the position and get up to speed, along with the extra time that is lost by management that could be spent in other areas of the business.)
• New Hire costs: (Extra time and paperwork that is necessary when documenting a new employee and bringing them onboard.)

Bottom line is that turnover costs money. The first step is to decide if you have a serious problem or one you can live with by examining the turnover rates. Turnover, in any business with employees is inevitable. In any business the owner determining the major cause of high turnover rates is vital to the long-term viability of the operation.

Source:SDSU