What is Labour Turnover in Cost Accounting?

Labour turnover is a crucial metric in cost accounting that measures the rate at which employees leave a company and are replaced by new employees.

A high rate of labour turnover can have significant financial implications for a company, including increased costs related to recruitment, training, and lost productivity.

In this article, we will explore the concept of labour turnover in more detail, including its impact on a company’s finances, how it is calculated, and strategies for reducing it.

Calculating Labour Turnover

Labour turnover can be calculated using a simple formula: (number of employees leaving in a period / average number of employees in the same period) x 100. The result is expressed as a percentage. For example, if a company has an average of 100 employees and 10 employees leave during a given period, the labour turnover rate would be 10% ((10/100) x 100).

Causes of Labour Turnover

Labour turnover can be caused by a variety of factors, including voluntary resignations, retirements, and terminations. It can also be affected by the business cycle. For example, turnover tends to increase during periods of economic growth as more people are hired than usual and more people leave to take advantage of better job opportunities.

The Impact of Labour Turnover on a Company’s Finances

Labour turnover can have a significant impact on a company’s financial performance. High levels of labour turnover can result in increased costs related to recruitment and training, as well as lost productivity as new employees are brought up to speed. This can lead to decreased profits and reduced competitiveness in the market.

In addition to the direct costs associated with recruitment and training, high labour turnover can also result in indirect costs such as reduced productivity, decreased morale, and increased absenteeism. These costs can be difficult to quantify but can have a significant impact on a company’s bottom line over time.