Labour Turnover: Definition, Causes and Effects

In this article we will discuss about:- 1. Definition of Labour Turnover 2 . Causes of labour Turnover 3. Effects of Labour Turnover 4. Measurement of Labour Turnover 5. Labour Turnover Report.


  1. Definition of Labour Turnover
  2. Causes of labour Turnover
  3. Effects of Labour Turnover
  4. Measurement of Labour Turnover
  5. Labour Turnover Report

1. Definition of Labour Turnover:


Labour turnover refers to the rate at which employees leave employment. Labour turnover can be evaluated by relating the number of employees leaving their employment during a period of time to the total or average numbers employed in that period.

It may also be defined as engagements and losses in the working force as related to the total number of employees who were on the pay roll at the beginning of the period in question.


Let us assume that in a factory there were 2,000 employees on an average during the year 1990 and 100 persons left the company during this period. So, the labour turnover will be = 5%

Generally, it is measured by the following formula:

2. Causes of labour Turnover

Avoidable causes are:


(i) Lower wages;

(ii) Bad working conditions;

(iii) Unsympathetic attitude of the management;


(iv) Lack of opportunities for promotion;

(v) Lack of proper training;

(vi) Improper manpower planning;

(vii) Lack of proper incentives;


(viii) Bitter relationship between management and workers;

(ix) Lack of conveyance, accommodation, medical and educational facilities and recreational amenities etc.

Unavoidable causes:

Sometimes workers have to leave the organisation because of management requirements and administrative actions. They also leave their employment at their own will, that is, on personal reasons. In the latter case the management can do nothing but remains a helpless onlooker. So, unavoidable causes may be administrative or personal.

(1) Administrative causes:

(i) Termination of service due to indiscipline, insubordination, bad conduct etc.

(ii) Retrenchment or lay-off due to shortage of resources, low demand for recession.

(2) Personal causes:

(i) Change for better job;

(ii) Death;

(iii) Retirement due to old age;

(iv) Change for better working conditions, better environment;

(v) Change for secured job;

(vi) Marriage, especially of women workers;

(vii) Illness and accident rendering the worker permanently incapable of doing any work;

(viii) Domestic need and responsibility etc.

3. Effects of Labour Turnover

Labour turnover is harmful and costly. It results in increased cost of production due to the following reasons:

(i) With frequent changes in labour force, production planning cannot be properly executed resulting in substantial loss in production.

(ii) Since the new workers have no previous experience in production there is loss arising out of defective work, increased spoilage and wastage resulting in high cost of production.

(iii) Newly recruited workers are likely to mishandle tools and equipment which results in breakages.

(iv) The organisation has to incur extra cost for workers’ training.

(v) Labour turnover causes increased replacement cost.

(vi) Labour cost increases because of lower productivity of newly recruited workers as they do not possess the same expertise as the old workers who have left the organisation.

4. Measurement of Labour Turnover

Labour turnover rate can be measured by the application of any one of the following three methods:

(i) Separation method:

(ii) Replacement method:

(iii) Flux method:

Problem 1:

From the following data given by the Personnel Department calculate the labour turnover rate by the application of above three methods:

No. of workers on the Pay Roll:

At the beginning of the month Jan, 91 900

At the end of the month 1,100

During the month 10 workers left, 40 persons were discharged and 150 workers were recruited. Of these, 25 workers were recruited in the vacancies of those leaving, while the rest were engaged for an expansion scheme.


5. Labour Turnover Report

The personnel department will normally maintain detailed records of overtime and shift work. As overtime is paid for at higher rates than normal day work, most workers are only too anxious to take advantage of opportunities to undertake it, and the overtime develops among the workers.

To do away with this, all overtime working should be sanctioned by the proper authority. The departmental manager should prepare a list of overtime workers and pass it to the personnel department for approval. The personnel department has a duty to ensure that regulations laid down by the Factories Act have not been infringed.

A weekly report showing the number of normal and overtime hours worked in each department should be submitted to the management to maintain a check on overtime, similar records will be kept of the number of times each worker is late or absent and the total amount of time lost. Regular reports should be sent to the departmental managers so that disciplinary action can be taken in the cases of persistent offenders.

Treatment in Cost Accounts:

Preventive costs are allocated to different departments in proportion to the respective labour force.

Replacement costs are, however, charged directly to the department where such replacement takes place. But, when the replacement does take place because of general management policy but not due to the fault of the department concerned, in such a case, it is desirable to treat such costs as overhead and should be apportioned and allocated to all the departments on the basis of number of workers on the pay roll.

If, however, labour turnover costs cannot be classified or identified as preventive or replacement costs, they are usually treated as overhead expenses and should not be charged direct to any job order.

Payment of Wages:

The tasks of preparing pay rolls are complicated in the sense that specified amounts are withheld from the earnings of the employees to meet the government requirements for taxation and other statutory obligations.

There are three major problems:

(i) Allocating labour costs to functions, departments and products;

(ii) Accurate computation of earnings and prompt payment to workers;

(iii) Computation of deductions to be made from the employee’s earnings and remitting them to the proper authorities. For example, the amount of Income Tax deducted from employees’ earning should be deposited with the government in time, any failure to do so will attract penalty.

So, promptness of payment and pinpoint accuracy are the foremost criteria for judging the merits of any payroll system from the viewpoint of employees.

From the government’s point of view, collection of taxes and their timely deposit are very much essential. There are other withholdings like repayment of loans, deduction for fines etc., contribution to group life insurance plans and other saving plans. These withholdings are funnelled to the third parties through the employer.

Moreover, it is the responsibility of the wage department to prepare the pay rolls for the genuine workers. Utmost care should be taken that dummy workers have not been included in pay roll and wages have been paid to them.

Preparation of Pay Rolls:

The Pay Roil is a record of:

(i) The gross wages earned by each worker for a specific wage period,

(ii) The deductions in respect of provident fund contribution, professional tax, Income Tax, repayment of loans from P.F. or cooperative society made from gross wages and

(iii) The net wages payable to him.

The essential information to be shown in the Pay Rolls are as:

1. Name of the Department

2. Wage period

3. Worker’s clock number

4. Worker’s production during the wage period

5. Hours of attendance

6. Overtime hours, if any

7. Worker’s production during the wage period

8. Hourly rate of wage

9. Rate per unit of production

10. Basic wages

11. Dearness Allowance

12. Production Bonus

13. Overtime

14. Other Allowances

15. Deductions – P.F., P. Tax, I. Tax, Repayment of loans etc.

16. Net wage payable.

Source Documents for the Preparation of Pay Rolls:

The basic data for the pay roll is the records of attendance or records of production which are collected from clock cards and piece-work tickets. Where clock cards and piece-work tickets are not in use, the departmental attendance register or departmental record of production can be used as documents for the above information.

The first step in the preparation of pay roll is to fill up the pay roll with the basic data. After filling up the required information the pay roll is sent to the cost department to reconcile and check the data entered into pay roll with those of production records and with the hours booked against jobs.

After doing this, necessary deductions are made to arrive at net wages payable. Every calculation in the pay roll should be made by one clerk and checked by another. Once the pay roll is prepared, a wage ticket is made out for each worker and distributed to the worker concerned a day before the actual date of payment.

Disbursement of Wages:

The first step in the distribution of wages is to prepare pay packet containing exact cash that will be required for the payment of wages to each worker. In a big factory coin analysis of the exact cash to be required for payment of wages to each shift or department is prepared to ensure that no shortage or surplus in cash arises at the time of payment.

Exact amount of- cash to be paid to each worker is put in an envelope. All the envelopes are arranged in the same order as they appear in the attendance register of the department concerned. On the scheduled date, as fixed earlier, the payment is made in the department in presence of the departmental foreman.

Prevention of Fraud:

In order to minimise the risk of fraud, rigid control should be exercised over the calculation and payment of wages.

In doing so the following points should be taken into consideration:

1. The wage office is to see that the wages for dummy workers’ have not been included in the wage sheet or pay roll.

2. A number of persons should be associated with the preparation of wage sheet. One such person may be asked to insert the rate of wages payable on the payroll, and another should calculate the deductions to be made on various accounts and to ascertain the net wage payable to each worker.

3. The pay roll after its completion should be verified by a responsible person and, being satisfied with the entries and deductions made, he should put his signature on the pay roll. Each person responsible for the preparation of pay roll should put his initial on the pay roll.

4. Unpaid wage packets should be kept by the cashier and the reason for unclaimed pay packets should be established. If the pay packets remain undelivered for a few days, they should be opened and the contents should be deposited into a special bank account pending enquiry.

5. Time-cards should be compared at regular intervals with the pay roll by an official who is in no way connected with the wage office.

6. It is desirable that from time to time a senior officer should personally be present when the wages are being paid.

7. Wages should not be handed over to any person other than the worker concerned and that too on proper identification.

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