Originally written by Tracey Erickson, former SDSU Extension Dairy Field Specialist.
Lots of conversations in agriculture lately focuses around labor or the lack of a labor pool of employees. This is the case not only for dairy farms, but also within the entire agriculture 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 turnover 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 terminated as result of a decision of the employer. 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.
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.
For Example: Dairy A had 45 employees at the beginning of the year, 7 voluntarily leave the operation that year, 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 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 $15/hour, working 50 hours/week, which calculates to an annual salary of approximately $39,000 for 52 weeks considering no overtime is paid. The estimated cost of turnover for one position is $39,000 at 100 percent to $58,500 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 $351,100 to $526,500 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.)
The Bottom Line
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 is by examining the turnover rates. Turnover, in any business with employees is inevitable. However, if you find your turnover is excessively high you might look to conducting exit interviews with employees that quit. Keep in mind these exit interviews, should be conducted by a third party if you are going to get to the root of the reason that an employee is leaving. Reason being, the most common cause that people leave is their boss and to get that “honest” answer you need to have that third party decipher “why” employees are leaving.
In any business determining the major cause of high turnover rates, followed by an action plan to minimize turnover rates is vital to the long-term viability of the operation.
- Moore, S. (November 29, 2012). Employee turnover on dairy farms and what it’s costing producers. Michigan State University Extension.
- Reh, J. (2014). Employee Turnover.