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Analysis - August 31, 2007

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Chronology

August 2007

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Print Human resources,

Seasons change… and so do employees

With the deplorably high employee turnover rate in the tourism industry, it is time to reflect on current practices. What is the turnover rate of your staff? What are the causes? How much does this cost your organization? Do you have the means to offset these costs? Do you have any solutions to the problem? If you know the answers to all these questions, simply hand this article to someone else; if not, take a look at how you scored. You may realize that, in the end, you cannot afford the luxury of high staff turnover!

A very simple formula

High employee turnover = direct costs + indirect costs + decreased service quality… and the entire amount is subtracted directly from the company’s profits.

Facts and figures

According to the Canadian Tourism Human Resource Council (CTHRC), employee turnover is an ongoing problem in the tourism sector. During the last two census periods, the average labour turnover rate in Canada (all sectors combined) rose from 20.4 to 22.5%, while it grew from 31.9 to 38.2% in the tourism sector. In Quebec, the turnover rate is approximately 30% (for all job categories combined), or approximately 14% for managers, 17% for supervisors and 31% for employees. Obviously, the turnover rate varies depending on the sector of activity: data on the restaurant business can therefore differ significantly from data on the hotel industry or transportation sector. When it comes to the costs associated with staff turnover, the numbers can also differ, due to a variety of contributing factors: overall employment rate, sector of activity, company type and size, job complexity, and so on.

Determining the employee turnover rate

There is a simple formula for calculating the employee turnover rate:
(number of departing employees) / (total number of employees) X 100.
However, when there is a lot of movement, it is preferable to use the following mathematical formula:

ML_2007-08_roulemt_employes_img1

To use this formula, one must first select a reference period. For example:
A company has 52 employees at the beginning of the reference period. Nine employees permanently leave the company of their own accord and another three are fired or laid off. At the end of the period, the company has 48 employees. The turnover rate is calculated as follows:
Number of departures: 12 employees
Number of employees at the beginning: 52
Number of employees at the end: 48

ML_2007-08_roulemt_employes_img2

The turnover rate for the reference period is therefore 24%.

If the situation involves a large number of employees, more specific information may be obtained by using the formula to calculate the figures for each job category, department, age group, level of seniority, etc. Although a low turnover rate is initially a good thing, it is a bad sign if the top employees leave!

Seasonal fluctuation is not the only culprit!

If a business has a high turnover rate, often the finger is pointed at seasonal fluctuation. Employers explain it by saying they have to hire temporary staff, and that the economic and demographic situation encourages people to change jobs. As for employees, they are more likely to blame low salaries and a lack of career opportunities and social benefits. In fact, sometimes management practices are partially responsible for a company’s increased turnover rate.

In an economic climate where the labour shortage is already starting to be felt and where many sectors are going to have work hard to attract employees, it is in everyone’s interest to lower the turnover rate and retain qualified human resources.

A vicious circle of escalating costs

It is very important to know how to assess the direct and indirect costs associated with staff turnover as well as the psychological consequences. Companies must measure the direct costs associated with:

  • conducting an exit interview, closing the employee’s file and paying any severance pay, if applicable
  • recruiting a new employee (writing a job description and posting the position, reading résumés, holding selection interviews, etc.) – costs vary depending on the type of job and the availability of suitable recruits
  • training and assimilating a new employee

It is easy to forget the indirect costs, yet these make up the largest share of the overall costs. According to a Cornell University study, lost productivity, though difficult to assess and quantify, accounts for over half of the total costs associated with staff turnover:

  • lowered productivity from the employee before his or her departure
  • low productivity from the new employee during the training period
  • lowered productivity due to the time spent on the new arrival by the supervisor and colleagues (coaching, feedback, reorganizing tasks to improve work quality, etc.), in addition to the time that is not spent on existing personnel, which can adversely affect productivity and job stability

Another element that can be included is lost expertise when an experienced employee leaves and it proves difficult to recapture the same performance level.

The following indirect costs can also be added to the mix:

  • payment of overtime hours and the need for temporary staff
  • the departure’s effect on the consistency and quality of the services offered
  • high employee turnover can harm the company’s reputation and influence the perceptions of potential employees, investors and customers
  • in some cases, departures may even involve expertise being transferred to competing companies

The departure of a work colleague can cause harmful psychological effects, such as:

  • a negative impact on the morale of remaining employees
  • decreased level of motivation in the workplace
  • increased absenteeism
  • additional departures

In spite of the costs associated with the departure of an employee, there are some positive outcomes. For example, it is cause for celebration when an employee leaves if he/she failed to attain the desired performance level, had a negative attitude and hurt the team’s motivation or simply did not fit in with the company’s philosophy.

This one note of optimism notwithstanding, are you finally convinced that you must take action to reduce staff turnover? If you need any more convincing, try this online tool that calculates employee turnover costs (it includes a concrete example): http://www.uwex.edu/ces/cced/economies/turn.cfm
The total could surprise you!

We hate to leave you hanging, but you will have to wait for an upcoming article from the Tourism Intelligence Network of the ESG-UQAM Chair in Tourism (University of Quebec at Montréal) for some suggested solutions!

Sources:
– Quebec Tourism Human Resource Council (CQRHT). “Avez-vous un problème de taux de roulement?” 2005 series (tips for managers), Chronique no 1, [www.cqrht.qc.ca/CQRHTWeb/fr/public/gestionnaires/
contenu/documents/articles2005_1.pdf
].
– Quebec Tourism Human Resource Council (CQRHT) and Emploi Québec. “Diagnostic d’ensemble des ressources humaines en tourisme (Horizon 2004-2009),” October 2004.
– Dubois, Didier. “Cessez d’attirer… fidélisez!” workshop/talk, 6th annual HR day for the tourism industry La main-d’oeuvre: de la gestion à la séduction, Quebec Tourism Human Resource Council (CQRHT), September 28, 2006, [www.journeerh.com/04_c_documents.html].
– Gravish, Joseph M. “Measure Twice. Fix Once – Permanently,” Hotel News Resource, February 19, 2007.
– Techno Compétences. “Comment calculer et interpréter le taux de roulement du personnel,” Comité sectoriel de main-d’oeuvre en technologies de l’information et des communications, [www.technocompetences.qc.ca/formation/calcul
_taux_roulement/html/pc/ie4/studentspace.htm
].
– Tracey, Bruce J. and Timothy R. Hinkin. “The Costs of Employee Turnover: When the Devil Is in the Details,” The Center for Hospitality Research, Cornell University, December 2006.
– Pinkovitz, William H., Joseph Moskal and Gary Green. “How Much Does Your Employee Turnover Cost?” Center for Community and Economic Development, University of Wisconsin, [www.uwex.edu/ces/cced/economies/turn.cfm].

 

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