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Understanding Employee Turnover Costs
Employee turnover can significantly impact a company's profitability. To calculate the profit lost due to turnover, it is essential to account for both direct and indirect costs associated with employee transitions.
Types of Costs Incurred
- **Recruitment and Selection Costs**: These include expenses related to advertising the position, interviewing candidates, and hiring.
- **Training Costs**: These are incurred when new employees are trained to perform their jobs effectively.
Productive vs. Unproductive Hours
- **Total Hours Spent**: The total hours worked by employees are 445,000.
- **Unproductive Hours**: Out of these, 30,000 hours are spent training new recruits, and 15,000 hours are identified as unproductive training hours.
- **Turnover-Related Losses**: Additionally, 100,000 hours are lost due to employee turnover.
Calculating Contribution
To determine the contribution lost due to turnover, the company calculates:
- **Total Productive Hours**:
- Total Hours = 445,000
- Less Unproductive Hours (15,000) = 430,000 productive hours.
- **Sales and Contribution**:
- Total sales amount to 8,303,300.
- Sales-to-Productive Hours Ratio = 20%.
To calculate the contribution lost, the formula used involves dividing total sales by the productive hours and then adjusting for the unproductive hours:
- **Contribution Calculation**:
- Contribution = (Total Sales / Productive Hours) * Unproductive Hours.
Conclusion
The methodology for calculating the contribution takes into account both productive and unproductive hours. While unproductive hours may seem counterintuitive, they are essential for understanding the overall impact of employee turnover on company profitability.
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