Issues in Internal and External Recruitment: High Rate of Employee Turnover - Essay Example

Issues in Internal and External Recruitment: High Rate of Employee Turnover Introduction 1 Internal and External Recruitment Internal Recruitment is concerned with hiring employees within the organization. In most organization, internet recruitment is conducted as it is more sensible to hire those employees of which one already has an idea about. Employers are usually aware of the performance of their employees and in this way, they allocate designations to their current employee of which they are aware of. Internal recruitment increases productivity because the known employees are hired which boosts their morale and motivation. External Recruitments is referred to as hiring employees from outside the organization. In external recruitment, employees are hired after conducting advertisement. External recruitment is also useful for organization because in this case, there is a large pool of candidates to be selected from. The major sources of external recruitment include employment agencies, educational institutes, and employment at factory level, advertisement, labor contractors, recommendations and employment exchanges. 1.2 Employee Turnover in regards to Internal and External Recruitment Internal and external recruitment, both have their own advantages and disadvantages. It depends upon the companies and their situations as what suits them the best. No matter if the recruitment is done internally or externally, the problem which arises with both the forms of recruitment is of Employee Turnover. Irrespective of the fact that employees are hired internally or externally, turnover always exists which has become a crucial area of consideration for employers. In many cases, employees who are hired internally leave the organization due to various reasons but in some cases, externally hired employees persistently perform their jobs without having an intention to leave. Many researchers and experts argue that only internal recruitment can reduce cost which is related to hiring and recruiting employees from external source but what if employee turnover rate is high? The cost which would be saved from externally recruiting employees will be spent on replacing them after they leave. Therefore, this paper discusses this most important issue of Employee Turnover which arises in both the forms of recruitment; External Recruitment as well as Internal Recruitment. 1.3 Employee Turnover The issue of employee turnover has received substantial attention of human resource experts and professionals, industrial psychologists and senior management. It is considered as one of the most costly inflexible challenges of human resource management which is widely confronted by the organizations. (SIGMA Assessment Systems Inc. , n.d.) Before coming to the term Employee Turnover, the meaning of terminology Turnover must be expressed. Turnover is defined as annual percentage of the entire workforce. Coming to Employee Turnover, it is defined as the percentage of workforce that voluntarily leaves the organization and must be replaced for instance 20% of the turnover means that 20% of the total workforce has now left their jobs. It should be kept in mind that turnover must not be confused with layoffs. Layoff is a different situation in which employer terminates the employee n response to critical business conditions including merger, acquisition with other company or reduced level of sales. (Reference For Business, n.d.) The severity of employee turnover is highly reliant on upon the nature of business and the economic health of that district where firms are located for instance successful manufacturers and high-tech innovative companies experience low turnover as compared to fast food restaurants where managers are usually worried about their turnover rate which lies between to 50 to 70 percent. Similar case is with coal mining companies where there is low rate of turnover due to fewer options of other jobs. (Reference For Business, n.d.) 1.4 Formula for Calculating Employee Turnover In order to determine the monthly rate of employee turnover, the following formula has been developed. In this formula, average numbers of employees working in an organization are divided by number of employee separation which is then multiplied by 100 in order to express it in terms of percentage. The formula has been mentioned below: Monthly Rate of Employee Turnover=  x 100 For instance, let’s say that a company loses 10 employees out of 300 during a month. Then, the formula will be: Monthly Rate of Employee Turnover =  x 100 Monthly Rate of Employee Turnover = 3% Source: (Compensation Today, 2010) 1.5 Importance of Employee Turnover Employee turnover has always been a serious concern of companies because replacing employees can be very costly for firms. When a company replaces an employee, it incurs indirect as well as direct expense. All of the steps that are required for the procedure of replacing employee cost time and money to the firm. In addition to that, there is a little loss of productivity when the former employee leaves and new employee takes up his place. Full training is also required for new employees. For some companies, it becomes difficult to replace employees because it gets hard to retain the customers or clients with whom former employees have worked. (What is Employee Turnover?, n.d.) 2 Problem Identification High rate of employee turnover can be a serious obstacle to quality, profitability and productivity for firms of all sizes. For small businesses, high rate of employee turnover can mean that it is a big challenge to perform day to day operations by having enough staff. The issue of how well the work is being done when staff is available is beyond this challenge. (Reference For Business, n.d.) Even for large companies, employee turnover is nothing less than a huge concern. Each year large firms spend millions of dollars on the costs related to employee turnover. For companies which are service based, employee turnover can bring serious challenges for instance high turnover in consultancy based firms like account management and management consulting can cause customer dissatisfaction and loss of valuable customers. Customers also feel dint in service quality due to changes in representatives each time they visit. (Reference For Business, n.d.) 2.1 Effects of Employee Turnover Employee Turnover is a point of serious concern of large and small firms because of the adverse effects which it can have due to replacing employees. Some of the most prominent effects of employee turnover are mentioned in subsequent paragraphs in a detailed manner. (Moore, n.d) 2.1.1 Hiring Process An article published in Entrepreneur (2001) highlighted the effects of employee turnover in hotel and found out that high prices of interviewing, recruiting and hiring new employees are some of the major effects. (Moore, n.d) 2.1.2 Loss of Productivity There is a substantial loss in productivity of a firm because new employees require considerable time for training and learning especially in those jobs which are of complex nature. 2.1.3 Lack of Staff If turnover rate gets very high then it results in lack of required number of staff members which is necessary for performing day to day operations. This will put burden on the limited number of staff members. Consequently, they will get frustrated by doing over-work and this problem will ultimately cause customer dissatisfaction. (Moore, n.d) 2.1.4 Customer Dissatisfaction High turnover in service based jobs such as customer service and account management can cause huge customer dissatisfaction. New representatives normally lack knowledge and expertise and customers get confused in building relationship with one specific representative. (Moore, n.d) 2.1.5 Actual Cost According to the estimations of U.S Department of Labor, it takes about 33% of the salary of new employee to replace the employee who has left. Many companies, no matter how large and small spend millions of dollars on turnover and it all goes into vain if the new employees are in-competitive and inflexible. (Moore, n.d) Despite of the above mentioned negative effects, in some cases employee turnover has proven to be useful. Some companies take employee turnover as an opportunity of hiring fresh and bright employees in order to weed out the underperforming old employees. When the learning curve gets small, consequence of having workers who are inexperienced gets minimized. In such cases, high turnover is not a serious problem. 3 Costs associated with Employee Turnover Evaluation of the costs which are associated with employee turnover produces remarkably high estimates. It is evident that cost of losing key employee is much higher and has long been recognized. However, it must be kept in mind that the overall cost of employee turnover can have serious effect on the profitability of the organization and thus, its survival as well. There are various costs which are incurred as a result of turnover in employees. These costs are related to various sources. Some of them are listed below. Administrative and hiring cost Loss of productivity resulting from the inexperience and unawareness of the newly hired employee Loss of productivity associated with the tenure of replacement of employees Loss of productivity of time when the managers have to spend time away to assist the newly employed workers Costs related to training, involving supervision and off-job time Increased cost of unemployment insurance Costs related to public relation Cost of recruitment including advertising, administrative expense, screening and interviewing, psychological tests, security checks and processing of references According to a research conducted in health care industry regarding employee turnover, cost of replacing 288 employees each year (having employee turnover rate of 2%) was $2,888,295.52. In addition to that, a study of Business Week (1998) estimated that replacement cost for all of the jobs cost about $30,000. These estimations provide an overview that considerable amount of costs is incurred on just one segment of Human Resource, which is Employee Turnover. 4 Topical Area After reviewing the potential results which might result from employee turnover, it can be noticed that employee turnover is an important area to consider regardless of the fact that recruitment is done internally or externally. Home, (n.d) has conducted a research about how dissatisfaction can cause employee turnover. Dissatisfaction can be caused by various factors. These factors can be present irrespective of the fact that recruitment is done internally or externally. Therefore, it is vital to control the rate of employee turnover. (Hom, n.d.) Currivan, (1999) conducted a study to determine what role does organizational commitment plays in employee turnover. After reviewing this research, it became evident that organizational commitment is necessary for reducing the rate of employee turnover. If employees are recruited through external resources but they are committed to the organization, then there are higher chances that they will stay with their jobs. But if employees are recruited internally and yet do not possess organizational commitment, then they would have the intention to switch to some other organization. (Currivan, 1999) After reviewing the researches conducted under the area of Employee Turnover, it has become evident that this problem needs to get substantial attention of H.R professionals otherwise it would end up in huge loss of time and money for the employers. 5 Causes Several factors contribute to employee turnover. In subsequent sections, some of them are explored in more detail. 5.1 The Economy The most common reason which is given for leaving jobs is availability of higher paying jobs. Some wage workers even switch the job just for an additional 50 cent per hour. Definitely, in a better economy the alternatives jobs play a huge role on turnover of employees. (Robison, 2008) 5.4 Lack of Fit to Job Many employees leave their job because they find their job incompatible with their experience, skills, interest or qualification. At first, they get anxious to get hired but when they are hired and as soon as they discover that the job is not of their interest ir is too difficult or worrisome for them, they leave the job. 5.5 Job Security Job security is another major issue for employees. When employees discover that the existing job doesn’t have any prospects of growth in future or the employee can be fired anytime without being provided any justifications for that act, employees tend to look for those jobs which provide more security. 5.6 Work Environment Large numbers of employees leave their jobs just because they feel themselves incompatible with the work environment or management of the organization. 5.7 Promotional Opportunity Most often employees switch their jobs if the existing job doesn’t provide any growth in future or in other words doesn’t provide career advancement or promotional opportunity. 6. Solution Since any employer would not want to lose their most valuable employees, therefore the issue of employee retention is the most considerable area for employees. Employee retention is opposite of employee turnover. Various consulting firms provide number of solutions for this problem. Some of them are: Poor pay and higher work load becomes the major reason of employees switching to other jobs. It must be made sure that employees are given adequate salary and benefits so that they do not intent to switch. Apart from appreciation in monetary terms, the second big thing which motivates and retains employee is appraisal assessment. If the employees are consistently devalued and degraded on the basis of poor job, despite of the fact that they work hard, then there are huge chances that they switch their jobs. For this reason, it is important to design appropriate appraisal forms and to provide appreciation and encouragement for even little improvements. Employees must be asked to fill complaint boxes through which they can provide feedbacks and remarks about the work environment. There must be Ethics Compliant Cell where employees can reports about any bias, abusive or immoral behavior. Most of the employees spent more time at work than at home, therefore the work environment must be pleasant and encouraging enough to minimize the absenteeism and low morale. Experienced employees or those who have been working for years must be provided rewards and recognition for encouragement so that they become example for others to be faithful with their organization and they themselves also do not intent to switch in future. Employee turnover is that unnecessary cost which must be avoided as much as it can be. Therefore, enough consideration must be given to this fact that employees are retained. If rate of employee turnover will be lower, then the costs will be saved which can be incurred in hiring employees externally. Companies should keep a balance between internal and external recruitment. In those situations where internal recruitment suits best, employer should implement internal recruitment and vice versa. In this way, companies can save extra cost from employee turnover and can spend that cost on external recruitment. Works Cited Batt, R. (2001). Human Resource Practices as Predictors of Work-Family Outcomes and Employee Turnover. Cornell University ILR School, 1-45. Billikopf, G. (2003). Reference For Business. Retrieved from http://www.cnr.berkeley.edu/ucce50/ag-labor/7labor/16.pdf Currivan, D. B. (1999). THE CAUSAL ORDER OF JOB SATISFACTION AND ORGANIZATIONAL COMMITMENT IN MODELS OF EMPLOYEE TURNOVER. Human Resource Management Review, 9(4), 495 - 524. Heneman, H. a. (2009). Staffing Organizations . New York: McGraw-Hill Irwin . Hom, P. W. (n.d.). TOWARDS A GREATER UNDERSTANDING OF HOW DISSATISFACTION DRIVES EMPLOYEE TURNOVER. Academy of Management Journal, 1-30. Compensation Today. (2010). How to calculate Employee Turnover. Retrieved from Compensation Today: HYPERLINK "http://blogs.payscale.com/compensation/2010/02/how-to-calculate-employee-turnover.html" http://blogs.payscale.com/compensation/2010/02/how-to-calculate-employee-turnover.html Koys, D. J. (2001). THE EFFECTS OF EMPLOYEE SATISFACTION, ORGANIZATIONAL CITIZENSHIP BEHAVIOR, AND TURNOVER ON ORGANIZATIONAL EFFECTIVENESS: A UNIT-LEVEL, LONGITUDINAL STUDY. . Personnel Psychology, 54(1), 101-114. Moore, Shelley. (n.d.). The Effects of Employee Turnover. Retrieved from e-how money: HYPERLINK "http://www.ehow.com/facts_4866742_effects-employee-turnover.html" http://www.ehow.com/facts_4866742_effects-employee-turnover.html Reference For Business. (n.d.). EMPLOYEE TURNOVER. Retrieved from Reference For Business: http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Employee-Turnover.html Robison, J. (2008, May 8). Turning Around Employee Turnover. 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