Introduction

Modern management of human resources implies broader business competencies of professionals who in practice deal with this field, which would enable them to more easily build a partnership with the management of the organization and achieve the expected business result. More and more studies in the field of management openly indicate that the business function that deals with human resource management must become a strategic partner of the business (Ulrich, Schieman and Sartain 2020) if it wants to have a credible role in the organization. Today, professionals from the field of human resources (in the following text instead of human resources, the abbreviation HR will be used) are expected to have a broad understanding of business principles from various fields such as production, finance, marketing, sales, etc. in order to properly direct organizational activities related to employee management.

In accordance with these expectations, in the field of human resources management, an effort to calculate the financial and economic consequences of the influence and consequences of different behavior patterns of employees on the organization itself was neglected for a relatively long time. One of the most common phenomena analyzed concerns the understanding of employee turnover, a constant and long-standing problem of almost all organizations (Smith, 2018). Effective management of turnover is one of the most important activities that the human resources sector deals with in modern organizations. This phenomenon is a personnel and organizational problem, and has a negative impact on the business performance and financial indicators of organizations.

Literature review

Not every turnover is necessarily a negative phenomenon for the organization because it is also a natural way to replenish the workforce and exert a positive influence on the existing knowledge and established ways of working in the organization. Functional fluctuation occurs when the organization initiates the termination of the employment relationship with the employee or the employee, against his will, resigns from his position. The reason for leaving the organization is different, and most often it is a question of poor performance on the part of the employee, disciplinary problems, or dismissal occurs due to early retirement, restructuring or reorganization (Dwesini, 2019). On the other hand, voluntary or dysfunctional turnover occurs when an employee decides to leave the company of his own free will, which is why all terminations of employment contracts that are not formally initiated by employers are considered voluntary turnover (Dwesini, 2019). In this case, turnover has negative effects because, as a rule, the best employees go to other employers, while those who are worse remain in the organization (Asimah, 2018). Although there is a small amount of research on this topic, the findings of some authors (Sulek, Trembath et al. 2017) suggest that turnover has a negative impact on the quality of work and business achievement on the remaining employees within the organization.

Inevitable turnover is the result of business and life decisions and circumstances beyond the control of employees, while avoidable turnover occurs when management improves the implementation of effective human resource management practices (Dwesini, 2019). It is important that the employer at the systemic level deals with voluntary or dysfunctional turnover in order to find the right strategy for retaining its employees. In order to retain its employees, the organization must understand the needs of its employees, which would be the basis for developing and adopting an adequate strategy for employee retention.

Fluctuation is an organizational phenomenon that develops relatively slowly, because outgoing employees do not leave the organization all at once, so social trends take some time to manifest. Data on employee turnover are processed in relation to specific time periods that make the data more significant. The level of turnover is expressed in percentages, and refers to the number of employees who leave the organization during a certain period of time, that is, the percentage of those who left in relation to the total number of employees (Siebert and Zubanov, 2009). To assess the fluctuation rate in relation to the annual cycle, the fluctuation rates for certain months or quarters during the year are usually analyzed cumulatively (Newcomb, Camblin et al. 2019). An important fact related to turnover in organizations is whether the management of the organization has an accurate assessment and empirical evidence related to the costs of this phenomenon, in order to deal with a strategy to minimize turnover. Although due to the estimates coming from different organizational settings, it is difficult to generalize the findings, the authors (Larson et al. 2016) presented general cost guidelines that an organization should consider when calculating turnover costs. We must not lose sight of lost resources such as time spent searching for a new candidate and reduced productivity in that workplace while the position was unfilled (Beato, 2017). Employee departures lead to costs such as additional HR staff time required to meet the requirements of termination procedures, overtime costs, and other temporary employee costs required to perform ongoing duties. When an organization hires a replacement employee, it should calculate training costs, including materials, time to train the new employee to work independently, and additional trainer time. The organization must identify these costs, as well as all other relevant costs, carefully notify, monitor and analyze them in order to be able to calculate the real cost related to the specific context of the organization, because high costs arising from employee turnover negatively affect performance organizations, on sales, competitiveness and profitability (Osborne and Hammoud, 2017). It should also be added that high turnover of employees has a serious negative impact on the organization not only on a financial, but also on an emotional level due to a bad and demotivating working atmosphere in the collective (Reina, Rogers et al., 2018). The problems are further multiplied when the professional knowledge, skills and experiences gained from working in the organization disappear with the departure of the employee (Noh, Jang and Choi, 2019).

Although the phenomenon of employee turnover is, as it were, permanently present in business life (Smith, 2018), research on the topic of reasons and intentions to leave the organization by employees has long been one of the main reasons for anxiety among the management of modern organizations (Belete, 2018), especially taking taking into account the great global competition in the market that modern organizations face (Alias, Ismail et al., 2018). It should also be said that a high level of unemployment, in itself, makes it difficult for workers to find a suitable job, which, in addition to a dominantly negative impact on economic development, also has a positive impact on reducing employee turnover, mainly due to external factors related to the organization, such as general instability in labor market (Al-suraihi, Wahab et al., 2020).

The key findings of research on employee turnover show that employees have several reasons to leave their jobs, such as stress at work (Chiat and Pantik, 2019). Stress is a tension that mainly negatively affects a person's emotions, thoughts and physical condition, and as such has a significant impact on the intention to leave the organization, and also negatively affects the lack of job satisfaction, including salary satisfaction (Hakim and Sudarmiatin, 2018). One of the important conditions for staying and not leaving the organization is employee satisfaction with earnings, thanks to the organization's salary structure and system, as well as the perception of the fairness of salary and benefits policies (Hung et al., 2018).

In addition, it is necessary to pay attention to the phenomenon of burnout or burnout at work, which is a consequence of chronic stress to which an employee may be exposed at the workplace, and which, among other things, is characterized by emotional exhaustion, dissatisfaction and reduced, not only work, but also general life efficiency of employees (Yu and Lee, 2018). In addition, employees leave the organization more and more often due to the lack of opportunities for balance between work and private life (Hakim and Sudarmiatin, 2018).

Some researches show that leaders and managers, by their behavior and personal example, can influence turnover as well as retention of employees (Reina, Rogers, Peterson at al. 2018). Factors such as changes in the style and method of management, the way employees are treated, aggressiveness and mistrust in work towards employees, influence the increase in turnover (Reina, Rogers, Peterson et al. 2018) and the decrease in enthusiasm and dissatisfaction of employees. Lack of professional credibility and leadership strength also leads to employee turnover (Azam, Khan and Khan, 2019). Employees tend to stay in those organizations where managers do not show authoritarian behavior and lack of interest in people, and many studies (Hom et al., 2017) show that the perception of fair and just treatment concerning the very nature of the job has a great impact on employee retention Also, an organizational culture that is aligned with the needs and goals of employees has a positive effect on the improved perception of employees regarding the quality of their professional life, which results in employee commitment, which leads to improved organizational performance and improved efficiency (Holston-Okae and Mushi, 2018). An effective organizational culture engages employees at the grassroots level and transforms that engagement into high productivity, which is, among other things, a good employee retention strategy.

Levels of turnover can vary in relation to the occupation of the employees, the industry and the sector in which they work. Traditionally, turnover is high in trade (such as retail or large retail chains), service activities (such as hotel, catering and recreation), call centers, etc., i.e. in industries and areas of work that fall into lower-paid job groups, most often in the private sector. sector.

Fluctuation costs

When the turnover rate in an organization is high, it negatively affects the competitiveness and profitability of the organization. Because it is a negative phenomenon related to the loss of human capital (Dwesini, 2018). Organizational leaders can develop an adequate strategy for improving competitiveness and profitability, if they know the causes of turnover. In addition, for the analysis it is necessary to accurately define the type and amount of costs related to fluctuation. In practice, many elements, especially those related to indirect costs, are not monitored and recorded, or are difficult to quantify. It is also important to appreciate the difference between functional and dysfunctional turnover because one is desirable and the other is undesirable.

The dysfunctional cost of high turnover is, as a rule, a high cost for the organization, and it represents both a direct and an indirect cost (Table 1). It is very important for experts in the field of human resource management to calculate and analyze this cost, both for a comprehensive overview of the causes and consequences of problems related to turnover, and for obtaining support from top management for further organizational initiatives to solve this problem.

Table 1. Direct and indirect costs of employee turnover

Source: Taylor and Woodhams, 2016

There is also a classification of turnover costs into different categories, including direct or indirect, visible or invisible, before and after hiring an employee (Kiernan, 2018). Most of these models include the costs of recruitment, selection, hiring, training and filling of vacancies. Many also include the cost of lost productivity, when existing employees must assume some of the responsibilities of a departing employee due to a vacancy. Some models also include costs such as loss of organizational knowledge and other negative effects on the work environment. Regardless of which model is used, many of these costs are not visible, nor easily quantified. As a result, employers tend to underestimate the cost of turnover.

The most common classification of cost categories as a consequence of unwanted fluctuation is: direct, indirect and opportunity costs of fluctuation.

At the very moment when the employee leaves the organization, this event is not considered a direct cost. Accompanying administrative tasks related to leaving the job, such as, for example, deregistration from the central database of employees, preparation of labor-legal documentation for the termination of employment, writing a recommendation, returning and checking work equipment, exit interview, etc. are activities that nevertheless produce costs, but they are usually managed in the financial sense as joint (English overhead), administrative costs. However, these are costs that by their nature are not shared, because they can be allocated directly (Plinke and Rese, 2006, p. 36).

If we return to the moment of resignation by the employee and the steps that follow after this decision, the simplistic view that this event is not considered a direct cost changes, however. Namely, the new competition in which a replacement for a departing employee must be found and employed provokes a wide range of direct costs. The appearance and amount of these costs depends on whether the vacant position is filled from within (internal resources) or outside the organization (external labor market). Additionally, for employees who leave the organization, already at the very beginning of their employment, in the first three months of working in the organization, it is considered that they have little or no return on the investment invested in their employment, and from the financial aspect, such employment represents a pure loss.

Indirect costs of employee turnover include disrupted organizational processes, reduced motivation and work morale, necessary adaptation time for the work of new employees.

From the aspect of the employment process itself, for the analysis of indirect costs, the question of internal or external employment to replace a departing employee becomes less relevant. Also, from the perspective of the amount and type of work within personnel administration, there is little difference between a newly recruited employee and an existing employee who has been transferred to another workplace. The only additional activities are the negotiation of the elements  of  the  new  employment  contract  and  possibly  new  medical

examinations, if necessary. Usually these are the types of costs that can be allocated according to the place of origin, although according to the principle of causation this is not entirely true. In this regard, it may happen that in the event that an individual organizational unit causes unreasonably high turnover costs compared to others, the cost allocation system will be adjusted, although the most common current practice usually works with fixed cost allocation formulas.

Compared to the relatively negligible indirect costs, the opportunity costs of turnover are as relevant as the direct costs. In particular, the knowledge and skills that have been lost due to previous investment in the professional development of the departing employee must be taken into account. Practice in the field of human resources also shows that remaining without, for example, a training specialist, can lead to the fact that internal trainings can no longer be carried out in an independent organization due to the lack of internal competences and resources, and that they need to be procured externally at significantly higher costs. expenses.

Objective and methodology of work

The primary objective of the business analysis of company XY, which represents a large international manufacturing company operating in the furniture industry, was to measure the financial consequences of dysfunctional turnover on an annual basis. The second objective was to determine if there is and how much difference there is in the amount of costs, in relation to the category of employees who left the company XY.

A total of 194 employees voluntarily left the XY company during one calendar year, in the period from October 2020 to September 2021. At that time, the company employed, on average, around 1,000 employees annually. All employees who voluntarily left the company, for the purpose of this analysis, were divided into three categories, in relation to the type of work they performed: operators (N

= 158), administration (N = 30) and management (N = 6). When calculating the total fluctuation costs, an online fluctuation calculator was used according to the formulas implemented in the excel document (https:// www.collage.co/tools/cost- of-employee-turnover-calculator ).

Results and Discussion

The first phase of the analysis included the classification of all reasons for leaving the organization. The data was taken from the documentation base in the field of labor-legal relations in order to estimate the cost of dysfunctional turnover, only cases of self-initiated leaving (cancellation of the employment contract by the employee) were singled out. Another source of data for analysis was the payroll and all related costs related to the wages of employees who voluntarily left the organization. In this particular case, it was about the contracted salary, but also about the variable salary, as well as the related bonuses and benefits that the employees received. These costs are shown with the corresponding taxes and contributions, that is, in the gross amount, as the total cost of wages for the company.

The annual salary is calculated on the basis of 285 working days for workers who belong to the category of production operators, because production also works on Saturdays, as well as on the basis of 261 working days for administration and managers. All realized variable wages and bonuses paid out in the period for which the analysis was made were also taken into account.

Table 2. Salary expenses by job position or category, by day and on an annual basis with taxes and contributions included, expressed in dinars (RSD)

In parallel, the costs that arose as a consequence of reduced productivity due to temporarily unfilled early positions and the fact that at that time existing employees were filling vacant positions until a new person was hired were estimated (Table 3). This is the overtime cost of existing employees who performed the job of the vacant position along with their own job. This figure was calculated using a calculation rate of 37% of the daily wage of the departing employee, based on a similar calculation, available on the website (www.collage.co/tools/cost-of-employee-turnover-calculator/ ).

Table 3. Costs of a vacancy (reduced productivity of employees who replace the employee who left, expressed in dinars (RSD)

An assessment of the costs of the exit interview was also carried out, as a product of the hourly rate of the Employment Specialist and the time required for this type of work. These tasks in the Human Resources Sector are performed by the Employment Specialist. The calculation of the employment specialist's hourly rate is based on 261 working days or a total of 2088 working hours per year. The gross annual salary of an employment specialist is RSD 1,401,197.00 or RSD 715.81 per hour.

Administrative costs related to the preparation of documentation for termination of employment, deregistration from the Central Register of Social Insurance (CROSO), changes in the payroll, time spent on various forms such as notifying creditors, etc., were similarly estimated. The costs of hiring a replacement for a departing employee included the costs of publishing an advertisement for a vacant position (internet, radio). Costs related to the time required for employment specialists to review incoming CVs, make phone calls to candidates, conduct interviews, evaluate candidates, check references, prepare job offers and send notifications to unsuccessful candidates are also shown. For operator positions, compared to others, this time is significantly shorter because the selective criteria for employment are much lower. The number of working hours spent by the recruitment specialist interviewing candidates internally, together with the costs of those candidates being absent from work while interviewing, are not counted on this occasion. Namely, there was not enough relevant data available, such as, for example, the number of jobs that were filled with internal resources, as well as the number and type of internal candidates who participated in these selections.

The cost of the participation of management personnel in the recruitment process was also determined, taking into account the time for explaining the requirements of the vacant position, reviewing the candidate's resumes, and interviewing.

Table 4. Costs of leaving and costs of hiring a replacement for a departing employee, expressed in dinars (RSD)

Orientation training costs during the induction process for a new employee are calculated by multiplying the value of the working hours of the position that most often carries out the orientation process in the company with the required number of hours for this process, in relation to the category of employees being hired. The number of working hours for this activity varies, as do the number of hours required by all persons involved in this process, such as mentors and department heads.

Table 5. Training costs during the orientation process for new employees expressed in dinars (RSD)

And finally, the estimated costs of lost productivity were added (Table 6), which can naturally be expected at the beginning of work at a new workplace for all employees, regardless of the job position. As long as new employees adapt to the job, or learn how certain processes and jobs are performed, while they familiarize themselves with the policies, procedures and work practices of the company, they are not fully productive. We used the estimate that the employee contributes 50% of his potential productivity level compared to the employee who left. The time of adaptation naturally varies from individual to individual and depends on numerous elements such as education, experience, type of workplace, etc. For the purposes of this project, the Human Resources Department has given an assessment in relation to its professional experience that full productivity can be expected in administrative and managerial jobs after only one month (candidates for these positions are mostly highly educated, with relevant business experience). On the other hand, for operator jobs, due to the specific production process and way of working (as well as the lower level of education), full productivity can be expected after 45 working days.

Table 6. The cost of reduced productivity (50%) in relation to the time required to reach full productivity by job category, expressed in dinars (RSD)

The total costs were obtained by summing up everything mentioned so far, and are shown in table 7.

Table 7. Total cost of dysfunctional fluctuation expressed in dinars and euros

After calculating the total cost related to dysfunctional turnover, which refers to a period of one year, we wanted to investigate whether there is a statistically significant difference in the amount of turnover costs in relation to the category of employees who left the company.

For this purpose, variance analysis was used, which included all costs related to an individual employee. All indicators that related to the total number of workers were recalculated so that they were reduced to the cost of one departed worker (person). Table 8 shows the cost indicators expressed in dinars, which were used in the variance analysis.

Table 8. Average values of fluctuation costs in relation to position

Legend: SD – standard deviation