Human Resources (Edexcel A Level Business)

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Written by: Lisa Eades, Business Content Creator

Reviewed by: Steve Vorster, Economics & Business Subject Lead

An Introduction to Human Resources

In common with all resources a businesses employees - its human resources - need to be managed
Staff costs can make up a large proportion of a businesses costs so objective monitoring of employee performance is a key element of effective financial and operational control
Businesses commonly monitor the following human resources metrics
- Labour productivity
- Labour turnover
- Labour retention
- Absenteeism

Labour Productivity

Labour productivity is a measure of output per employee
It is calculated using the formula

$Labour Productivity = \frac{Total Output}{Average number of employees}$

Figures used in this formula are for a specific time period (e.g. a week, month or year)
Businesses aim to increase the level of labour productivity to improve competitiveness

Flowchart with four arrows showing progression: Higher Labour Productivity, Lower Labour Cost Per Unit, Improved Efficiency, Competitive Edge.

Higher labour productivity improves businesses competitiveness

Worked Example

Last year Marinka Homewares made 424,000 lava lamps with a production workforce of 350 employees. This year it forecasts that 480,000 lava lamps will be made with a production workforce of 365 employees.

Calculate the percentage increase in annual labour productivity per worker between last year and this year's forecast. (4 marks)

Step 1: Apply the labour productivity formula to calculate the labour productivity for both years

$Labour roductivity = \frac{Total Output}{Average number of employees} Labour Productivity last year = \frac{424, 000}{350} = 1, 211 units per employee (1 mark) Labour Productivity last year = \frac{480, 000}{365} = 1, 315 units per employee (1 mark)$

Step 2: Calculate the percentage increase between last year and this year

$Percentage change = \frac{(new value - old value)}{old value} x 100 Percentage change = \frac{(1, 315 - 1, 211)}{1, 211} x 100 (1 mark) Percentage change = \frac{104}{1, 211} x 100 = 8.59 % (1 mark)$

Labour Turnover and Retention

Labour turnover measures the proportion of employees leaving a business during a specific time period
It is expressed as a percentage and is calculated using the formula

$Labour Turnover = \frac{Number of Staff Leaving}{Average Number of Staff} \times 100$

A rising rate of labour turnover can signal internal human resource management problems such as
- Poor management leading to workers losing commitment
- A poor recruitment and selection approach leading to staff leaving soon after starting their job
- Low wage levels compared to those that could be earned elsewhere

External factors can also increase labour turnover in a business
- A buoyant local economy where workers are attracted to employment opportunities elsewhere
- Improved transport links that provide an opportunity for workers to seek work across a wider geographical area

The Consequences of high Labour Turnover

Problems	Opportunities
Increased recruitment and selection costs Increased induction and training costs Lower productivity levels as workers settle into new roles	Workers with existing skills can be recruited to reduce the need for training New ideas and creativity introduced to the business New perspective and approaches to problem-solving can improve business performance

Problems

Opportunities

Increased recruitment and selection costs

Increased induction and training costs

Lower productivity levels as workers settle into new roles

Workers with existing skills can be recruited to reduce the need for training

New ideas and creativity introduced to the business

New perspective and approaches to problem-solving can improve business performance

Worked Example

In 2022 Domus Construction Ltd employed an average of 7,200 workers, six per cent of whom worked at the head office.

During 2022 fifty-four head office employees left the business.

Calculate the labour turnover of Domus Construction's head office in 2022. (3 marks)

Step 1: Calculate the number of head office workers

0.06 x 7,200 = 432 workers (1 mark)

Step 2: Apply the labour turnover formula

$Labour Turnover = \frac{Number of Staff Leaving}{Average Number of Staff} \times 100 Labour Turnover = \frac{54}{432} = 0.125 \times 100 = 12.5 % (2 marks)$

Labour Retention

Labour retention measures the proportion of employees remaining with a business during a specific time period
It is expressed as a percentage and is calculated using the formula

$Labour Retention = \frac{Number of Staff Remaining}{Average Number of Staff} \times 100$

A high level of labour retention means that few staff are leaving the business during a given period

Worked Example

In 2022 the University of West Surrey employed an average of 4,240 employees, 265 of whom left the university during the year.

Calculate the University of West Surrey's staff retention rate in 2022. (2 marks)

Step 1: Calculate the number of employees not leaving

4,240 - 265 = 3,975 (1 mark)

Step 2: Calculate the retention rate using the formula

$Labour Retention = \frac{Number of Staff Remaining}{Average Number of Staff} \times 100 Labour Retention = \frac{3, 975}{4, 240} = 0.9375 \times 100 = 93.75 %$ (1 mark)

Absenteeism

The absenteeism rate is a measure of the proportion of staff were absent from work during a specific period of time (e.g. a day, week or month)
It is expressed as a percentage and is calculated using the formula

$Absenteeism rate = \frac{Number of staff absent}{Number of staff employed} \times 100$

High levels of absenteeism can cause several problems for a business, including
- Absence due to illness requires sick pay to be paid
- Hiring temporary staff to cover for those absent increases costs
- Output is likely to be temporarily reduced if staff are key to production process
- Other staff may become demotivated if they have to constantly cover for absent workers
- A wider culture of absenteeism may develop

Worked Example

On January 16th twenty-two of Belling Stoneworks Ltd's 189 employees were absent.

Calculate Belling Stoneworks Limited's absenteeism rate on January 16th. (2 marks)

Step 1: Substitute the values into the formula

$Absenteeism rate = \frac{Number of staff absent}{Number of staff employed} \times 100 Absenteeism rate = \frac{22}{189} \times 100 (1 mark) Absenteeism rate = \frac{22}{189} \times 100 (1 mark)$

Human Resources Strategies to Improve Employee Performance

Raising the labour productivity rate as well as reducing staff turnover and absenteeism rates are key human resource management objectives
- Increased labour productivity will lower the labour cost per unit and contribute to improved competitiveness
- More output will be produced so there is more output to sell - potentially increasing revenue
- Money is saved on recruitment, selection and training costs and a positive group spirit may emerge

Strategies to Improve Employee Performance

Strategy	Explanation
Offering financial rewards	Examples of financial rewards include Increased pay rates Profit share schemes Bonuses and Commissions Performance-related pay Attendance rewards Loyalty bonuses Paying workers more or sharing profits may increase commitment and effort, leading to higher output and productivity If financial rewards are greater than those of other employers, staff are less likely to want to leave Bonuses and commissions are only paid when they have been earned or if targets have been met Attendance and loyalty rewards may improve the intrinsic motivation of workers as they feel valued
Offering employees shares in the company	Rewarding senior executives and managers with shares may increase their commitment to achieving objectives Employees who own shares in the business may work harder and take less time off as they have a financial stake in the success of the business
Consultation	Consultation involves managers obtaining the views of employees when making decisions Workers are likely to feel more involved within the business and may be less likely to take days off work or leave the business
Empowerment	Empowerment involves providing employees with autonomy and responsibility to make their own decisions and work on their own behalf Employee are encouraged to make use of their own knowledge and experience and develop their own solutions Workers must be properly trained and equipped with the necessary resources to be properly empowered Leaders need to be prepared to hand over authority and focus on providing encouragement praise and feedback

Last updated: 25 October 2024

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Human Resources (Edexcel A Level Business)

Revision Note

An Introduction to Human Resources

Labour Productivity

Worked Example

Labour Turnover and Retention

Worked Example

Labour Retention

Worked Example

Absenteeism

Worked Example

Human Resources Strategies to Improve Employee Performance

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Author: Lisa Eades

Author: Steve Vorster