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Human Resources (Edexcel A Level Business)

Revision Note

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

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 space Productivity space equals space fraction numerator Total space Output over denominator Average space number space of space employees end fraction

  • 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 space roductivity space equals space fraction numerator Total space Output over denominator Average space number space of space employees end fraction Labour space Productivity space last space year space equals space fraction numerator 424 comma 000 over denominator 350 end fraction space equals space 1 comma 211 space units space per space employee space bold space stretchy left parenthesis 1 space mark stretchy right parenthesis Labour space Productivity space last space year space equals space fraction numerator 480 comma 000 over denominator 365 end fraction space equals space 1 comma 315 space units space per space employee space bold space stretchy left parenthesis 1 space mark stretchy right parenthesis

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

 

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 space Turnover space equals fraction numerator Number space of space Staff space Leaving over denominator Average space Number space of space Staff end fraction space space cross times space 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

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 space Turnover space equals fraction numerator Number space of space Staff space Leaving over denominator Average space Number space of space Staff end fraction space space cross times space 100 Labour space Turnover space equals 54 over 432 space space equals space 0.125 space cross times space 100 space equals space 12.5 percent sign space space space space stretchy left parenthesis 2 space marks stretchy right parenthesis

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 space Retention space equals space fraction numerator Number space of space Staff space Remaining over denominator Average space Number space of space Staff end fraction space space cross times space 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 space Retention space equals space fraction numerator Number space of space Staff space Remaining over denominator Average space Number space of space Staff end fraction space space cross times space 100 Labour space Retention space equals space fraction numerator 3 comma 975 over denominator 4 comma 240 end fraction space space space equals space 0.9375 space cross times space 100 space equals space 93.75 percent sign           (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 space rate space equals space fraction numerator Number space of space staff space absent over denominator Number space of space staff space employed end fraction space cross times space 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 space rate space equals space fraction numerator Number space of space staff space absent over denominator Number space of space staff space employed end fraction space cross times space 100 Absenteeism space rate space equals space 22 over 189 space cross times space 100 space space stretchy left parenthesis 1 space mark stretchy right parenthesis Absenteeism space rate space equals space 22 over 189 space cross times space 100 space space stretchy left parenthesis 1 space mark stretchy right parenthesis     

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

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    Author
    Reviewer
    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.