Vacancy Rate: Meaning, Characteristics, Calculation and Examples

What is Vacancy Rate?

A vacancy rate shows the percentage of available positions that remain unfilled compared to the overall number of positions in the organisation. It indicates how well the company recruits, retains, and hires the talent it needs to fulfill its objectives. Since it can offer insightful information about the general health and performance of a business, the vacancy rate is an important indicator considered by HR professionals. Vacancy rates are generally used in the employment sector and real estate analysis. A company with a high vacancy rate faces several difficulties such as overpaying existing employees and decreasing level of customer satisfaction which can ultimately lead to a loss. On the other hand, low vacancy rates signify that a company has a competitive advantage over a company that has high vacancy rates.

Geeky Takeaways:

• The vacancy rate can be defined as the percentage of all available job positions within an organisation, that are vacant or unoccupied at a given time.
• It helps the organisation identify any prospective skills gaps and plan for the future.
• It can also determine the effectiveness of the recruitment process.
• The large number of open positions, and overloading existing employees result in additional costs for the company.
• A greater number of vacancies has an adverse impact on customers’ confidence and trust in the company.

Characteristics of Vacancy Rate

1. The vacancy rate indicates the recruitment needs of the company. It is a measure of the number of available positions, and the degree to which the company has a problem filling them.

2. The vacancy rate can provide information regarding the capacity of organisation to attract and retain talent.

3. The positions that remain vacant for an extended period can increase the responsibilities of existing employees which can ultimately reduce overall productivity.

4. The companies can make better decisions about staffing and recruitment strategies by analysing the past vacancy rate and determining patterns.

How to Calculate Vacancy Rate?

The vacancy rate is an important factor that can affect the work of an organisation. A high vacancy rate has several negative effects such as overpaying existing employees and decreasing customer satisfaction resulting in loss. Businesses with low vacancy rates are more competitive than those with high vacancy rates. The formula used for calculating the vacancy rate is:

[Tex]Vacany~Rate=\frac{Number~of~Vacant~Positions}{Total~Number~of~Positions}\times{100}[/Tex]

Examples of Vacancy Rate Calculation

Example 1:

Consider an HR that has a vacancy for training personnel. There are 4 open vacancies out of a total of 10 positions. Calculate the vacancy rate.

Solution:

[Tex]Vacany~Rate=\frac{Number~of~Vacant~Positions}{Total~Number~of~Positions}\times{100}[/Tex]

[Tex]Vacany~Rate=\frac{4}{10}\times{100}[/Tex]

[Tex]Vacany~Rate=\frac{2}{5}\times{100}[/Tex]

Vacancy Rate = 40%

Example 2:

The manufacturing company had 220 employees at the beginning of the year. But at the end of the year, 120 employees work in the organisation. What is the vacancy rate? Also, determine the retention rate of organisation.

Solution:

The total number of employees in the organisation at the beginning of the year were 220.

Employees at the end of the year = 120

Employees left the organisation = 220 – 120 = 100

[Tex]Vacany~Rate=\frac{Number~of~Vacant~Positions}{Total~Number~of~Positions}\times{100}[/Tex]

[Tex]Vacany~Rate=\frac{100}{220}\times{100}[/Tex]

Vacancy Rate = 45.45%

Retention Rate = 100 – Vacancy Rate

Retention Rate = 100 – 45.45

Retention Rate = 54.54%

Disadvantages of High Vacancy Rates

1. Losing Trust: A greater number of open positions denotes a negative working environment, which can damage the reputation of the company and also restrict prospective employees before joining the company.

2. Losing Customers: Nowadays the consumer is king of the market. Thus businesses need to retain customers. If an organisation has a higher number of open positions, it indicates that it is not operating effectively, and customer service will also suffer. Therefore, companies always try to lower their vacancy rate.

3. Hiring Costs: A high vacancy rate shows that there is a need to recruit new employees which can balance the financial burden. Since hiring costs are high and cause loss for the company.

4. Overpay: With higher vacancies, the existing employees have to work more than normal. The company has to pay for their overtime which is another expense for the company.

5. Leads to Loss of Customer Confidence: If a company has open positions, it indicates can lose customer trust. With a shortage of employees, the orders won’t arrive on time. In addition, there is the possibility of making more mistakes due to frustration. This can ultimately lead to poor service which can damage customer trust, increasing the possibility of complaints. It also affects the company-customer relationship.

6. Increase in Bad Hires due to Rushing to Fill Empty Desks: A higher number of open positions sacrifices the recruitment process due to a shortage of time. Thus, with a need to get new employees into their positions quickly, quality is compromised. With this more and more undesirable employees get recruited, which can waste resources. It is a never-ending cycle.

How much does a Vacancy Cost?

There is no set procedure for calculating vacancy cost because it depends on several factors. The other costs associated with open positions include lost wages and overtime salary paid to current employees due to employee shortages. Existing employees have greater stress due to excess work, which can lead to burnout, lower productivity, and increased turnover. It is also important to note that paying overtime is usually more expensive than filling up the gap. Moreover, a heavy workload may compromise performance quality, which indicates customer satisfaction.

The following steps must be considered to calculate the cost of vacancy:

1. Firstly, calculate the annual salary of the vacant position. To calculate it, the gross pay of the vacant position is multiplied by the number of pay periods in a year.

2. Then, the daily cost of the position is calculated. It is measured by dividing the annual salary by the number of working days in a year. Generally, it is assumed to be 260 days.

3. Then, the number of days the position is expected to remain vacant is determined.

4. After that, the daily cost of the position (as calculated in Step 2) is multiplied by the number of days the position is expected to remain vacant (as calculated in Step 3).

5. Then, the benefits and savings from the vacant position are determined. These benefits and savings are around 31% according to the U.S. Bureau of Labor Statistics (BLS). Lastly, the cost of vacancy by considering the benefits and savings. In addition, it can also be calculated by adding the cost of hiring with the overtime cost or freelancer cost and subtracting the benefits and savings from the vacant position.

It can be better understood with the help of an example.

Example:

Suppose an organisation is hiring for a vacant position in the HR department. With the complexity of the responsibilities, say it will around 120 days to fill the position. The salary for this vacant position will be ₹1,00,000. The benefits and savings with the position are ₹46,000.

Solution:

First of all daily cost is calculated by dividing annual salary by the number of working days in a year.

[Tex]Daily~Cost=\frac{Annual~salary}{Number~of~working~days~in~a~year}[/Tex]

[Tex]Daily~Cost=\frac{Rs.1,00,000}{260}[/Tex]

Daily Cost = 384.61

Benefits for this Position = ₹46,000

Annual Costs of Employee = Annual Salary + Benefits Cost

Annual Costs of Employee = ₹1,00,000 + ₹46,000

Annual Costs of Employee = ₹1,46,000

[Tex]Daily~Cost~of~Employee=\frac{Annual~Cost~of~Employee}{Annual~Working~Days}[/Tex]

[Tex]Daily~Cost~of~Employee=\frac{1,46,000}{260}[/Tex]

Total Daily Cost of an Employee = ₹561.53

Conclusion

The vacancy rate enables the company to calculate the overall percentage of open positions within the company during a particular time frame. Since it covers one of the most important functions the HR department performs, this is a valuable tool for measuring the department’s overall productivity and efficiency. The percentage of your vacancy rate can be calculated by taking the entire number of openings and dividing it by the total number of positions in the company, then, multiplying it by 100. A high rate may indicate a limited prospective workforce, but it may also indicate that the business needs to attract new employees. On the other hand, low vacancy rates show that companies are more competitive than those with high vacancy rates.

Vacany Rate – FAQs

Why does the rate of vacancies matter?

It may indicate the overall health of the employment process of the company. A company may be growing and experiencing high demand for its goods or services if its vacancy rate is high; whereas, a low vacancy rate may suggest poor demand.

What is meant by “cost of vacancy”?

The entire cost of keeping a post vacant is referred to as the “cost of vacancy.” When a position is unfilled, the company may make less money. It does not include costs such as reduced efficiency, decreased production, and potential fines for violations of rules.

What is the meaning of high and low vacancy rates?

The low percentage of open positions may be an indicator of the company’s effective HR processes and the quality of the advertised positions. Alternatively, this could indicate that there is a high level of market demand for the advertised job offers.

What is meant by vacancy rate?

The percentage of all available job positions within an organisation, that are vacant or unoccupied at a given time.

What is an acceptable vacancy rate for a hybrid work model?

It is considered acceptable to have a vacancy rate of between 10 and 20 percent because it provides enough flexibility and adaptability for managing employees’ changing schedules.