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attrition-rate

Attrition Rate: What Does it Mean for Your Company?

When talent leaves, it is important to rebuild and focus on new growth. Analyzing metrics like the attrition rate can help HR professionals to strengthen their teams after members have left.

Last April, a record 4 million people resigned from their positions in the United States.  Many HR professionals are wondering what to do in the case of employee resignation and how to prepare for the changing economy.

Of the key performance indicators that HR should be aware of, employee retention is perhaps the most important. Attrition rate and turnover rate are the two components of retention that HR professionals need to consider. But what does attrition mean within the context of employee retention and how is it distinguished from turnover?

In this post, we will look at what the terms mean for you as an employer, and what you can do to improve numbers in your organization.

Finally, we will discuss how software solutions can help to improve employee morale and performance.  Ultimately, helping you obtain optimum retention rates at your company.

Attrition Rate Definition

The attrition rate, also known as “churn rate”, is a measurement of how many employees leave a company and are not replaced within a given period.

Although it is commonly the case, attrition and turnover are not to be confused.  Both are related, as they pertain to the loss of workforce but the implications are very different.

The attrition rate is representative of the number of employees that leave and whose positions are not filled with a replacement. In contrast, turnover measures employees that leave and whose positions are replaced quickly with new staff members.

Both high attrition and high turnover rates can be indicative of problems within the company.  See Why Does your Company Have a High Turnover Rate?

How to Calculate Attrition Rate

Calculating your employee attrition rate is simple.

First, divide the number of employees who have left (in a given period) by your average number of employees (for that same period).  Then, take the divided amount and multiply it by 100.

The formula looks like this:

Attrition rate (%) = (number of leavers / number of employees) x 100

For example, let’s say you wish to calculate the annual attrition rate for your company. Your company started the year with 100 employees. Throughout the year, 20 employees left the company (voluntary and involuntary) and there were 4 new hires.

The first step is to calculate the number of employees at the end of the year:

100 – 20 + 4 = 84

Then calculate the average number of employees for that year:

(100+84) / 2 = 92

You can now calculate the attrition rate for the whole year as follows:

Attrition rate (%) = (20 / 92) x 100 = 21.7%

A high rate means that your employees are leaving frequently, while a low rate indicates that you’re keeping your employees for longer periods of time.

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Types of Employee Attrition

To see if employee attrition poses potential problems for your company, it’s not enough to only consider the calculated numbers.

It’s essential to diagnose the type of attrition and understand its causes.  High attrition rates can carry many implications for a company, some of which are directly tied to employee satisfaction. Here are the general categories of employee attrition and their underlying causal factors.

  • Voluntary- When employees choose to leave the company, it is considered voluntary attrition. This is the most common type of attrition and is the most important for HR to take into account. Resignation and retirement are common reasons for voluntary attrition.  Personal problems, poor compensation and benefits, and lack of diversity management can also contribute to an employee’s resignation.
  • Involuntary- This occurs when employees are involuntarily dismissed from the office.  Involuntary attrition might take place because of downsizing or changes in market growth and demand.
  • External- External attrition takes place when employees decide to leave the company and find work elsewhere.  This could be due to factors such as compensation, commute or perhaps they feel more aligned with another company’s values.
  • Internal- This is when employees leave their current position for another one within the company.  Employees may have received a promotion or they might be joining another department.

So, what next? What can human resources do to reduce unwanted resignation?

Attrition in HR: How to Increase Retention Rates

Like all strategic actions, HR’s approach should be targeted towards finding a solution to ensure employee happiness and well-being.  Although employee attrition may seem inevitable, HR can take actions to both prevent and recover from voluntary resignation.

How to Prevent Unwanted Resignation

  • Look at Incentives- Why should employees choose to work at your company?  Are the benefits and compensation competitive? Does your company allow employees to work from home? HR can leverage labor costs to make a positive impact.
  • Reward Exceptionality- Employees that go above and beyond should be recognized for their achievements.  Keep track of employee performance and make reward part of the company culture.
  • Ensure an Inclusive Environment- If a team member knows that they are part of a happy and nurturing workplace, it can be a big reason for them to stay.  Diversity and inclusion are important factors in encouraging the participation of all team employees and making them feel comfortable on an average day.
  • Encourage Employee Development- Many employees resign because they are no longer advancing in their current position.  Align HR objectives with the workforce’s goals and encourage strategic skill development.
  • Take Satisfaction Surveys- In what ways do employees feel unsatisfied?  Perhaps there is excessive stress and little flexibility.  Perhaps microaggressions and workplace toxicity make it difficult for employees to feel happy.  Employee Satisfaction Surveys point to where the problems come from and their possible solution.
  • Promote Health and Wellness- Through wellness programs and initiatives, HR can help to support the physical, mental and social well-being of employees.  Employees who work for employers that care for them are likely to feel happier and less stressed.

How to Recover from Resignation

Unwanted loss of talent can be upsetting, time-consuming, and costly.  Not to mention that it presents challenges to team members who have to compensate for their absence.  Despite these problems, there are ways to recover and prepare for a better, stronger future.

  • Try Succession Planning-  Consider planning to fill the gaps left by retired employees.  Although it is hard to fill the shoes of employees who have devoted decades to the company, it can help to smoothen transitions after their departure.
  • Create a Warm Offboarding- Employees do not necessarily have to leave on negative terms.  Perhaps they have left to take care of a loved one or found an offer elsewhere that matches their personal goals.  Whatever the case, a warm offboarding can give them a positive final impression of the company.
  • Try Exit Interviews- After talent has decided to leave, HR needs to find out why.  The best possible way to do this is through an exit interview.
  • Focus on Recruitment-  Finding the right person for the right job is a continual learning process. Recruiters should value commitment and perseverance as ideal qualities for future candidates.  People analytics can help them to make better decisions when evaluating potential candidates.

HR Performance Management Tools

It is one thing to lose an employee who underperforms, but quite another to lose an overperformer. You need a system that can calculate the effect of departures on productivity. You also need a tool that measures employee satisfaction levels to help you detect any potential trends that might be affecting turnover.

This is where software steps in. A good performance management software solution can help you manage and monitor performance and satisfaction.

With our performance management feature, you can gain insight into every level of your workforce. You can streamline your performance management process with automated and centralized performance reviews.

You can also use the feature to manage all your employee satisfaction surveys. Automated cycles request recurring feedback on a monthly, yearly, or customized basis.

This is the best way to keep your finger on the pulse of employee morale so that you can retain more employees and maintain lower attrition rates. And the lower your rate, the stronger your workforce will be.

This post is also available in: English UK

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