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What is Attrition Rate and What Does it Mean for Your Company?

attrition-rate

Attrition rate and turnover rate are key metrics for employee retention. But what is the attrition rate? In short, attrition tracks the rate at which employees are leaving the organization.

Tracking attrition and turnover rates has never been more important. In 2022, resignation rates have remained high and new job openings have remained even higher. We’re seeing that the so-called “Great Reshuffling” isn’t just a result of pandemic-induced turbulence, but rather the start of a long-term trend.

In the tightest labor market in recent memory, HR professionals are increasingly tracking key HR metrics like attrition rate to gain insight into their organization. By comparing in-house numbers with industry standards, organizations can spot opportunities for growth and create an iron-clad retention strategy.

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

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What is the attrition rate definition?

The attrition rate, also known as the “churn rate”, is a measurement of how many employees leave a company within a given period.

How does the meaning of attrition differ from that of turnover? The truth is that attrition and turnover rate are terms that are often used interchangeably. Indeed, they are even calculated using the same formula.

However, according to some HR professionals, the difference between attrition vs. turnover is context. They argue that the attrition rate represents the number of employees who leave and whose positions are not filled with a replacement. In contrast, turnover measures employees that leave and whose positions are replaced with new staff members.

Both high attrition and high turnover rates can be indicative of problems within the company. Between hiring costs, lost opportunities, and lowered productivity, replacing employees can cost between one-half to two times the employee’s annual salary. It is in an organization’s best interest to retain and develop talent.

 

The four types of 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 identify 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 four categories of employee attrition and their underlying causal factors.

Voluntary attrition

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 inclusive practices can also contribute to an employee’s resignation.

Involuntary attrition

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.

Internal attrition

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.

Demographic-specific attrition

This is a particularly worrisome kind of attrition that takes place when a certain group leaves your organization en masse. It’s important for HR teams to track the attrition of marginalized groups such as women, people of color, and LGBTQ+ to ensure that the workplace is not alienating them.

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 attrition rate 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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What is a “high” attrition rate?

In general, high attrition rates mean that your organization is churning employees fast while lower rates indicate better employee retention.

Attrition rates can vary by season, industry, and region, so it is important to check out the Bureau of Labor Statistics for insight into the attrition rates that are normal for organizations similar to yours. Attrition rates will look very different for construction businesses than for SaaS tools.

That said, many organizations aim to keep attrition rates under 10%.

The consequences of high attrition

The retention of employees is important for a number of reasons.

  • Firstly, having high attrition can be time-consuming and costly. For every new recruit, you must review CVs, screen candidates, and conduct interviews. Then once you have made an offer to a candidate, you need to onboard and train them. Not to mention all the paperwork and costs involved when someone leaves your company such as exit interviews and severance packages. And there is bound to be a drop in productivity, at least for the time it takes for you to find someone to take over all the departing employee’s tasks.
  • A company with a high rate of employee retention is also likely to attract and retain more qualified talent. This has a lot to do with reputation relating to employee satisfaction and morale. If a candidate knows that you are able to provide a happy and nurturing workplace then it can be very appealing. And for those employees already working at your company, retention can be a huge factor in the employee experience.
  • Consistent staff changes can make it hard for your employees to develop positive working relationships with their co-workers. And employees who stay at a company for longer are often less stressed, more committed to the long-term success of the company, and more productive. They are also more loyal and have a stronger sense of community.

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

Is a high attrition rate always a bad thing?

Contrary to popular belief, a high attrition rate does not always mean the worst.  While looking at employee attrition, it is important to dig deep and think about the reasons behind employee attrition, the company’s current situation, and the overall strategic plan.

For example, your company may have recently restructured and several positions were eliminated.   If those positions were not completely necessary nor part of the company’s future plans, employee attrition could be needed and an essential factor for future growth and expansion.  Although it is never pleasant to say goodbye to team members, it sometimes comes with organizational change.

However, high attrition rates due to talent shortage and voluntary termination can be very problematic for organizations.  In these cases, it is best to understand the root causes of their departure and develop a plan to tackle problems. Did the company’s work culture impact their decision to leave? If so, it should be the company’s top priority to create a healthy work environment for employees.

Employee attrition best practices: What to do when employees leave

Attrition rates don’t reflect one specific part of your organization but can offer a snapshot into how employees feel at your organization more broadly. Use your attrition rate as a springboard to do further investigations into why employees are leaving your organization.

  • Invest in exit interviews or stay interviews to gain insight into voluntary attrition. These interviews provide opportunities for employees to give radically honest feedback that you can use to transform your organizational culture. The factors that most commonly drive voluntary employee separations may include compensation, inclusivity, development opportunities, and stress.
  • Investigate your involuntary termination reasons in order to identify problems with your recruitment processes, feedback systems, and company culture.
  • When it comes to internal attrition, you’ll need to audit your internal and external recruitment processes. Offering employees career paths is one of the best ways to encourage retention. That means that lots of internal mobility is generally good for an organization.
  • To learn more about demographic-specific attrition, check in with specific groups that are showing high rates of attrition. This may lead to important insights regarding your pay, promotion, or cultural practices.

What factors influence attrition?

As you investigate the reasons behind your attrition rate, you’ll be able to unearth the reasons driving attrition at your organizations. Keep an eye out for the common factors that influence attrition include:

  • Compensation- If your organization isn’t offering competitive compensation (or fair compensation!), that is sure to drive employees elsewhere.
  • Inclusivity- Organizations that create an unwelcoming atmosphere for different people are sure to lose talent rapidly. They’ll also lose the diversity of perspectives that drives good decision-making and efficient problem-solving.
  • Development opportunities- Surveys show that employees care a lot about development initiatives. Gallup reports that organizations that invest in development are twice as likely to retain employees. Reskilling is a core part of business strategy in the Great Reshuffling.
  • Stress- Nothing will retain employees if you have a strong burnout culture. If employees have heavy workloads or unsupportive managers, they’ll almost certainly search for greener pastures.
  • Flexibility– More and more employees are prioritizing flexible work practices like remote work, flexible hours, and more time off.
  • Recruitment- Your hiring process may be bringing on new hires who lack the necessary skills for their roles or don’t fit in culturally.
  • Performance feedback– If your performance review systems are inadequate, employees may not be aware of the ways their performance is falling short. Ask why people are being terminated in order to find places that you can improve retention.

Attrition in HR: How to reduce a high attrition rate

Like all strategic actions, HR’s approach should be targeted toward finding a solution to ensure employee happiness and well-being.  Although employee attrition may seem inevitable, HR can use tools like an HR dashboard to detect resignation risks, as well as prevent and recover from voluntary resignation.

Reduce attrition and increase retention

  • 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?
  • Reward exceptionality- Employees that go above and beyond should be recognized for their achievements.  Keep track of employee performance and make rewards 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.
  • Create regular 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 employees decide 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.

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Keeping track of employee attrition and more

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. It is one thing to lose an employee who underperforms, but quite another to lose an overperformer. You need a system that can give you insight into your workforce and detect any potential trends that might be affecting turnover.

This is where software steps in. An all-in-one HR software solution can help you create custom reports, in which you can analyze turnover and attrition as well as manage employee performance and satisfaction.

With our custom HR reports and dashboards, you can gain insight into every level of your workforce. Using this tool, you can easily see the effects of departures on productivity and employee satisfaction. Additionally, you can create automated cycles that 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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