The employee Attrition rate is an important metric that can reveal a lot about the direction of your business and potential issues that need to be addressed.
Employee attrition and employee turnover is the most time used interchangeably, Employee turnover is used to describe positions that have been replaced.
When running a business, some of your employees will inevitably leave. We will be discussing Employee attrition which occurs if those employees are not replaced, its effects and tips on how to reduces high employee atrrition.
Table of Contents
What is Employee Attrition Rate
First, it is crucial to understand what the word “Attrition” means; according to the Cambridge dictionary, attrition is defined as “gradually making something weaker and destroying it, especially the strength or confidence of an enemy by repeatedly attacking it”
Relating this definition to an employee in an organization, it refers to the gradual reduction of employees or workforce in an organization.
Employee attrition rate can be established as the voluntary or involuntary departure of an employee from an organization either by termination, resignation, retirement, or death.
It is considered as the reduction in the total number of people employed by an organization achieved by not substituting those who leave. An attrition rate is a measure used to calculate the number of employees or customers who leave a company and are not replaced.
An attrition rate examines the long-term/semi-long-term loss of employees and positions and how these losses affect the company. It is a measure taken consciously to determine the number of employees lost over a specific period of time.
Types of Attrition
- Voluntary Attrition
- Involuntary Attrition
- Internal Attrition
- Demographic-specific Attrition
- External Attrition
Voluntary Attrition
Voluntary attrition occurs when employees choose to leave the company.
This is the most critical and common type of attrition for human resources to consider. The most common reasons for voluntary attrition are resignation and retirement.
Others may include Personal issues, inadequate compensation, and benefits, and a lack of recognition can all contribute to an employee’s decision to resign.
Internal Attrition
This occurs when an employee accepts a new position within the same organization contributing to internal attrition. They could be transferred to another department or promoted.
Involuntary Attrition
When a company terminates employment, this is referred to as involuntary attrition.
Businesses may decide to eliminate positions in order to reduce staffing costs or because the position is no longer required.
Organizations commonly use involuntary attrition to control costs or reduce the level of inefficiency.
External Attrition
When an employee leaves to work for another company, this type of attrition occurs. They may resign in order to consider a position that is more closely related to their career path or to have a shorter commute.
Demographic-specific Attrition
This occurs when a specific demographic (age, gender, or ethnicity) leaves due to a lack of controlled diversity in the organization.
Possible Causes of Employee Attrition
- Declining company culture
- Lack of appeal
- Poor benefits packages
- Retirement
- Low employee satisfaction
- Personal reasons
- Promotion
- Relocation
- Resignation
Why is it important
- Human resource professionals frequently use an attrition rate to calculate the number of unoccupied or eliminated positions.
- Determine patterns and high and low points in employee retention
- Opens your mind to what is not working well in your company and how to fix those problems.
How to calculate Employee Attrition Rates
The rate is expressed as a percentage of the total workforce or customer base.
Companies can choose to calculate their employee attrition rate either monthly, quarterly or yearly; but the yearly calculation is recommended.
Most organizations use special software programs in calculating their employee’s attrition rate. Here is a simple way to go about your calculations.
Formula:
(total number of employees lost / average number of employees retained) x 100 = Attrition rate (%)
Put simply, before applying the formula you need to,
- Add up the number of employees lost
- Add up the total number of employees retained
- Then Calculate the average amount of employees left
- divide the number of employees who have left (over a year) by the total number of employees still available ( At the end of the year).
- The result gotten is then multiplied by 100
Let’s put this into a more realistic instance for a clearer understanding; for instance, your company had 300 employees at the beginning of the year, and 50 employees were lost for different reasons ( voluntary or Involuntary).
Let us calculate together following the steps given.
Number of employees lost = 50
Number of retained = 300-50= 250
Average Number of employees retained = 300 + 250 / 2
= 275
Attrition rate % = ( 50 / 275) x 100
= 18.8%
When is the attrition rate considered High?
After following the above instructions and your retention rate is high, it simply means that you are having more employees leaving than those staying.
According to research, the attrition rate of an organization is considered high when it is above 20%. That is why many organizations aim to maintain attrition rates at less than 20% or 10%.
When is the attrition rate considered low?
If you get a low percentage as your result it indicates that more percentage of employees are retained over a longer period of time.
How to control High Employee Attrition Rate
A company’s attrition rate can have both positive and negative consequences. When an employee leaves and the position is eliminated, the company can save money on staffing.
To address these concerns, a distinct set of strategies will be required. Understanding the underlying cause is critical for developing the systems and recruitment strategies required to stabilize rising attrition rates.
The most popular way of controlling the increase of employee attrition in your company is by increasing your retention strategies.
Pay attention to employee satisfaction
Employees frequently depart a company for a new job opportunity because they are unhappy where they are. Perhaps they dislike the company culture, feel unappreciated, or would like to take on new roles at work.
You can reduce all of these factors by prioritizing employee satisfaction through employee recognition and developing an award system to appreciate the efforts of your employees.
Offer competitive compensation
People are far less likely to leave if you can pay them the same or more than your competitors. A qualified employee has little reason to stay with you if they can make more money elsewhere.
Conduct market research to determine the average earnings for people in your industry so that you can compensate your employees fairly. A compensation analyst is usually in charge of this.
Investigate reasons for Involuntary termination
It is important to investigate reasons why your employees opted out, and identify issues that you need to look out for to reduce future increases in attrition rate. These issues can be found in your hiring processes, feedback systems, or company culture
Employ diverse hiring Processes
Good hiring practices can help to prevent future high attrition rates. When hiring new employees, thoroughly evaluate them to ensure that they are a good fit not only for the position but also for the culture of your organization.
“How long do you intend to be with us?” is one of the best interview questions you can ask. Essentially, you should investigate further to determine whether the candidate is prepared to make a long-term commitment to work for you.
FAQs
Is there a difference between employee turnover and attrition?
Both terms are usually used when an employee leaves a company, though the processes differ, such as discharge, termination, or resignation. Attrition occurs when an employee retires or when a job position is terminated by the employer. When an employee leaves, the employer searches for a replacement.
What is a good employee attrition rate?
A satisfactory attrition rate for your company is around 10%.
What is the difference between attrition and retention?
A retention rate is the percentage of employees retained by your company over a given time period. An attrition rate considers the inverse of retention. The attrition rate represents the percentage of employees who left and were not replaced.
Which way is more effective to reduce a high attrition rate?
- Offer Employee benefits and compensation.
- Offer flexibility
- Implore good recruiting tactics and hire the right workforce
- Improve employee engagement.
- Recognize and reward employees for their efforts
How do I calculate attrition?
You can calculate your employee attrition rate by multiplying the number of employees who have departed by your total number of current employees and multiplying the result by 100.
Use the formula below:
ATTRITION RATE (%) = (Number of leaves ÷ number of employees) x 100.
What does employee attrition mean?
The attrition rate is a calculation of the number of people who leave or move out of a company over a given time period either monthly or yearly.
For a better understanding, see the video below:
Conclusion
If you presume that your employee attrition rate is high, analyze the data and look for a solution that will effectively reduce your rate and get your business back on track.
Tracking an employee attrition rate has never been more important, following that resignation rate is becoming increasingly high with even higher job openings/ opportunities.
The conscious act of tracking will help you boost your employee retention strategies.
However, using these simple tips to reduce attrition and keep the same employees for years to come
