As everyone works toward boosting employee engagement to improve retention and reduce churn, we’re highlighting a key term and practice: calculating employee attrition rate.
Introduction to employee attrition rate
Bringing new team members on board is an expensive process, and the training and experience required for employees to become contributors is both time- and resource-intensive. If a newly trained-up employee leaves just when they’re becoming useful to the company, you’re facing a serious loss. To maximize the return on your investment in employees, it’s critical to maximize employee retention.
To get to the heart of this challenge, you’ll need to generate attrition and turnover rate metrics, then act on disturbing variances and spikes. Okay, so what is the meaning of “attrition rate?” It’s a measure of the momentum by which employees leave the organization, one of the crucial metrics stakeholders and management follow with intense focus.
In this article, we’ll examine how you, as an employer, should use attrition and its associated KPIs to improve retention (conversely, reduce churn) and boost profitability with a domino effect.
What is the attrition rate definition?
We can look at the company’s success in engaging employees by their ability to hold on to them (i.e., retention) or lose them (i.e., churn). The attrition rate is all about the latter – the dark side of the same coin, also known as the employee churn rate. When one talks about rate, it involves change over time – in this case, staff members exiting the business over any stipulated period. A high attrition rate reflects a spiking resignation or termination pace than one would expect compared to established averages, whereas the opposite applies to a low attrition rate.
How does the meaning of attrition differ from that of turnover? It doesn’t. The terms are interchangeable, and the calculation is the same. However, from an HR purist viewpoint, a significant variation occurs after the employees leave. The following explains it:
- Focusing on deriving an employee turnover number assumes the positions refill quickly.
- Employee attrition applies to situations where there’s no fast new talent and skill substitution. Of course, the reason behind this lack of replacement may be that the company sees the attrition as downsizing (i.e., skills no longer wanted) or simply can’t find new staff to fulfill the vacant position.
Why tracking a high attrition rate is crucial
Look back at the 2021/2 Great Resignation, when employees abandoned long-held positions left, right, and center, the second scenario mentioned above prevailed, with critical jobs remaining vacant. Many thought it was a pandemic-specific happening, but HR professionals tracking the “reshuffle” confirm it’s an entrenched long-term trend that’s not ready to dissipate.
So, in tight labor markets (and this one definitely qualifies), attrition rate (as defined) is a substantially more vital metric because replacing an exiting employee is uncertain. In most instances, the latter leaves voluntarily, creating an enduring vacuum or gap in the team.
Of course, keeping an eye on both tells a story. For example, if the attrition rate reduces with a simultaneous rise in the turnover rate, it confirms an easing market for skills and vice versa. Unfortunately, high attrition and turnover rates (both) indicate a severe cultural dysfunction in the company that can cost between 150% to 200% of the leaving employee’s annual salary. However, an inability to fill the vacant position compounds the problem. Therefore, while it’s evident management should go the extra mile to retain its HR pool, they should add “distance” to their efforts regarding hard-to-replace or irreplaceable skills.
The four types of attrition
Attrition is complex and multidimensional, coming at you from different directions. The ones that relate to employee dissatisfaction or disengagement warrant the most concern, so let’s get to it.
1. Voluntary attrition occurs when employees initiate their exit from the company by resigning or retiring. Why should HR be concerned? Appreciating the root causes, such as inadequate income or benefits, cultural disconnection, age milestones, and other dysfunctions, is crucial.
2. Involuntary attrition is likewise an HR focus, distinguishing between employees fired for incompetence or victims of unfortunate circumstances like downsizing when market growth and demand diminishes.
3. Internal attrition occurs when employees move from their current position to another within the company via a promotion, geographic move, or similar. This is the attrition one wants to see most often. Why? It signifies employee satisfaction by following diverse career paths and advancement.
4. Other attrition, such as demographically defined groups resigning en masse, indicates marginalized employee clusters (such as females, people of color, LGBTQs, etc.) that feel disenfranchised from the organization (i.e., the workplace is alienating them). These are severe cultural crises that blow up like a hidden bomb in the building. They urgently urge stakeholders to consider a seismic shift in the business’s HR strategies.
Calculating attrition rates – an annual formula
This isn’t rocket science. To figure out the attrition rate, you’ll need to choose the time period to measure (week, month, year, etc.) and count the number of relevant employees (overall and leavers). Here’s the attrition rate formula:
Attrition rate (%) = (number of leavers/number of employees for the period) x 100
The following steps describe how to calculate attrition rate by using an example for a business with 100 employees.
Count:
- X – The number of employees in your business at the start of the year under focus (100)
- Q – The number of hires during the year (8)
- Y – The number of employees at the end of it (80)
Calculate:
- Average employees for the year = {100 (X) + 80 (Y)}/2 = 180/2 = 90 (R)
- The number of employee exits = X (100) – Y (80) + Q (8) = 28 (S)
The Attrition Rate = {Divide S (28) by R (90)} x 100 = (28/90) x 100 = 31%
A high rate signifies your employees are leaving frequently, while a low rate indicates you are retaining them. The question, of course, is what’s high and what’s low.
What is a “high” or “low” attrition rate?
High attrition rates align with accelerated employee churn (a weakened ability to hold on to skills and talent). Conversely, low attrition means a better-than-average retention of staff. The KPIs must have a reliable yardstick to compare, with the latter depending on four influences:
- Industry
- Historical company performance
- Season
- Region
The Bureau of Labor Statistics takes much of the above into account for insight into the attrition rates acceptable to different organizational categories. For example, the standard attrition rate for construction businesses varies significantly from hospitality; the latter differs from SaaS industries, which diverges from retail, etc. That said, a 10% attrition rate or lower is a target to aim for. What a shock the 50% rate the Great Resignation inflicted on industries far and wide in 2021.
The impact of high attrition
High attrition rates are time-consuming and costly. Consider the following.
- A crucial aspect of employees leaving via attrition is the inability or challenge of replacing their skills (versus turnover, where filling the gaps is relatively simple).
- For every attempt to recruit a replacement:
- You must review CVs, screen candidates, conduct interviews, and decide on a shortlist.
- Select one, make an exciting offer, onboard, and train them.
- Things may go well and your team member may stick around for a long time… or the happy ending may turn into early termination with paperwork, exit interviews, and severance pay.
- The effort involves project disruption, productivity drops, team demotivation, and general negativity.
- A company with a high attrition rate quickly earns a suspect reputation in the labor market that:
- Discourages the best candidates from considering employment there.
- Demotivates the team in place and makes them feel insecure.
- Makes development of positive working relationships a severe challenge.
- Converges on sub-par productivity and working under unnecessary stress.
- Inflicts cracks in the loyalty fabric of teams instrumental in successful operations.
Is attrition all bad?
Indeed, it may be a signal of progress and innovation. For example, a business transitioning into AI technology from a traditional production process may initiate a wholesale exodus of staff classified as attrition. In reality, it’s a significant organizational change. Aside from these exceptional cases, attrition results in the disruption described above and could be extraordinarily problematic.
What can leaders do to combat unacceptable attrition?
Excessive voluntary attrition rates generally signify that employee experiences revolve around dissatisfaction with company policy, disengagement from its culture, or hitting touchpoints that derail the employee journey. The insights into these issues emerge from NPS surveys (with penetrating questions included), exit interviews, or stay interviews. Why? They represent the most honest, unbiased feedback HR could wish for because respondents are anonymous or could care less about boomerang consequences. Data from these sources reflect compensation, cultural inclusivity, and professional development defects, creating stress and dissatisfaction.
Appreciating one’s reasons for involuntary termination is likewise a crucial consideration. Why? It converges on the company’s reasons for terminating an employee’s tenure. The problems may lie in the recruiting phase, onboarding, or organizational issues that inhibited the departing staff from working optimally. Well-conducted exit interviews reveal deep insights across the board.
What’s behind attrition derailing employee experience?
The most common attrition creators are the following:
a. Inadequate compensation—Payday is a recurring touchpoint in EX, with industry-fair compensation and benefit yardsticks playing into this. Companies ignoring these metrics frequently under-reward their staff, resulting in fundamental employee dissatisfaction. So, a monthly event that triggers anger, frustration, and stress repeatedly will result in voluntary attrition no matter how robust other benefits may be in your organization.
b. Uninspiring inclusivity—Unwelcoming and unsupportive organizational environments (especially in the onboarding phases) will lose talent fast and prematurely. Rumor-mongering and secretive cliques that confuse or inhibit team transparency punch holes in a company’s efforts to create synergistic group dynamics.
c. Sparse development opportunities—Career advancement and company-sponsored training are vital feeders of employee retention. They connect critically to internal attrition – as indicated above. Failure to acknowledge employee ambitions and thirst for progression within your company inevitably results in spiking voluntary attrition.
d. Emotional and cognitive upheaval—Every employee journey touchpoint has consequences that one can trace back to feelings and thoughts that are stable or erratic. The latter overlap defects in other attrition creators and are more signals of deeper dissatisfaction issues, meaning they’re secondary in nature. Notwithstanding, when stress reactions hit a peak, no matter the source, it’s frequently too late to reverse employees leaving the company.
e. Lack of hybrid or remote working opportunities—Employees demand more work flexibility. Employer failure to provide this when competitors do creates heightened voluntary termination.
f. Defective recruitment, onboarding, and feedback—These are severe HR-centric dysfunctions that ignite attrition outcomes from the get-go. I’ve covered the high cost of employee churn repeatedly above, so anything other than a thoroughly professional hiring and follow-up process is organizationally unacceptable.
Conclusion – What to do about attrition that’s too high
Looking for ideas on how to curtain unwanted attrition? Seinfeld character George Costanza might seem like an unlikely source of insight, but consider this example: After a series of mistakes, George acknowledged he always made the wrong decision, and decided to do the opposite of what his instincts dictated.
Attrition likewise probably emerges from poor stakeholder and management instincts. These, in turn, create the outlined attritional causes in this article. So, counteract them with opposite actions, as follows:
- Compensate your employees competitively.
- Establish an inclusive culture that prioritizes employee recognition.
- Provide in-house training and diverse career paths.
- Encourage feedback (regular employee surveys and comprehensive exit interviews).
- Tighten your onboarding protocols.
- Prioritize employee mental health and well-being.
- Provide hybrid work opportunities.
- Leverage modern technologies and professional advice to get your attrition metrics right.
The attrition conversation goes to the heart of company ROI achievement and strategy by tackling one of the most influential drivers – employee churn (a massive cost item in the P&L).
Combatting attrition requires collecting and analyzing data from all aspects of your business. Sogolytics helps companies across industries collect the insights they need to tackle this challenge. Connect with our team today to learn how we can help you address attrition issues with proactive employee experience solutions.
