All You Need to Know About Employee Attrition Rate and Why It Matters

Most often, companies tend to confuse employee attrition with employee turnover. However, as HR professionals, you would know how these two terms have separate roles in creating strategies to improve the employee experience.

But what does attrition mean in HR, and why do organizations work on developing strategies to curb the same?

While retaining employees is vital to a company’s success, so is keeping the employee attrition rate in check.

Employee attrition is defined as the uncontrollable and unpredictable but average reduction of the workforce. Retirement, resignations, sickness, and death are reasons the employee attrition rate changes from time to time.

It measures the number of people who moved out of your company and were not replaced. Knowing the company’s employee attrition rate helps you develop relevant and practical strategies to reduce it.

In this blog, we will discuss everything about employee attrition meaning – starting from how it differs from employee turnover, why staff attrition is essential, and how you can prevent it.

Ready? Let’s dive in!

Why Should Employee Attrition Matter?

Employee attrition gives you clarity on how well you are retaining your employees.

For instance, if you calculate the employee attrition rate and that it is high, it indicates that you need to improve your work culture and benefits to keep your top-performing employees. Conversely, a low attrition rate shows that you are keeping your employees for more extended periods.

By measuring and analyzing your employee attrition rate, you can identify the issues you need to solve and ensure that you keep your employees for the long haul.

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Employers work on having a low attrition rate since it means that their employees are satisfied and don’t need to invest in hiring and training new people. After all, replacing a highly-trained employee can cost between 120% of their annual salary to more than 200%.

Leaving the workforce is more common than being hired and is often beyond the employer’s control. For instance, let’s say your company opened a new Sales Hub office, where all salespeople must work. However, fewer employees were not able to relocate and leave the company. It is one of the most common reasons for employee attrition.

Besides, employees leaving also affects those people working around them. It adds more work to the existing members, decreasing morale and increasing stress. It involves the overall company performance.

In other words, it changes a team’s dynamic and hurts your employer’s branding. In addition, recruiters have a hard time hiring new talented people for companies with high turnover rates.

One way to control the staff attrition rate is by recruiting via an applicant tracking system (ATS) that will ensure finding the right candidate for the job.

Employee Attrition Vs. Employee Turnover: How Do They Differ?

While it is common to confuse employee attrition and turnover, there is a crucial difference between both. Employee attrition is often seen as a long-term concept whereby attrition is treated as a signal of the root cause of employee leaving.

But when it comes to employee turnover, the company tries to replace the employee as quickly as possible. So it is more of a short-term metric.

In the staff attrition case, the vacancy remains unfulfilled for the long term (or the position gets eliminated).

How to Calculate Employee Attrition Rate? 

Here is how you can calculate the attrition rate. While it seems relatively simple, the catch is you must divide the number of employees that have exited by the “average number of employees for the period.” Rather than the total number of employees for the period.

 

Let’s say you had 200 employees at the start of the year. Over one year, 20 employees left, and you hired ten new employees. So, how to calculate the attrition rate for the year?

The first step is subtracting the number of employees left from the number of new hires arriving. It goes like this –

200 – 20 + 10 = 190

To calculate the average number of employees for that period, add the number of employees at the start of the period to the total. And then, divide the total by two to get your employee average.

(200+190)/2 = 195

Now, put the value in the attrition rate formula –

(20 / 195)* 100 = 10.2 % is the annual employee attrition rate.

Types of Employee Attrition

There are mainly two types of employee attrition: 

1. Voluntary Attrition

Here, an employee decides to leave the company. This could be for many reasons, including they might be leaving the country or even health issues. However, most of the time, it’s also because they move to a new job. 

The company retains the decision not to replace with a new employee. And even if they want to, they find it challenging to find the right candidate to replace them.

Voluntary attrition is considered the worst form of attrition as it will reflect the flaws in how you nurture your employees. They might be leaving because they aren’t getting what they need — be it monetary or recognition or the prescribed role.

Source: blog.vantagecircle.com

Identifying the ‘why’ behind your employee leaving is the best place to start building up your work culture. You can interview your employees to understand what’s missing in your organization.

2. Involuntary Attrition 

Involuntary attrition occurs when the company decides to part ways with the employee. It could be for various reasons — one being the company decided to eliminate the position. Or, it could also be because of poor performance.

3. Internal Attrition 

Internal attrition is when an employee leaves a particular department or team and joins another.

It might be desirable attrition as it might mean employees get a chance for professional growth. However, if you notice a high internal attrition rate from a single department or team, the organization needs to find the root cause.

4. Demographic Attrition

Demographic-specific attrition is when a specific group of employees, such as women, minorities, specific ethnic groups, etc., leave your company.

In such situations, companies need to take immediate action to rectify them. Otherwise, it can vastly affect a company’s brand image.

5. Retirement attrition

It is statistically not appropriate to count the retirement of two or three employees as attrition in your company. But on the other hand, if many employees retire at once, this can be a reason for the company’s attrition rate.

It would help if you don’t ignore retirement attrition – your senior professionals may decide to retire early or become autonomous consultants for reasons other than age.

Reasons for High Attrition Rates

As per Human Resource Management, every time a business replaces an employee, it can cost the firm six to nine months’ salary on average. So, companies must make it a point to keep it as low as possible.

Find out why people are leaving your organization. Some of the common reasons for the high attrition rate are mentioned below: 

1. Less Compensation

Employees might feel they are not being paid enough and will want to leave your company as soon as they get a better offer. Having an annual pay raise policy is an excellent solution to increase retention.

2. Lack of Recognition 

Unfortunately, very few employers try to recognize their employees’ measures. Managers might feel intimidated by top-performing employees and take credit for themselves.

While this may not have a massive impact in the short term, it can impact employee morale and retention in the long run. When employees are not given credit where it’s due, they might start feeling demotivated and even resent the company.

3. Slow to No Career Progression

Top performers want to master their jobs and are always looking for opportunities to grow in their career paths. They are looking for more than just an excellent salary. You can easily track and manage employee performance using the software. 

Ample opportunities for growth and development are required for retaining good employees. Well-performing members that feel stuck in their jobs are likely to look for career advancement opportunities in other firms. 

If they feel blocked in an organization, they are more likely to find a job elsewhere, contributing to a high staff attrition rate.

4. Toxic Company Culture

According to SHRM, toxic work culture has cost the US $223 billion over the past five years.

Do you know how many employees leave due to toxic company culture? Having a toxic workplace has a direct impact on overall work productivity and negatively impacts all relationships. It’s a quick way to lose all good remaining employees.

Providing a positive and people-centric culture is essential for retaining your best employees. But before that, hiring people who will make your company a nice place to work is also imperative.

5. Poor Management

In general, employees look up to their manager for guidance and motivation. However, if the manager is too occupied and is only concerned about giving negative feedback, it might not turn out well for your organization.

Besides, many managers like to micromanage everything. It can create a sense of frustration amongst the team members as they might feel dissatisfied.

Managers must keep a clear line of communication and maintain complete transparency to gain their team members’ trust. In addition, they should give constant feedback, recognize good work, and create an inclusive work environment.

6. Highly Stressed Work Environment

Employees can often feel overwhelmed by their workload or experience highly stressful situations at work. This can lead to them leaving your company and joining an organization that is not too stressful to work with.

But this brings us to our next important question – 

Can a High Attrition Rate be a Good Thing?

We may automatically assume that having a low attribution rate is suitable for our organization. But is it?

A low attrition rate may indicate that your company has become stale over time. With no new workforce joining your company, you will have no new ideas. Besides, companies might be having difficulty getting a challenging employee to leave their business.

If such employees are affecting the morale across your organization, it may result in low productivity. In such cases, if an employee leaves, it can be a good thing. But generally, a high attrition rate can be alarming.

Thus, there’s a need to keep a check on your attrition rate — whether high or low.

How Can You Reduce Your Employee Attrition Rate?

Whatever the reason, a high employee attrition rate can be disruptive to your workflow. In addition, a constant churn out of your employees will result in increased hiring costs and time investment.

Here are some of the best practices that you can follow to control your high attrition rate.

1. Train Your Managers

Surprisingly, poor leadership is one of the reasons why employees leave an organization. Therefore, you must monitor the manager-employee relationship and see if the employees are happy.

Investing in management training sessions is crucial to lowering your attrition rate.

2. Conduct Stay Interviews

Listening to your employees and being willing to make changes as needed will help you curb this menace. But, if you merely collect the information and then don’t act on it, you will build resentment among employees.

3. Revise Your Benefits

This should be done every few years or yearly as your employees’ needs change. For example, younger employees will not be bothered about parent-teacher meetings and taking time for kids.

But, as they age, they will indeed look for these benefits. Retaining them will involve giving them more child-friendly perks.

4. Allow More Flexibility

Allowing your employees to work from home or anywhere by installing a hybrid work model can keep your employee happy and satisfied.  

Similarly, many companies are opting for flexible work hours. As long as the work gets done, they do not bother employees with time attendance. 

These are some of the strategies being deployed by top organizations to increase their employee retention rate.

5. Hire the Right People 

Time spent looking for a unicorn candidate will invariably be wasted. Instead, find someone who can and wants to do the job. Eliminating unsuitable candidates in your selection process can reduce your resignations. 

Recruiters are now infusing technology into hiring to source and attract the right candidate. For instance, using an ATS solution automatically weeds out the unqualified candidate for the job. At the same time, recruitment software acts as a centralized database for the pool of talented candidates. 

You can easily reach out to the candidates that best fit into the role, helping employers connect with candidates of their choice.

6. Have Accurate Job Postings

Another reason for high employee turnover is the match of the candidate with the role. Thus, it’s crucial to be accurate in your job descriptions, so applicants know what is expected of them.

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Besides, you should attempt to lure top candidates with false promises like remote working if your company policy doesn’t permit that. Lack of clarity in the job description and company policy will only result in dissatisfied employees, ruining your company’s image. 

Many recruitment software features automatically create an accurate job description with the right keywords. In addition, it ensures no miscommunication while automatically posting roles on various job boards. 

7. Offer Career Progression Opportunities

One of the reasons for voluntary attrition is the lack of career progression within the organization. If your employees are given opportunities to grow in their careers, they might not even consider leaving.

When employees reach a stagnant point in their career, they have no other option but to search for new opportunities.

Thus, the best way is to provide enough opportunities to reach individual career goals while fulfilling the company’s mission. In addition, it can directly impact employee motivation and productivity rate.

Leverage strategic workforce planning to fill in skill and leadership gaps.

8. Recheck Your Human Resources Policies

An HR policy that lacks clarity and is not sensitive to employee needs can contribute to high attrition rates.

An outdated and rigid HR policy can be bad for your organization.

That’s why it’s crucial to have your HR policies rechecked to ensure that all the laws and regulations are in sync with government laws and modern workday benefits.

If it’s not, redesign your HR policies so that it meets your staff’s expectations and create a viable work environment to work in.

Wrapping Up

While it can be hard to lose talented employees, at the same time, it can be an expensive affair to replace them.

An intelligent HR manager can make good use of HR software to keep track of every employee’s progress. It provides a complete overview of your employee satisfaction, work progress, level, training and development, and much more.

By staying updated about your employees’ requirements and the company’s work culture, you will be able to manage your human force better.

It will allow you to fix and retain employees before they become issues. It’s a win-win situation.

Knowing the causes, you can employ a long-term workforce and plan strategies to manage employee attrition like an expert.