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 rate is becoming increasingly important – in fact, the rate at which your employees are leaving the company is one of the most important HR KPI metrics that you should be keeping track of.
In this post, we will look at the meaning of attrition for you as an employer, and what you can do to improve numbers in your organization.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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:
Then calculate the average number of employees for that year:
You can now calculate the attrition rate for the whole year as follows:
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.
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 retention of employees is important for a number of reasons.
So, what next? What can human resources do to reduce unwanted resignations?
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.
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.
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:
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.
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.
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.
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