The essential metrics for employee retention are the attrition rate and turnover rate. What is the attrition rate, though? Attrition, in essence, measures the pace at which workers depart an organization.
The need to monitor attrition and turnover rates has never been greater. Resignation rates have remained high and the number of new job opportunities has increased in 2022. We can now see that the so-called “Great Reshuffling” represents the beginning of a long-term trend rather than merely the product of pandemic-related turmoil.
HR professionals are increasingly tracking important HR indicators like attrition rate to acquire insight into their organization amid the tightest labor market in recent memory. Companies can identify growth prospects and develop a solid retention strategy by comparing internal data to industry norms.
In this article, we’ll examine what attrition means to you as an employer and what you can do to boost productivity in your business.
What is the attrition rate definition?
How many workers leave a company within a specific time frame is measured by the attrition rate, commonly referred to as the “churn rate.”
How is turnover different from attrition in terms of meaning? In actuality, the phrases attrition and turnover rate are sometimes used synonymously. In fact, the same formula is used to calculate them both.
However, some HR experts assert that context determines whether attrition or turnover occurs. They contend that the attrition rate reflects the number of workers who quit without a successor taking their place. Contrarily, turnover counts the number of workers who quit and are replaced by new hires.
High turnover rates and high attrition rates can also be signs of internal issues in a business. It can cost between one-half and two times as much to replace an employee as their annual wage due to hiring expenses, missed opportunities, and decreased productivity. Retaining and growing talent is in the best interest of an organisation.
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The four types of attrition
You must take into account more than just the calculated figures in order to determine whether employee attrition could cause issues for your business.
Understanding the different types of attrition and their causes is crucial. A company’s high attrition rates can have a variety of effects, some of which are directly related to employee happiness. The four types of employee attrition are listed below, along with the underlying causes for each.
Voluntary attrition
Attrition is regarded as voluntary when workers leave the company of their own volition. Due to its prevalence, this form of attrition is the most crucial for HR to consider. Retirement and resignation are frequent causes of voluntary attrition. Personal issues, inadequate pay and benefits, and a lack of inclusive policies can all play a role in an employee’s decision to leave their position.
Involuntary attrition
When workers are abruptly let go from their jobs, this happens. Involuntary attrition may occur as a result of downsizing or modifications in the growth and demand of the market.
Internal attrition
Employees do this when they decide to accept a different position inside the same organisation. Employees might be moving to a different department or they might have received a promotion.
Demographic-specific attrition
When a certain group departs your organisation in large numbers, this is a particularly worrying type of attrition that occurs. To make sure that the workplace is not alienating marginalised groups, such as women, people of colour, and LGBTQ+, HR teams must monitor the attrition of these groups.
How to calculate the attrition rate
It’s easy to determine your employee attrition rate.
First, subtract the number of departing employees from the average number of employees for the time (for that same period). The split sum should then be multiplied by 100.
The formula for attrition rate looks like this:
What is a “high” attrition rate?
Generally speaking, higher attrition rates suggest that your company is losing personnel quickly, whilst lower rates show stronger employee retention.
It is crucial to consult the Bureau of Labor Statistics for information on the typical attrition rates for firms just like yours because attrition rates might vary by season, industry, and region. Construction companies’ attrition rates will be considerably different from SaaS tools’ attrition rates.
Nevertheless, many businesses strive to keep attrition rates below 10%.
The consequences of high attrition
- First of all, excessive attrition can be expensive and time-consuming. You must examine resumes, screen applicants, and do interviews for every new hire. Once a candidate has accepted your offer, you must onboard and train them. Not to mention all the costs and paperwork associated with severance payouts and exit interviews when someone departs your business. Additionally, production will undoubtedly suffer, at least until you look for someone to take over all of the departing employee’s responsibilities.
- A business with a high staff retention rate is also more likely to draw in and keep more qualified candidates. This has a lot to do with reputation in terms of staff morale and happiness. A cheerful and nurturing environment can be quite alluring to candidates if they are aware of it. Retention of current employees can play a significant role in the employee experience at your business.
- Your employees may find it challenging to establish good working relationships with their coworkers if there are frequent staff changes. Additionally, long-term employees are frequently less stressed, more dedicated to the long-term success of the business, and more productive. They also exhibit greater loyalty and a greater sense of belonging.
Is a high attrition rate always a bad thing?
Contrary to what people would think, a high attrition rate is not always a bad thing. It’s critical to consider the causes of employee attrition, the company’s current status, and the broader strategic goal while examining employee attrition.
A recent restructuring at your organization, for instance, might have resulted in the loss of several roles. Employee attrition may be necessary and a key element for future growth and expansion if those positions weren’t entirely necessary or included in the company’s future plans. Although it is never nice to part ways with team members, organizational transformation occasionally requires it.
High attrition rates brought on by a skills shortage and voluntary termination, however, can pose serious issues for enterprises. In these situations, it is best to comprehend the underlying reasons for their departure and create a strategy for dealing with issues. Did their decision to leave have anything to do with the workplace culture? If so, making sure employees have a safe place to work should be the company’s primary responsibility.
