Employee Attrition: Meaning, Impact & Attrition Rate Calculation
People leaving organizations seems like a quite straightforward matter, but there is a lot to unpack with employee attrition. Even though the term is often used interchangeably with employee turnover, it’s not the same. Let’s take a look at what employee attrition is, its causes, how to calculate your attrition rates, and how to manage attrition at your organization.
Contents
What is employee attrition?
Employee attrition vs. employee turnover
Types of employee attrition
Is employee attrition always bad?
Reasons for employee attrition
How to calculate the attrition rate
Employee attrition analysis
7 tips for attrition management
FAQ
What is employee attrition?
Employee attrition happens when an employee leaves an organization for any reason and is not replaced for a long time, or not ever. It often results in a decrease in the size of an organization’s or department’s workforce because positions aren’t refilled when employees leave.
Attrition can occur throughout an entire company or just in certain departments or divisions. This typically happens when automation or new technologies replace employees.
For example, a car manufacturing factory might have previously required workers for assembly line tasks such as attaching wheels or installing windshields. With advancements in automation, these tasks could be taken over by robotic arms and machines, thus reducing assembly line workforce needs.
Employee attrition is measured by calculating the attrition rate.
Employee attrition vs. employee turnover
The terms “attrition” and “turnover” are sometimes used interchangeably, but they have different meanings. Employee turnover measures all employment terminations, including those positions that are refilled by new employees. Employee attrition refers to long-term vacancies or position eliminations.
If your employee attrition rate is high, your company is shrinking. You can have high turnover rates and still have a stable or even growing company. For example, restaurants and retail often have high turnover rates, even if the business grows.
Understanding the differences between employee attrition vs. turnover, Human Resources professionals can design and employ the right strategies to keep their business in the best shape possible.
Types of employee attrition
Employee attrition occurs in a variety of ways, but there are two general categories for designating types of attrition:
Voluntary attrition Voluntary attrition takes place when employees choose to leave the company on their own accord, such as for personal reasons or to take a new job, and the employer decides not to replace them or cannot find a replacement. Even situations when the employee believes they have no choice but to resign are still considered voluntary attrition. For example, leaving for health issues or because the work situation is toxic. Involuntary attrition When the company makes the decision to part ways with an employee and eliminates their position, it is defined as involuntary attrition. This most commonly happens during reorganization or layoffs. Involuntary attrition through position elimination is the most common form of attrition, as the company decides proactively to eliminate a position.
In termination for cause cases, such as poor performance or misconduct, the employer may decide afterward to leave the job vacant.
Is employee attrition always bad?
High attrition rate can pose many issues for an organization. You can have a lack of continuity, training gaps, and insufficient institutional knowledge. It can take a long time to fill positions (especially specialized roles), and if you leave these key positions empty, it can become difficult to fill these positions later.
Your existing workers need to pick up the slack, and all the extra work can cause employee burnout. That lowers the overall productivity, leading to unhappy customers and hurting your bottom line.
Tracey Power, Chief People Officer at a talent solutions company Vaco, points out the negative consequences of employee attrition: “Employee attrition can impact strategic plans due to a lack of skills to deliver on projects or key initiatives. There is also an increased risk of reputational or employer branding impacts, which can lead to challenges in attracting new talent and decrease retention rates among current employees,” says Power.
Bruna Vasconcelos, Head of People at a hiring platform Revelo, adds: “Departing employees take their knowledge, skills, and experience with them, resulting in a loss of overall business knowledge. This directly impacts team performance and the quality of their deliverables.”
While a high employee attrition rate is often problematic, attrition can serve a purpose in some circumstances. Here are a few ways that employee attrition can work in an organization’s favor:
- If a certain position has become unnecessary, it can be eliminated when the person currently filling it leaves or transfers.
- When financial struggles or redirection of the business require reducing labor costs, not filling vacant roles can be the starting point.
- Dividing the responsibilities of an unfilled position to other team members can provide new opportunities for growth and development.
Reasons for employee attrition
Various factors affect attrition, some of which are under your control and some of which are not. Let’s look at several of them:
Low unemployment and workforce demographics
The job market influences how quickly open positions can be filled. If your area or industry has low unemployment rates, you may not be able to replace employees who leave when you want to.
Also, if multiple experienced employees are eligible for retirement or resign at the same time, it may create a skills gap. It can take quite a while to find qualified candidates or prepare current employees to take over these roles.
Voluntary resignations
Employees leaving on their own accord is a reality for every business. People will get recruited or pursue opportunities elsewhere no matter what, but certain employers will have more departures than others. Common reasons for leaving include low compensation, poor work-life balance, lack of recognition or career development, poor management, and a hostile work environment.
High voluntary turnover can create more attrition when recruiting can’t keep up resignations.
Company restructuring
Attrition is often the goal when a business restructures. During mergers, acquisitions, or other reorganizations, employees will feel uncertain about future employment and may jump ship during the process.
Since the restructured company is likely to end up with duplicate or obsolete positions, HR leaders can intentionally and carefully eliminate these through attrition.
Financial difficulties
In times of growth and strong profits, employers may do a lot of hiring. When companies face financial troubles, layoffs are always on the table as a cost-cutting measure.
For example, Dutch healthcare company Philips had to recall one of its products which reduced its market value by 70%. The company is laying off 5% of its workforce by 2025 to boost profitability.
Shift in business strategy or focus
Leaders must react to shifts in the business climate by being flexible and changing objectives or strategies. During the competitive employment climate of the pandemic era, Bank of America built up its workforce. Now despite strong financial results, Bank of America has rethought its staff headcount and has cut more than 1,000 positions so far and has plans for 3,000 more. It plans to make most of the cuts by not replacing staff that leave.
Embracing new business models means that certain roles will change, become irrelevant, or be done away with. When slowing sales hit American footwear retailer Crocs in 2017, its president Andrew Rees stated, “Over the past several months, as we continued to focus on removing unnecessary complexity from our business, we conducted a comprehensive review of our cost structure.” The company closed 158 stores and eliminated retail workers’ jobs at those locations.
Technological advances
When an organization embraces technology to do business, it can affect certain roles. For example, a retailer might need fewer cashiers when they introduce self-checkout.
New technologies can alter the skill sets needed to do traditional jobs. Retail membership warehouse Sam’s Club has introduced a modernized version of its store model that doesn’t have registers or cashiers. Instead, customers use an app to navigate the store and scan items. Employees roam around assisting customers and scanning a barcode on their app to collect payment.
If Sam’s Club expands this model, it will affect how they staff certain locations.
Outsourcing
Hiring outside services to complete work is a growing trend among many businesses to cut costs or avoid having to retain employees with specialized skills. IT and customer support departments are commonly outsourced.
In 2018, American retail corporation Walmart, Inc. outsourced its accounting and finance services to New York-based Genpact. This change affected about 550 employees at Walmart’s corporate headquarters in Bentonville, Arkansas, but they were offered comparable jobs at Genpact.
How to calculate the attrition rate
Whether your organization is aiming to maintain, decrease, or increase employee attrition, you can monitor it by calculating the annual attrition rate.
The attrition formula is pretty straightforward:
However, you need to collect data for calculating employee attrition.
Let’s walk through an example:
First, find your average annual headcount. Let’s say this is 1,500 employees.
Then, look at the number of employees who have departed within the year, leaving positions unfilled. Let’s say this is 35.
35/1,500 = 0.0233
0.0233 x 100 = 2.3% attrition rate
This number assumes that you are not planning to fill those 35 vacant positions. If you plan to fill five of the 35, then your attrition rate is:
30/1,500 = 0.02
0.02 x 100 = 2% attrition rate
You’ll now notice that this number would be different from your turnover number, which takes replacement into consideration.
Turnover is:
Number of Terminations / Average Headcount x 100
If you have lots of people quit and replace them all, it’s possible to have staff turnover of over 100 percent. It’s not possible to have attrition over 100 percent.
Employee attrition analysis
Bear in mind that your organization’s attrition rate on its own won’t tell a complete story. The larger the company is, the more informative it is to look at employee attrition rates by department or site.
You may find that while your overall company has low attrition, you have one site losing employees while another site grows, canceling each other out.
If your goal is to reduce attrition, statistics within your employee attrition data are useful for identifying patterns and problem areas. Some information you may want to consider includes:
- Has there been a steady climb in the attrition rate, or does it fluctuate?
- Is attrition high in one or more protected groups?
- What are the reasons people leave, and do they point to issues that need to be addressed?
- Times of the year when attrition spikes.
- Are positions in a certain department more difficult to fill?
- Attrition rate in relation to turnover rate.
“Data-driven approaches can help companies determine what’s causing employees to leave, whether inadequate compensation, lack of growth opportunities, or culture issues. Then, they can target those issues and really work to keep people around,” says Joe Colletta, Founder of an engineering and IT recruiting company 180 Engineering.
Irish data analytics and consumer credit reporting company Experian did just that. A team was formed to seek out the root cause of a high attrition rate using predictive modeling to analyze employee data and detect workforce issues. They were also able to identify which benefits workers valued the most and incorporate them into employee retention strategies.
A rewards and incentives platform Tillo uses data to understand trends in employee departures, which has been crucial in this phase of company growth.
“That way, we can take proactive measures to keep attrition rates low. To achieve this, we closely monitor quarterly data points, such as employee happiness and attrition.
These insights are crucial in guiding our decisions and actions and help us drive the business forward while ensuring we remain aligned with our existing company culture,” says Briony Robertson, Tillo’s VP of People.
7 tips for attrition management
Sufficient planning to ensure appropriate staffing may reduce involuntary attrition situations, but certain circumstances cannot be foreseen. Businesses have more control over preventing voluntary attrition. A recent report showed that most of the time, people quit for matters that companies could change.
We’ve compiled some ways to help you manage employee attrition:
1. Train managers to supervise employees effectively
With one study indicating that 34% of employees quit their jobs because of uncaring/uninspiring leaders, how managers handle people matters.
Equip team leaders with communication, decision-making, conflict resolution, and time management skills to cultivate strong relationships with their direct reports.
2. Review your compensation plan
People want an employer that values their time and effort, and they appreciate a strong compensation and benefits package. If you’re paying below-market rates, it can be difficult to retain staff. It’s important to periodically evaluate what you’re offering employees financially.
Conducting a salary survey and benchmarking all your salaries will reveal how competitive you are with other employers. Increases in pay ranges and some raises may be in order. Furthermore, ensure that your benefits and perks are relevant and meet employees’ current needs.
3. Allow flexibility
A study by Yoh showed that 44% of women and 39% of men would consider taking a new job that offered a more flexible work environment. When an organization gets creative about how teams can do their work, employers will be able to accommodate and retain more people.
Telecommuting, variable schedules, and reduced work hours provide more options for people to create a better work-life balance. For example, part-time hours may appeal to retirement-age employees or those coming back to work from medical or parental leave.
4. Ensure transparent communication
Open communication fosters trust. Encourage leaders to be upfront about business plans and developments and get employees involved in decision-making whenever possible. Team members should be comfortable expressing their ideas and concerns with managers.
Keeping employees in the loop and asking for their feedback makes them feel like valued contributors.
5. Hire productively
A selection process that allows you to hire the right people who can and want to do the job will reduce attrition. This starts with accurate, comprehensive job postings that realistically describe the position.
With a focus on skills-based hiring, you can look beyond academic degrees, job titles, and years of experience for people that have the actual skills and abilities it takes to perform well in the role. That way, you’re helping make sure that your new hires stick with you for some time.
6. Conduct exit and stay interviews
Employee input is a critical tool in addressing attrition. Exit and stay interview data will show patterns about why people leave the company and what keeps them.
With this insight, you can identify the company’s strengths as an employer and hone in on problem areas. From there, take steps to bolster your assets and correct problems.
7. Upskill and reskill employees to fill open positions
As your business evolves, focus on how you can upskill and reskill people. If they can handle the new roles that emerge, you can avoid layoffs. This also benefits your strategic workforce planning and succession planning. Developing employees to fill in your skills gaps means there will be someone who can step in when an experienced employee retires.
When promoting from within is common, employees see that their institutional knowledge matters and that there is career potential within the organization.
Over to you
It’s important to recognize if your company is losing people, why you are losing them, and what you can do to manage it. By knowing your employee attrition rate and understanding the reasons people leave, you can put long-term workforce planning strategies in place to protect your organization from an unwanted headcount reduction.
If you want to learn more about HR metrics and future-proof your HR skill set, check out our HR Metrics & Reporting Certification Program!
FAQ
Attrition is a gradual headcount reduction resulting from not refilling positions when employees leave the organization.
Turnover is the total number of all employment terminations, including employees that are replaced. Attrition is the number of positions that are not refilled when employees leave.
Employee attrition can cause problems when you have too many open positions to maintain productivity. However, when a workforce reduction is necessary, attrition can be a preferred alternative to layoffs.
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