What is Attrition Rate and What Does it Mean for Your Company?

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.

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 organization. Employees can be moving to a different department or they might have received a promotion.

Demographic-specific attrition

When a certain group departs your organization in large numbers, this is a particularly worrying type of attrition that occurs. To make sure that the workplace is not alienating marginalized groups, such as women, people of color, and LGBTQ+, HR teams must monitor the attrition of these groups.

How to calculate 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:

Attrition rate (%) = (number of leavers / number of employees) x 100

Let’s imagine, for illustration, that you want to figure out your company’s annual attrition rate. Your business had 100 employees at the beginning of the year. 20 workers departed the company this year, both voluntarily and involuntarily, while 4 people were hired.

Calculating the number of employees at the end of the year is the first stage.

100 – 20 + 4 = 84

Then calculate the average number of employees for that year:

(100+84) / 2 = 92

You can now calculate the attrition rate for the whole year as follows:

Attrition rate (%) = (20 / 92) x 100 = 21.7%

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.

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

The retention of employees is important for a number of reasons.

  • 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 organisation, 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, organisational 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.

Attrition in HR: How to reduce a high attrition rate

HR should focus on finding a solution to assure employee happiness and wellbeing, just like all other strategic actions. Despite the fact that employee attrition may appear to be unavoidable, HR may use tools like an HR dashboard to identify risks of departure as well as prevent and deal with voluntary resignation.

Reduce attrition and increase retention

  • Consider your company’s incentives. Why should employees choose to work there? Are the compensation and perks fair? Does your business let employees work remotely?
  • Reward outstanding performance: Employees who go above and above should be commended for their accomplishments. Monitor employee performance, and integrate rewards into the corporate culture.
  • Create a welcoming environment. If a team member feels like they belong to a supportive and cheerful environment, that might be a big incentive for them to stick around. Diversity and inclusion are crucial components in fostering team engagement and ensuring that team members are at ease on a daily basis.
  • Encourage employee growth: Many workers leave their jobs because they feel stagnant in their existing roles. Align HR goals with workforce objectives and promote the development of strategic skills.
  • Create routine employee satisfaction surveys to find out how they feel unhappy. Maybe there is too much tension and not enough flexibility. Perhaps the toxic environment at work and microaggressions make it harder for workers to feel pleased. Employee satisfaction surveys identify the root causes of issues and provide potential fixes.
  • Promote health and wellness – HR may assist in supporting the physical, emotional, and social wellbeing of employees through wellness programmes and initiatives. People who work for organisations that value them are probably happier and less worried.

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