Any business owner understands that without valuable employees, the business would mean nothing. Regardless of the average number of employees that you have, it’s important that you do everything you can to minimize turnover and maximize happiness.
If you’ve never considered your employee attrition rate, now is the time to do so! Your attrition rate and employee retention are not the same things, although they go hand-in-hand. If your retention rate is low, it points to a problem that you’ll likely want to address sooner than later. Let’s define the employee attrition rate and unveil how working with a team like Cultivate Advisors can help you.
What Is the Attrition Rate?
Employee attrition refers to the rate at which people leave your company. Both involuntary attrition and voluntary attrition are factored into this metric, and it’s typically expressed as a percentage that your HR professionals should be keeping a close eye on. Examples of attrition include resignation or retirement without future plans to fill the vacant job position. Although there is a negative connotation around the term attrition, there are sometimes positive outcomes that result in a reduced number of employees.
Why Does the Attrition Rate Matter for Your Business?
Attrition rates can help unveil helpful information for HR leaders and assist them in understanding employee turnover and why people are leaving the organization. Of course, there is a certain level of normalcy when it comes to a reduction in full-time employees, but if your attrition calculation is abnormally high, it could point to red flags in your people strategy. As a result, high attrition rates can directly impact the company culture and make it even more difficult to hire strong talent in the future.
When employees leave, this also is an expensive feat. For example, there are some estimates that suggest that when an employee leaves, it can cost anywhere from 6-9 months’ worth of their salary to replace them.
Employee Turnover Rate vs. Attrition Rate
It’s important to distinguish the difference between attrition and employee turnover. Many people use these two phrases interchangeably. However, there are differences between the two. It’s common for people to view high turnover as more of a short-term issue that only impacts a given period within the business. As a result, they try to quickly fill the gap with other team members, which is ultimately a temporary solution.
Attrition, on the other hand, is more of a long-term concept that focuses on the volume of employees leaving over a longer period of time. Attrition refers to the bigger picture of the company and points to higher-level approaches toward employee development and employee churn.
Employee Attrition vs. Retention
Retention rates refer to the percentage of employees who remain employed over a specific time period. You can think of this as the opposite of attrition metrics, something that measures how often an employee chooses to leave a company.
On its own, the retention metric doesn’t unveil a ton about the overall health of the organization.
4 Types of Attrition Rates
There are four main types of employee attrition to help you determine if there are any underlying threats to your company. Not only should you calculate the attrition rate, but it’s important to identify the type to help you understand the underlying cause. After all, calculating attrition can help you unveil potential issues regarding employee satisfaction, a factor that is important to your long-term business performance.
If departing employees choose to leave the company, it is referred to as voluntary attrition. This is the most common type of employee attrition, and it is the most essential for your HR department to consider. Common examples of reasons for this type of employee attrition include resignation and retirement. Other reasons could include the lack of a fair wage, minimal work-life balance, personal reasons, or poor benefits.
If you need to let go of an employee involuntarily, this is referred to as involuntary attrition. There are many reasons that employees might be let go, including downsizing the company, changes in growth, a shift in market demand, or overall poor performance.
If advancement opportunities arise within your company and your employee wants to focus on career development and shifts to a different internal role, this is referred to as internal attrition. While this might not have a negative impact on your company, it can be difficult to find new hires to replace these open roles.
If your staff turnover has to do with a certain demographic group, this is a particularly worrisome type of attrition rate. HR teams should be tracking employee attrition rates for marginalized groups such as people of color, women, and the LGBTQIA+ community to make sure they feel safe.
How to Calculate the Employee Attrition Rate
You’ll want to use the attrition rate formula to determine your average turnover rate. The attrition rate calculation is simple. First, divide the total number of employees who have left your company within a given period by the average number of employees that you have in that same period. You’ll take this number and multiply it by 100 to get your attrition rate.
To calculate your company’s attrition rate, you can use the following attrition rate formula:
Attrition rate (%) = (the number of leavers divided by the number of employees) x 100
For example, if you want to determine your annual attrition rate, determine how many employees worked at the company at the start of the year. Let’s say you started with 100 employees and 20 employees left the company, but you also had 7 new hires.
First, determine the number of employees that you had at the end of the year.
100 – 20 + 7 = 87
Then, calculate the average number of employees you had that year.
(100 + 87 ) divided by 2 = 94
Using the attrition formula, you’ll determine that:
Attrition rate (%) = (20 divided by 94) x 100 = 21.27
What Is a Good Employee Attrition Rate?
If you have a high attrition rate, it means that employees are frequently leaving. A low attrition rate means that your employees are happy and are staying for longer periods. It’s not abnormal for staff attrition to vary based on the season. You can utilize the Bureau of Labor Statistics to research the average nutrition rate for organizations that are similar to yours. However, there are many companies that are able to keep attrition rates below 10%.
What Causes High Attrition Rates?
To keep the best employees in your organization, it’s important that you have an understanding of what might be adding to their desire to leave. Here are some factors that might be in play.
A departing employee could note poor management as the cause for their desire for a new job. It’s important that your leadership team, starting from the top, is aware of how to make employees happy and fulfilled. This could include anything from investing in training costs to offering a higher salary every year.
A Lack of Recognition
Employees like to be acknowledged when they are producing good work. Make sure to tell your employees when they are doing a good job or acknowledge their hard work if they have been putting in extra hours.
One of the main causes of high attrition is the lack of pay. Whether you’re talking about old or new employees, compensation needs to be factored into the overall job happiness that they’re experiencing.
Growth and Development
The need to nurture employees is essential in today’s world, and many people are looking to advance in their careers. Make sure to offer plenty of development activities to help fulfill these needs.
How would you describe your company culture? If nothing comes to mind, you’ll want to invest time and energy into cultivating a positive culture.
Toxic Work Environment
A toxic company culture can have a huge impact on the attrition rate. If tensions are high, your employees will feel it.
How Can You Lower High Attrition Rates?
There are some best practices that you can implement to bring down a high attrition rate:
- Reduce staff turnover by focusing on retainment: Once you bring new employees into the company and you’re able to see who is a top performer when it comes to growth and advancement in your company, it’s important to implement best practices to keep them around. Make sure your compensation packages are competitive, and there are opportunities for growth. Your culture should be based on honesty, trust, and respect so your employees develop a sense of loyalty.
- Plan for varied employment: HR leaders should research and calculate attrition rates of other similar companies and continue to do ongoing research using hard data. This can help plan for various types of company employment; essential core team members can transition into full-time employees while also taking advantage of independent contractors.
- Use a warm offboarding program: During the offboarding process, HR leaders should conduct exit interviews to help ensure employees are leaving on a positive note. This helps employers exemplify a sense of integrity even if the individual has found a better job for their needs.
- Leave the door open for a return: Just because an employee took a job offer elsewhere, it doesn’t mean that the employee won’t return. This is referred to as a boomerang employee. Sometimes, employees leaving ultimately decide that they want to return to your company, and they’ll be full of valuable knowledge when they do so.
Tips for a Healthy Recovery from Resignation
If you’re currently experiencing a high employee attrition rate, it can be frustrating, to say the least. Not only that, but it can also be very expensive and increase stress for those employees who have to pick up the slack in the wake of these team members’ absences. Here are some tips to recover from a high attrition rate and to reduce the churn rate in the future.
- Implement succession planning: Fill the gaps of the employees who have left to help ensure a smooth transition between candidates. Even if you don’t have an extremely rigorous handover process right now, you can focus on doing so in the future.
- Put a larger focus on recruitment: It’s a continuous process to find the right person for the right job. Finding the right candidate can take time, and this isn’t a process you want to rush. In today’s market, top talent goes quickly, so it’s important that you are prepared to do what it takes to find and keep the most qualified candidates for each role.
- Don’t skip the exit interview: HR teams can find out a lot when they talk with the person who is leaving to understand their reasoning.
How Cultivate Advisors Can Help
The attrition rate of your company is not something that you should take lightly. As business advisors, our team at Cultivate Advisors knows what it takes to cope with talent acquisition and retention issues that you might be experiencing. Allow our experienced talent management consultants to help you with every step of the process, giving you tailored advice that can help your business performance thrive. Contact us today to get started.