Understanding Employee Attrition: What It Means For Your Business

When it comes to HR metrics, like many others, your business probably focuses on employee turnover. That’s the number that really counts, right? After all, recruiting and onboarding new talent costs money. You may think there’s not much you can do about employee attrition. Staff will inevitably retire, resign, get sick or even die. And if the employee isn’t being replaced, does it really matter? Well, the short answer is yes. Employee attrition may, to some extent, be a natural process. However, a high rate of employee’s leaving could be a sign of underlying issues requiring your attention.

This post will help you understand what employee attrition is saying about your business. We explain how to work out your employee attrition rate. And we also explore some ways to tackle this issue. By the end, you will have a clearer picture of how employee attrition fits in with broader HR metrics.

What Is Employee Attrition?

Employee attrition describes voluntary and involuntary terminations, deaths, and employee retirements, resulting in a reduction in the company’s workforce. The employee attrition rate measures the number of people who leave your organization that are not replaced.

Nowadays, very few employees begin and end their careers in the same company. Sometimes workers move away, pass away or retire. And sometimes companies have to make some hard decisions on budgets, downsizing, or just taking a new direction.

Employee Attrition vs. Employee Turnover

Employee attrition is often confused with employee turnover. So, before we go further, let’s clear up any misunderstanding.

Both terms are used to describe the process of employee churn. However, employee turnover is also used to describe workers who leave either through termination or because they have found a better job. However, the difference a new recruit is needed to fill the vacancy.

Unlike employee attrition, workers that choose to leave of their own accord create vacancies that need to be filled. And according to Glassdoor, average companies in the US spend a whopping $4000 on hiring a new employee. On top of that are onboarding costs and all that lost productivity. It’s easy to see how employee turnover can become an expensive problem for businesses.

Here’s a simple way to look at it: employee attrition is often a way to reduce spending. However, employee turnover just increases your costs.

Types Of Employee Attrition

There are three main types of employee attrition you need to know about. Analyzing employee attrition will help you understand whether you have an underlying problem.

• Voluntary attrition: This is where an employee chooses to quit their job. There could be several reasons, such as retirement, health issues, taking care of a family member, or relocation. It could also be the employee has found a better opportunity.

However, the worker may also be leaving due to an issue with you, the employer. Perhaps, they believe there are no opportunities for career advancement. Or it could be down to weak leadership or hostile work culture.

• Involuntary attrition: In these cases, it’s the employer who decides to part ways with the worker. Businesses often downsize, reorganize internally, freeze recruitment, or lay off staff to control costs. Involuntary attrition also covers employees whose employment is terminated due to misconduct or poor performance.
• Internal attrition: This scenario covers an employee who quits their job for another role with the same employer. Often, this is positive attrition. The worker is developing new skills and knowledge. And the employer is retaining that all that internal expertise. However, it’s worth investigating if the internal attrition occurs within one department or demographic. It could be the manager needs reskilling. Or there’s a culture problem within the team.

How To Calculate Your Employee Attrition Rate

Use the following formula to calculate your employee attrition rate:

 

Employee attrition rate = number of attritions/average number of employees x100

 

Simply divide the number of employees who have left the company for a specific period by the average number of employees. And then multiply by 100.

Some businesses collect this data monthly or quarterly, while others make an annual calculation. Often the choice depends on the size of your organization. Larger companies with sizable workforces are more likely to monitor employee attrition monthly or quarterly. And for smaller enterprises, an annual calculation makes more sense.

How do I know if my attrition rate is good or bad? That’s a good question. Employee attrition rates vary between industries. According to data from LinkedIn, the marketing industry has the highest attrition rate at 19.8%, with technology coming in second with 13.2%. Media and entertainment had the lowest attrition rate at 11.4%. To get a feel for how you are doing, benchmark your data against the industry average.

Factors Contributing To Employee Attrition

Before you can tackle employee attrition, it’s essential to understand what causes employees to leave. As we have already seen, there are several factors at play here. Conduct exit interviews to dig deeper into the factors contributing to employee attrition in your business. However, most factors come under the following four broad categories.

• Personal motivation: Everyone’s situation is different, and workers can have valid personal reasons for leaving. They may need to relocate to another city to care for sick relatives. They may be suffering from poor health. Or perhaps they want to put their feet up and enjoy retirement.
• Professional motivation: Career progression is probably the most common professional motivation for attrition. Top-performing employees may feel stuck in their current job and end up looking elsewhere for growth and development. For other employees, it’s more about feeling under-appreciated, unrecognized, and undervalued. Whatever, the case the upshot is the same. The employee leaves to find professional fulfillment elsewhere.
• Workplace challenges: Motivations here range from poor company culture and uncollaborative leadership to lacking the necessary tools to get the job done.
• Poor employee-to-job match: Not every company or job is right for every person. Sometimes the role and the employee just aren’t a good fit. Maybe the job wasn’t what they thought it was going to be. Perhaps, your company’s onboarding process is flawed. Or job descriptions need to be tweaked to reflect the requirements more accurately.

Is Employee Attrition Good Or Bad?

So, what’s the big deal with employee attrition? Surely some attrition is inevitable, so does it really matter? These are valid questions. As with most things, there are pluses and minuses. And it’s all about finding the right balance.

Advantages Of Employee Attrition

In times of financial strife, employee attrition can undoubtedly help reduce the wage bill.

Furthermore, if departing workers are poor performers or disgruntled and disengaged, a clear-out can be beneficial. These kinds of employees often have an overall negative impact on their colleagues. Waving goodbye to this negativity gives you a chance to develop a more positive company culture.

Disadvantages Of Employee Attrition

Remember, unlike turnover, churn due to employee attrition means workers aren’t replaced. However, there is still a cost to the business. The reduction in the size and strength of your workforce can have operational impacts. And it could affect your ability to deliver customer services. Job duties will have to be reassigned, which could increase the workload of the remaining staff. Increased stress, frustration, and burnout in team members are often unintended consequences.

Another problem with all of this is that you could lose valuable company knowledge. Longstanding employees often hold vast amounts of internal knowledge and expertise. And when that worker leaves, there’s a massive gap that’s hard to fill.

Managing employee attrition is about striking a balance between retaining top talent and accepting some attrition is healthy.

7 Best Practice Ideas To Reduce Employee Attrition

Here are seven best-practice ideas to help you strike that all-important balance.

1. Hire The Right People In The First Place

Invest in your recruitment processes to ensure you hire people from the get-go who are a good fit. Accurate job descriptions and robust selection processes will be critical. And in the interview process, use predictive assessments to ensure candidates are suited to the job and the company culture.

2. Invest In Learning And Development

Investing in staff learning and development opportunities is a win-win for everyone. You get the benefit of the worker’s increased skills and knowledge. And your employee will be happier, more fulfilled, and less likely to look at external opportunities.

And don’t neglect your managers. Make sure you invest in training supervisors to ensure they can manage employees effectively. After all, the quality of the manager-employee relationship is a significant predictor of attrition.

3. Pay A Competitive Salary

Fair pay for an honest day’s work is important to staff. Benchmark your salaries against others in the same industry. If you are paying below-market rates, then your staff are vulnerable to attrition.

4. Develop Flexible Working Practices

For some employees, flexible working practices can make all the difference. Whether it’s varied start times or work from home opportunities, increased flexibility can sway some employees who otherwise might leave.

5. Boost Employee Engagement

A workplace culture where staff feel valued, heard, and listened to is crucial for retention. Regularly ask for views and feedback in employee surveys or pulse checks. And be sure to act on the feedback given.  Furthermore, provide recognition to workers. Let them know when they are doing a good job and praise their achievements. A culture of employee engagement and appreciation will make your people feel positive and committed to their work.

6. Promote From Within

Offering internal career paths is a sure-fire way to deal with attrition. Companies that support staff in reaching their individual career goals by promoting from within score highly on employee attrition.

7. Conduct Exit Interviews

Be sure to hold detailed exit interviews with all departing staff so you can dig deep into their motivations. Exit interviews will help you spot any attrition trends that need to be addressed.

HR Metrics And Employee Attrition Rates

The 2019 Retention Report by Work Institute uncovered some interesting employee attrition trends. And the report’s most important takeaway is preventable attrition is now more prevalent than unpreventable attrition.

Furthermore, according to the report, career development was the top reason for leaving. Wanting a better work-life balance was second, with manager behavior coming in a close third.

And the good news is, there’s plenty of steps you can take to tackle employee attrition. The seven best-practice ideas we have identified are an excellent place to start. These steps will ensure you gain all the advantages of employee attrition while minimizing the potentially damaging ones.

So, when it comes to your company’s HR metrics, give this metric the priority it deserves. Your rate of employee attrition, when taken together with employee turnover, provides a fuller picture of what’s happening on the ground.

For more insights and best practice tips on HR and other business challenges, check out MyHub’s blog.  MyHub provides cloud intranet solutions to companies worldwide. Simple to set up and easy to use, our cloud intranets are packed full of features to support the work of HR. MyHub’s intranets ensure HR has everything required to deliver superior internal service, from knowledge management to advanced information sharing and more. Explore the possibilities today in a free demo or 14-day no-obligation trial.