Attrition Rate: How To Calculate and Analyze the Key HR Metric
Attrition rate is an important HR metric that provides organizations with insight into their workforce’s stability and satisfaction. It also reflects the effectiveness of retention strategies, highlighting potential areas for improvement in workforce planning, employee management, and engagement.
This guide will detail how to calculate attrition rate, factors that impact attrition, and how to analyze your company’s attrition rate score.
Contents
What is attrition rate?
Difference between attrition and turnover
Types of attrition
Factors impacting attrition
How to calculate employee attrition rate
Is a high attrition rate good?
How to conduct an employee attrition analysis
HR strategies for reducing attrition rate
FAQ
What is attrition rate?
The attrition rate is a measure of the rate at which employees leave an organization without being immediately replaced over a specific period of time. It is usually expressed as a percentage.
Attrition can adversely affect the company, so it’s essential to know your company’s attrition rate. Tracking attrition rate is helpful to monitor if the number of people leaving is growing or declining so HR teams can improve workforce planning and people management. The changes in attrition rate can signal the management to the root cause(s) of employee exodus.
Difference between attrition and turnover
Employee attrition and turnover are two different concepts that describe the departure of staff from organizations, and they can have different impacts on the business.
Attrition occurs when employees leave the workforce much quicker than the rate at which they can be replaced. Vacancies stay open for more extended periods. Sometimes, they are eliminated because skills are currently unavailable in the job market. It is also a long-term issue. A high attrition rate can have positive and negative impacts, depending on the circumstances. Addressing it requires business and HR strategies and interventions.
Employee turnover refers to the rate at which new hires replace employees who leave their companies. This concept tends to reflect more short-term changes within the company. High turnover rates can negatively affect businesses as hiring and training new staff can be expensive. In addition, it can lead to a loss of institutional knowledge and experience, which also impacts creativity and innovation.
Here are some examples to illustrate the differences:
Turnover Attrition Voluntary resignation: An employee decides to leave for a new job opportunity, higher salary, or better work-life balance. Retirement: An employee retires after reaching a certain age or tenure, leaving their position vacant. Involuntary termination: The company dismisses an employee due to performance issues. End of contract: A contract employee’s term ends, and the company chooses not to renew or replace the position. Internal transfer: An employee moves to a different department or role within the same company, prompting the need to replace their previous position. Downsizing: A company decides to reduce headcount in a specific department for budgetary or strategic reasons, leading to the elimination of certain roles without immediate plans for replacement.
Types of attrition
Voluntary vs. involuntary attrition
Voluntary attrition takes place when an employee decides to leave the organization. It’s important to assess who is leaving your company, as the departure of star employees can affect your productivity in the long run. For example, if you are a tech company and face a number of resignations from your software developers, this would be a high business risk.
Meanwhile, involuntary attrition occurs when an organization lets go of an employee. Usually, this happens because of company restructuring, economic conditions, or trends in the industry or workforce.
Functional vs. dysfunctional attrition
Dysfunctional attrition refers to the loss of valuable employees to the company because of reasons such as toxic work culture, mismanagement, and low employee morale. This type of attrition can impact an organization’s profitability, morale, and productivity, which results in the company losing experienced staff that’s difficult to replace.
Functional attrition is a term that describes the loss of employees due to incompetence. It could be due to an employee being unable to meet the job demands as they lack the essential skills or experience. Similarly, these employees may be unmotivated or disengaged, which could lead to them being laid off.
Factors impacting attrition
Internal factors
1. Compensation
Compensation plays a factor in whether an employee remains or chooses to leave for a higher-paying job. Compensation also covers other financial incentives like bonuses, commissions, and annual increases. Most people will choose a company with higher compensation if both offer the same responsibilities and job titles.
2. Job satisfaction
Aside from compensation, job satisfaction also influences whether employees remain or choose to search for another job. People spend a significant amount of their lives at work, so it’s critical to feel fulfilled from performing their jobs.
If employers fail to recognize and reward their employees for good performance or when the work environment is too restrictive (not allowing flexible work schedules when it’s feasible), employees are more likely to look for other employers.
3. Learning and development
It’s human nature to desire growth and improvement. We want to work with companies that give us purpose and something to look forward to. If management doesn’t provide the right L&D programs to cultivate their employees, they will seek these opportunities with other companies.
External factors
1. Workforce demographics
A company with a large percentage of employees set to retire in a few years should take drastic steps to avoid high attrition in the coming years. Employers can choose to redistribute the responsibilities to other team members. If the position is no longer relevant, they could wait for the senior employee to retire and eliminate the position rather than retrain other staff or pay severance.
2. Industry shifts
Changes within the business landscape can change staffing requirements. For example, the decline in brick-and-mortar shops means you would need fewer retail employees. And the continuous growth of e-commerce and online services means hiring more individuals to perform online and logistic support.
3. Economic conditions
Companies can afford to hire more people during times of economic growth because business is booming. Likewise, they can also offer higher salaries and more work perks to retain top employees. In contrast, during the recession, people are not spending enough, affecting businesses. In such a scenario, companies are more likely to cut back on salaries and hiring people.
How to calculate employee attrition rate
The attrition rate formula is:
Attrition rate = (Number of employee departures) / (Average number of employees) x 100
To calculate the employee attrition rate:
- Start by calculating the average number of employees. Add the number of employees at the beginning and the end of the specified period divided by 2.
- Then, divide the average number of employees who left the company over a specified period by the average number of employees in that period and then multiply by 100.
Here are examples of calculating the attrition rate annually and quarterly:
Example 1
Suppose an organization had 200 employees at the beginning of the year and 30 employees left during the year. Let’s have a look at how to calculate the attrition rate for the year.
Step 1: Calculate the average number of employees during the year
200 + (200-30) / 2 = 185
Step 2: Calculate the attrition rate
30 / 185 x 100 = 16.2%
Therefore, the attrition rate for the year is 16.2%.
Example 2
An organization had 150 employees at the beginning of the quarter and 10 employees left during the quarter.
Step 1: Calculate the average number of employees during the quarter
= (150 + (150-10)) / 2 = 145
Step 2: Calculate the attrition rate
10 / 145 x 100 = 6.89%
Therefore, the attrition rate for the quarter is 6.89%.
Example 3
Suppose an organization had 1,000 employees at the beginning of the year, hired 200 new employees during the year, and had 50 employees leave during the year. Calculate the attrition rate for the year.
Step 1: Calculate the average number of employees during the year.
(1,000 + (1000+200-50)) / 2 = 1,075
Step 2: Calculate the attrition rate.
50 / 1075 x 100 = 4.65%
Therefore, the attrition rate for the year is 4.65%.
Is a high attrition rate good?
In general, high attrition rates signify that employees are leaving the organization quicker than you can replace them. For example, your company may experience a high attrition rate if a large number of your employees simultaneously retire. This can potentially lead to:
- Increased costs and efforts: Replacing lost employees means you have to spend time and money completing the hiring process (posting job ads, reviewing CVs, screening candidates, scheduling interviews, onboarding, and training). Moreover, there are also costs and paperwork associated with employees resigning.
- Decreased productivity: There is a drop in productivity from the time employees leave until the new hires step in. According to People Sphere, it takes 43 days to recruit a software engineer, resulting in a productivity loss of almost a month and a half, which may cost up to $33,251.
- Negative impact on employee morale: Constant staff changes can affect employee collaboration. It’s hard to build good relationships when employees come and go.
Experts say an attrition rate of more than 20% is considered high. In addition, if the rate of new hires leaving the company within the first six months of their employment is above 15%, it may indicate problems with your onboarding process.
However, there are some instances where attrition can actually be good for business for the following reasons:
- Attrition can lead to reduced labor costs, as the organization may not immediately fill vacated positions, thereby saving on salaries and related expenses. This can be beneficial when the company needs to be conscious about its spending,
- When the company is restructuring to pursue a new direction and needs to reduce staff or eliminate certain roles. This enables the company to realign its workforce more efficiently according to changing business needs without resorting to layoffs.
- By not immediately replacing old positions, attrition can open opportunities for bringing in new talent with fresh ideas and skills, fostering innovation and keeping the company adaptable and competitive.
How to conduct an employee attrition analysis
1. Gather your headcount data and calculate the attrition rate
Gather detailed headcount data from your HRIS or personnel records. This includes specifics on employee departures, new hires, and current staff.
After that, apply the attrition rate formula discussed above to find out what the state of attrition is at your organization. If you want to make comparisons to previous time periods, you might need to collect historical data, too.
2. Look for signs of a high attrition rate
Once you have calculated your current attrition rate, compare it to industry benchmarks, past attrition rates, or internal targets to determine if the rate is unusually high.
It’s important to look for patterns or trends, such as a sudden increase in departures over a short period or consistently high attrition in certain departments or roles. Understanding these patterns can help pinpoint potential issues within the organization that may be contributing to the high attrition rate.
3. Identify risk factors for employee attrition
There are signs to help the HR team identify whether the company is at risk of high attrition that can potentially be detrimental to the business:
- Declining employee engagement: Employee disengagement plays a huge role in employee attrition. When employees lose interest in their jobs, they become disconnected from their peers and managers and are less productive. Left unchecked, disengagement can motivate employees to search for alternative employment opportunities.
- Increased absenteeism: If you have a lot of employees calling in sick all the time, they frequently show up late, leave work early, or take extra long breaks, your company may be experiencing employee disengagement, which could result in attrition.
- High turnover in specific departments: High turnover in departments can be taxing for managers. They might have to find additional staff to cover shifts during vacancies or perform lower-level worker tasks to cope with understaffing. Critical incidents may also occur resulting from team members’ mistakes that tie up the manager’s time in remedying these situations.
- Difficulty in filling vacant roles: An increasing trend in roles remaining vacant for longer periods, especially critical positions, can signal an unattractive workplace or a lack of necessary skills among existing staff.
- Increased retirement rates: A surge in retirements can indicate an aging workforce, requiring strategies for knowledge transfer and succession planning.
4. Use additional metrics to track attrition
It is also helpful to track and analyze additional HR metrics in addition to the attrition rate. These include:
- Employee retention rate: This rate measures the percentage of employees the company has retained over a specified time. Low employee retention could mean your company has a high attrition rate.
- Employee performance metrics: This metric tracks and measures staff performance – the quantity, quality, and efficiency of work. Low employee performance indicates disengagement and demotivation and if organizations are not careful, they could face massive employee resignation
- eNPS: Focus on detractors and passives to determine their sentiments about the company. Analyzing their feedback is crucial in minimizing employee attrition.
- Exit interview and survey data: Encourage honest feedback to learn their reasons for leaving the company. Analyze your exit interview data and employee responses to detect potential issues that increase employee attrition.
5. Compile an attrition report and prepare a plan of action
Consolidate all the gathered data, analyses, and insights into a comprehensive report. The report should clearly outline the attrition rate, identify trends, and highlight any specific areas of concern, such as departments with unusually high turnover or roles that are consistently difficult to fill.
In this report, it’s crucial to present the findings in an accessible and actionable manner. Use visual aids like charts or graphs to illustrate key points and make the data more digestible. Include a section that interprets the data, offering explanations for why certain patterns may be occurring.
Develop a plan of action based on the insights gained in your attrition analysis. This plan should address the identified issues and aim to reduce harmful attrition. It could include strategies like improving employee engagement, revising hiring practices, enhancing training and development programs, or changing management approaches. We’ll look at some tips below.
The plan should be specific, with clear objectives, timelines, and assigned responsibilities to ensure effective implementation. This step is critical because it moves the process from analysis to action, enabling the organization to tackle attrition proactively and improve its overall workforce management.
HR strategies for reducing attrition rate
Here are tips and actionable advice on how your HR can reduce your organization’s attrition rate:
- Focus on employee wellbeing: Employee wellbeing is becoming a significant factor in a healthy workplace. Employees give their best when they feel their best. They are productive, engaged, and more likely to stay loyal to their employers.
- Boost learning and development: Offering different learning and training programs makes employees feel that the company is interested in their development and potential. That makes them think twice about leaving their employers because they could see themselves growing and advancing with the company.
- Implement cross-training programs: Cross-training is about equipping your employees with the skills to perform multiple roles. This approach not only improves workforce flexibility but also ensures that if a role becomes unfilled, other employees can step in to cover the responsibilities temporarily. Cross-training helps in maintaining operational continuity and reduces the immediate pressure to fill vacancies urgently, allowing for a more thoughtful recruitment process.
- Developing succession plans: Anticipating and planning for retirements and, in general, for employees leaving your company is crucial in reducing attrition impacts. Succession planning involves identifying potential retirees in advance and preparing other employees to take over these roles. This proactive approach minimizes disruption and retains critical institutional knowledge within the company.
- Offer competitive compensation and benefits package: Salary is a significant factor in the worker-employer relationship, according to a survey conducted by Workable. It’s also vital in providing a good employee experience. So if you don’t want to lose your prized employees to another company, compensate them well.
- Work-life balance: A healthy work-life balance lets employees enjoy their professional and personal lives. They are happier and more satisfied at work and are unlikely to apply for another job.
A final word
Understanding and managing the attrition rate is a critical aspect of effective human resource management. A balanced attrition rate can signal a healthy workforce, but excessively high rates can indicate underlying issues that need addressing. Through careful attrition analysis and strategic planning, organizations can identify the root causes of attrition and implement tailored solutions to mitigate its negative impacts.
FAQ
In HR, the attrition rate is a metric that measures the rate at which employees leave an organization over a specific period, typically expressed as a percentage of the total workforce.
A 20% attrition rate means that 20% of an organization’s workforce has left over a given period, such as a year, without being immediately replaced. Whether a 20% attrition rate is considered high depends on the industry, the nature of the job, and the organization’s norms.
It is highly unusual to have an attrition rate over 100%, as this would imply that more employees left than the total number present at the start of the period without immediate replacement. However, it’s possible to have an employee turnover rate over 100%, indicating that the number of employees leaving and being replaced during a specific period is greater than the average total number of employees in that period. This scenario typically occurs in industries with high turnover, like retail, hospitality, or customer service.
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