What Does Employee Attrition Rate Mean and How To Calculate It

Employee attrition means people leaving their jobs for unavoidable reasons. This can occur for various reasons like resignation, retirement, or layoff. Particularly in today's startup companies, employee turnover is a big issue, especially in the early stages. Although attrition is inevitable in any organization, a very high attrition rate can compromise the company's ability to achieve its objectives. It can disrupt the dynamics of the organization and adversely affect its growth. It can lead to loss of valuable skills and knowledge and increase hiring and training costs. ‍

Attrition Rate Calculation

Here's how you can calculate the attrition rate:

Note the headcount you had at the start of the period. 

Determine how many employees left the company during the specific period; for example., 75 employees left in a year. While calculating employee attrition, it is good to use only the employees who have voluntarily left to gain a true reflection of the attrition rate. Count the number of employees continuing with their jobs at the end of the period. Now, add the number of employees working at the start and end of the year. 

Here’s an example: 

• Number of employees at the start of the year: 500 
• Number of employees at the end of the year: 620 

Calculate the average number of employees during the period by dividing the total by two. In the above example, the average number of employees will be 560 ( (500 + 620) / 2).

So, to derive the attrition rate, divide the number of employees departed by the average number of employees and multiply by 100. In this example, the attrition rate is (75/560)*100 = 13.39%.

Follow these steps to calculate the attrition rate. 

You can easily understand whether attrition is the reason that is affecting performance of the company. The employee attrition rate threshold may differ depending on the industry and the organization. Usually, below 10% is expected to be a standard range. In case of a high attrition rate, the company must dive deep to find what type of attrition is and act accordingly.

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What are Different Types of Employee Attrition?

There are various types of employee attrition. We will discuss some of the most common ones  below:-

1. Voluntary Attrition

Voluntary attrition happens when the employees want to leave or change their jobs for reasons like non-satisfaction in their current roles, work-life balance, high salary increment, or any other reason. It refers to employees leaving their jobs on their own. The organization needs to determine why the skilled workforce is leaving the organization and make improvements in retention strategies.

2. Involuntary Attrition

Involuntary attrition happens when the employee is terminated due to employee performance issues. Employees are also laid off due to business restructuring because the company faces financial issues. Organizations should adapt to changing business conditions to avoid high involuntary attrition, ensuring fair and effective termination practices.

3. Retirement Attrition

Retirement attrition involves employees leaving the organization upon reaching a particular retirement stage. Organizations must consider age diversity during the recruitment process. If recruitment places undue emphasis on the senior or seasoned workforce, retirement will be the main reason for the high attrition rate.

4. Internal Attrition

Sometimes, employees seek new challenges or growth and are willing to choose different positions within the same company. High internal attrition might signal potential job satisfaction or role fit issues.

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Causes of Employee Attrition

Why do employees leave their jobs? Various factors influence employee attrition. The primary causes are highlighted below:-

• Low Salary and Benefits- Salary is a leading cause of employee attrition. Low payment, limited bonuses and incentives, and lack of other perks by the employer lead to a lack of motivation in employees. Employees must be fairly compensated based on their experience and performance. It helps to create a more level playing field for all employees and helps prevent workplace discrimination and bias.
• Lack of Work-Life Balance and Stress—Unsuitable working hours, long commutes, underappreciation, and lack of time off are other reasons for employee attrition. Working long hours, increased responsibilities, and no time off lead to stress and harm to both the employer and the employees. Employees who can balance their work-life are undoubtedly happier and more satisfied. It ultimately reflects performance and behavior at work.
• Poor Management and Leadership- Poor leadership qualities can result in a lack of strategic planning and decision-making abilities. Management must have clarity in their vision and objectives and the capability to use the resources and opportunities for growth efficiently. Organizations with poor management and leadership lead to employee dissatisfaction and, eventually, resignation.
• Toxic Work Culture- Problems with HR, public criticism of employees, unfriendly employee competition, lack of company core values, and no acknowledgment or rewards are some red flags of toxic company culture. The presence of any of these will eventually lead to high attrition in the organization.
• Other Unavoidable Causes -Employees roving nature, health issues or accidents, marriage, or family problems are some of the unavoidable reasons for attrition.

How to Stop Employee Attrition

High attrition significantly impacts organizations by increasing recruitment and training costs. The extra workload shifted to the remaining employees causes stress and resentment among the team members. This creates a hostile environment in the organization, leading to poor work quality and loss of customer confidence. Then there's the Pied Piper effect: if one person leaves, others are more likely to follow. HR professionals struggling with high employee attrition can adopt the strategies below to reduce attrition levels in the organization.

• One of the main reasons for attrition is salary. Improvements in payroll management will help to retain the workforce to a great extent.
• Conduct an effective onboarding process for new employees to integrate smoothly into the company, cultivating a sense of belonging from the early stages of their employment.
• Create a positive work culture with flexible working hours and provide the chance for self-development. That will be an incentive for workers to stay.
• Evaluate and assess the candidate's profile thoroughly during the interview process and employ the one aligning with the company's culture. 
• Ensure the employees are given a clear picture of their jobs and responsibilities and avoid misunderstanding in job expectations.
• Avoid micromanagement to a certain extent. This is one practical solution to enabling employee engagement, as the employees are free to work in their own style.

Can Attrition be Beneficial to the Organization?

It's essential to understand that not all employees are the "right fit" for all the stages the organization is going through. Hiring managers can turn attrition into a chance to improve things in the organization. Effective strategies can turn attrition into an opportunity for growth and improvement. Here are some potential positive aspects of attrition:-

1. Reduce overstaffing: Attrition can be used to redeem any overstaffing situation in the organization. This will help reduce overhead costs and increase productivity. 
2. Improve workplace culture: Employees with poor performance and attitude can disrupt the company's culture. It is good to replace such staff to make room for the one who is a great fit.
3. Minimize Expenses: In some cases, attrition can help reduce costs associated with roles that may no longer be needed or are not aligned with strategic goals.
4. New Talent: Hiring new talent or allowing internal attrition (employees moving to different roles within the company) can indicate a healthy organization where employees see career growth and development opportunities.
5. Fresh Ideas: New joiners can bring fresh ideas and skills. They can help bring a fresh approach to certain aspects of the business and can be a valuable asset.

Conclusion

In this digital era, where employees have manifold career options, it is essential to establish the right attrition management strategy to reduce employee turnover. The main focus must be creating an environment of trust, innovation, and autonomy. Since employees spend a significant part of their time at their workplace, HR policies should consider needs and wants of their employees and increase employee happiness. Flexible work schedules, better work-life balance, fair salary and incentives, etc., can help reduce attrition and eventually help build successful organizations.

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