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Mastering Employee Attrition Rate: What It Is & Why It's Important

Future of work
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A company's attrition rate provides key insights into its workforce's stability and satisfaction. But what is attrition rate, and why does it matter?

Here we explore exactly what attrition rate is, how to calculate it, factors that impact it, and strategies to keep it in check. Losing one employee is tough, but losing multiple in quick succession points to a much bigger picture that needs resolving and that's where understanding your attrition rate can help.

What is attrition rate?

'Turnover' and 'retention' are familiar terms in HR analytics, but 'attrition' might be a bit less clear.

Attrition Rate

Employee attrition rates, often referred to in percentages, are the frequency at which employees leave a company, either through retirement or resignation and their role isn't immediately refilled. This metric offers HR professionals a glimpse into workforce movement and, more importantly, the factors contributing to job displacement.

Given the broad view attrition rate offers, it can serve as a key performance indicator for your business, reflecting organisational climate, team productivity, and overall business health.

Types of attrition

There are four main types of employee attrition to be aware of:

Voluntary: When an employee decides to leave the company, usually due to another role, personal reasons or a career change.

Involuntary: The company initiates the exit of the employee either due to underperformance, misconduct, mergers and acquisitions or redundancies.

Retirement: For employees that have reached retirement age and are stepping away from working life.

Internal: Promotions and redistribution of employees to other teams within the organisation.

Attrition vs. Retention

While employee attrition zeroes in on the rate of employee exits, retention focuses on preserving your team. If you're noticing a trend of low employee retention, tackling engagement and job satisfaction could be the way forward. Although high attrition rates are not necessarily problematic, they do warrant attention to ensure you're not haemorrhaging talent and encountering hefty recruitment costs.

Attrition vs. Turnover

Employee attrition rate and turnover rate often get mistaken for interchangeable terms, but it's important to understand the differences between them.

Primarily, attrition looks into cases where employees voluntarily resign or retire and their role isn't immediately filled.

You'll likely have heard of 'employee turnover' as it includes the entire number of employees who depart from the company for reasons ranging from termination to abandonment. However, the main difference between attrition and turnover is whether an employee's role is immediately filled or not. Being more specific and utilising attrition, as well as turnover, allows for a better understanding of employee churn and what factors need to be addressed, if anything, to improve employee satisfaction and employee morale.

How to calculate attrition rate

Voluntary employee attrition rates (the number of employees who left on their own terms) can be worked out with this attrition rate formula:

Voluntary attrition rate

Business success often relies on keeping both involuntary and voluntary attrition rates comfortably low. High attrition rates, charting upwards of 20%, might hint at issues that need attention.

Early attrition rate

Early attrition is when an employee leaves the organisation within a specified initial period, usually in their first year. It signals that a company needs to fine-tune its recruitment and onboarding processes as high early attrition can indicate issues in these two practices.

If an organisation hires 1000 employees in a year, but 100 of them leave within their first year, you calculate the early attrition rate by dividing the number of departures by the 100 who were hired. Multiply this by 100 to get the percentage.

Annual attrition rate

The annual attrition rate provides a yearly snapshot into your organisation's retention efficacy. A high annual attrition rate signifies potential challenges with job satisfaction, work-life balance, or organisational culture.

To calculate annual attrition rate, divide the number of employees that have left within the calendar year by the average number of employees in that year.

For example, if your organisation started with 1000 employees but ended the calendar year with 900 employees, with 50 of those departures being roles that weren't immediately refilled, you'd base the calculation on 950 employees, as that was the average at the start and the end of the year. In this example, the calculation would be 50 / 950 = 5.2% attrition rate.

Ending the year with more employees

If your organisation is experiencing a period of growth, you might be ending the year with more employees than you started with.

For example, if your organisation started with 1000 employees but ended the calendar year with 1100 employees, you'd first calculate the average number of employees: (1000 + 1100) / 2 = 1050. You'd then divide the number that left by 1050. So if 50 employees left, the calculation would be 50 / 1050 = 4.8% attrition rate.

To optimise an organisation's annual attrition rate, consider implementing practices that motivate employee engagement, job satisfaction, and encourage a healthy work-life balance. Regular staff feedback and company-wide surveys can aid in recognising areas of improvement to ensure a conducive work environment.

The importance of monitoring attrition rates

Financial impact of high attrition rates

The loss of an employee leads to indirect costs such as hiring a replacement, training, and productivity losses during the transition period. These costs, often unseen, can amount to substantial amounts and negatively impact your bottom line.

Productivity and morality impact

The departure of a key employee can cause a domino effect, impacting the morale of other employees, team cohesion, and overall productivity. High employee attrition rate could also lead to loss of institutional knowledge and valuable expertise accumulated over years. Job strain and extensive workload for remaining staff can become unmanageable, leading to errors, reduced output quality, and even more departures.

Effect on reputation and customer service

High employee attrition rates can endanger customer relationships and tarnish your company's reputation. Regular replacements might introduce inconsistency in the services offered and cause frustration among customers. Investors and potential employees often gauge the stability and desirability of an organisation by its attrition rate. A company with a high attrition rate might find it challenging to attract top talent or develop beneficial partnerships.

Recognising a high attrition rate

What is considered a high/low attrition rate?

Generally, an attrition rate fluctuates depending on the specific industry or market competition. It's also influenced by various factors such as in-demand skills, talent mobility, business size, and more. For instance, rapid sectors like tech and consulting normally tolerate a higher attrition rate compared to more stable ones like government or healthcare.

According to DevSkiller, in 2022 the average attrition rate in tech was 13.2% which is the highest rate in any other business sector.

When employees in the tech sector frequently leave, it's often due to high demand for their expertise elsewhere, possibly coupled with offers of a better salary. Industry averages suggest โ€˜high attritionโ€™ starts from anything over a 20% attrition rate but most industries are operating at a rate lower than 13% so you should look into this figure concerning your organisation.

For a business roughly the size of 200 employees, around 40 resignations will result in a 20% attrition rate. While a โ€˜goodโ€™ attrition rate varies per industry, maintaining a 10% or lower attrition rate is seen as ideal.

Is a 0% attrition rate possible?

Here's something curious - a 0% staff attrition rate. While it might seem ideal to have no employees leave the company, a 0% attrition rate isn't realistically achievable, nor is it necessarily desirable. It could imply that the company isn't cycling through talent, which could lead to stagnation and a lack of innovative ideas coming into the company. Moderate attrition can be healthy for a company, as it could stimulate new ideas and fresh perspectives to contribute to the company's growth and innovation.

Consider a 5-10% attrition as a healthy number. This percentage allows employers to keep experienced staff while incorporating fresh perspectives from new employees.

What causes high attrition rates?

Salary, job satisfaction and limited growth opportunities

One of the main causes of high employee attrition rates is an imbalance between salary and job satisfaction. Monetary and non-monetary compensations play a crucial role here, including bonuses, commissions, benefits, and other financial incentives. If employees are under-compensated, they may feel undervalued, which can lead to a feeling of overall dissatisfaction with the company and eventually lead to a higher attrition rate.

If your organisation does not provide opportunities for skill development and career growth, the attrition rate may surge. Being stuck in a stagnant role can trigger disillusionment and a decrease in productivity among talented employees.

Negative company culture and high-stress environments

A toxic work environment, characterised by poor management practices or lack of trust, respect and unity, can cause employees to exit. Positive organisational culture, on the other hand, can promote job satisfaction, improve morale, motivate productivity, cultivate loyalty and in turn keep the attrition rate in check.

Chronic stress caused by high-pressure work environments contributes significantly to job dissatisfaction and burnout. By focusing on employee well-being and providing a supportive environment, you can moderate stress levels and hence, attrition rates.

Managing your attrition rate starts with understanding what it entails and what leads to an increase. When you know what's causing employee exits, you can work to plan and carry out strategies to retain your workforce, which will significantly contribute to your company's success.

Tips for attrition management

Building employee engagement and job satisfaction

Employees who feel engaged are more likely to stay with the company. Connect with your staff regularly, seek feedback and act on it. These actions will show your employees that their opinions are valued. Collaboration, open communication, and a sense of belonging are key.

Attract and retain employees by providing fair and competitive salaries, benefits, and bonuses. Regularly carry out salary surveys to ensure that your compensation packages are comparable to those in your industry. Also consider implementing alternative working patterns, such as a 9 day fortnight, as a break from the usual five-day workweek.

Create a supportive working environment that encourages camaraderie amongst employees, champions inclusivity and promotes a healthy work-life balance.

Exit interviews are also a great way to gain insight into why employees choose to leave. Unlike an involuntary exit where an employee's performance can be evaluated against their critical KPIs, voluntary exits aren't usually driven by metrics and quantifiable data, which is why exit interviews are key to understanding the drive behind their decision. This way you'll receive critical workforce insights to allow you to strategically plan against this happening in the future.

As previously mentioned, employees value opportunities for growth, advancement and skill development. By providing that, staff will feel appreciated and driven, which can serve as an effective strategy to lower your specific attrition rates.

Regular company retreats

Company retreats are an amazing way to bring everyone together and ignite a sense of unity within an organisation. Creating space and opportunity for connection within a team supports a shift in organisational dynamics and allows employees to feel a deeper sense of purpose and motivation towards their role. By creating a unique employee experience, the pace of employee turnover could slow and therefore the internal attrition rate would also be positively impacted.

We have an incredible range of venues on our platform, all across Europe and all offering their own unique experience. Find one that resonates with your team and organisation and reach out to the venue directly through the Basejam platform.

These venues are ideal for connection and productivity:

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By addressing the areas that could be leading to high turnover and high employee attrition rates, you can work to improve your organisation's performance and build a happier and more productive workforce. Keep in mind, the overarching goal is to build a workplace that offers professional growth, a positive environment, and keeps the workforce genuinely satisfied. With these tips, we hope you'll be able to do just that!

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