HR’s Guide to Analyzing and Lowering Attrition Rate

The attrition rate indicates the percentage of employees who leave an organization compared to the average population employed over a specified period. It is also referred to as termination, planned or voluntary resignation, structural changes, and layoffs. 

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
The risks of high attrition rate for the business
How to identify and analyze a high attrition rate
HR strategies for reducing attrition rate

What is attrition rate?

As mentioned, attrition rate is a measure of the rate at which employees leave an organization during a specific period of time, 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

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. Or 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. They are more short-term. 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:

• An employee who is laid off due to downsizing or restructuring
• A manager resigns due to limited career growth opportunities within the organization.
• An employee leaves their job due to poor work conditions.

Attrition:

• An employee retiring after reaching the age of retirement.
• An employee resigning because of a long-term illness 
• An employee leaves a company due to a change in personal circumstances, such as starting a family or caring for a loved one
• An employee whose contract expires or whose project comes to an end, and the company does not renew it.

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. Or 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 that has a large percentage of employees set to retire in a few years should be taking drastic steps to avoid high attrition in the coming years.  Employers can either choose to redistribute the responsibilities to other younger team members. Or 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 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. So companies are more likely to cut back on salaries and hiring people. 

How to calculate employee attrition rate

The formula for attrition rate is: 

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Attrition rate(percentage) = (number of employee departures) / (average number of employees) x 100

To calculate the employee attrition rate: 

1. 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
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, quarterly, and monthly: 

Example 1:

Suppose an organization had 200 employees at the beginning of the year and 30 employees left during the year. 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:

Suppose an organization had 150 employees at the beginning of the quarter and 10 employees left during the quarter. Calculate the attrition rate for 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 1000 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.

= (1000 + (1000+200-50)) / 2

= 1075

Step 2: Calculate the attrition rate.

= 50 / 1075 x 100 

= 4.65%

Therefore, the attrition rate for the year is 4.65%.

Example 4:

Suppose an organization had 75 employees at the beginning of the month and 3 employees left during the month. Calculate the attrition rate for the month.

Step 1: Calculate the average number of employees during the month.

Since we do not have the ending employees for the month, we cannot compute the average number of employees. Let’s assume that the beginning employees represent the average number of employees during the month.

The average number of employees = Beginning employees 

= 75

Step 2: Calculate the attrition rate.

= 3 / 75 x 100 

= 4%

Therefore, the attrition rate for the month is 4%.

The risks of high attrition rate for the business

In general, high attrition rates signify that employees are turning over quickly. 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. Similarly, your organization may experience a high attrition rate if a large number of your workforce simultaneously retires. 

Companies should pay attention to employee attrition because of: 

• 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. 

• Decrease productivity. There is a drop in productivity from the time employees left 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. Consistent staff changes can affect employee collaboration. It’s hard to build good relationships when employees come and go. 

Positive effects on the organization 

There are some instances where attrition can actually be good for business for the following reasons: 

• When poor performers who weren’t a good fit for the organization leave or are laid off.
• To enable diversity in the workforce to facilitate new ideas and perspectives to boost innovation and creativity 
• When the company is restructuring to pursue a new direction and needs to reduce staff or eliminate certain roles.

How to identify and analyze a high attrition rate

Signs of a high attrition rate

There are signs to help the HR team identify when a company experiences a high attrition rate: 

• 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 that 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. 

Additional metrics to track attrition

It is also helpful to track and analyze additional HR metrics in addition to the attrition rate. These include: 

1. 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. 

2. Employee performance metrics. This metric tracks and measures staff performance – the quantity, quality, and efficiency of work. Low employee performance indicates disengagement,  demotivation and if organizations are not careful, they could face massive employee resignation

3. eNPS surveys. Focus on detractors and passives to determine their sentiments about the company. Analyzing their feedback is crucial in minimizing employee attrition. 

4. Performing exit interviews and surveys. Encourage honest feedback to learn their reasons for leaving the company. Evaluate their responses to detect potential issues that increase employee turnover. 

HR strategies for reducing attrition rate

Here are tips and actionable advice on how your HR can reduce your organization’s attrition rate: 

1. Focus on employee well-being. Employee well-being 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. 

2. Boost learning and development. Offering different training programs makes employees feel that the company is interested in their development and potential, which makes them think twice about leaving their employers because they could see themselves growing and advancing with the company. 

3. 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. 

4. 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. 

Key takeaways

• Attrition rate: Attrition rate indicates the percentage of people who leave an organization compared to the average population employed over a specified period
• Types of attrition and factors that cause attrition: Attrition can be involuntary and voluntary. Internal factors (compensation, job satisfaction, learning and development) and external factors (economic conditions, industry trends) affect employee attrition.
• How to calculate employee attrition rate: To calculate the employee attrition rate, divide the average number of employees over a specified period, then multiply by 100. 
• Tips to reduce employee attrition rate: focus on employee well-being, boost learning and development, offer competitive compensation and benefits package, provide work-life balance