Attrition vs Retention: What’s the Difference?
Employee attrition and employee retention are important HR metrics for developing and managing a robust, productive workforce, especially in the context of Great Resignation. The drive to recruit the best talent, along with droves of long-term employees leaving in search of new opportunities, has brought attrition and retention to the forefront.
As a result, an imbalance exists between the jobs on the market and the candidates available. Employee attrition and retention are two concepts on the opposite ends that address the same situation. What’s the difference between attrition vs. retention, and what does each mean for your business? Let’s find out.
What is employee attrition?
Employee attrition refers to the naturally occurring reduction of the workforce through reasons such as retirement, sickness, death, or resignations. Attrition means that the role that the employee vacates is not replaced for a long time or ever.
The terms attrition and turnover are often used interchangeably, but there is a key difference. Employee turnover measures all terminations, which includes positions that are refilled. For the purpose of comparing employee attrition and retention, we will use attrition as a synonym for turnover.
Common drivers of employee attrition include:
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- Poor job satisfaction – Employees who have left their job because they are dissatisfied with their work.
- Lack of growth and career opportunities – Employees that have left the business because of a lack of horizontal or vertical growth.
- Poor organizational culture – This is a collection of practices, policies, and strategies that have caused an employee to leave.
- Poor management – A bad management or leadership experience that causes an employee to leave.
To calculate attrition, use this formula:
What is employee retention?
Employee retention is when a business is able keep talented employees and reduce turnover. It is the collective efforts of an employer’s practices, policies, and strategies to retain employees. Retention increases in importance during stressful business and talent periods (such as the Great Resignation).
Understanding your employee retention rate helps you determine what makes your business a great place to work at. Tracking employee retention metrics is essential to keeping highly talented employees on board. These employees are critical to your business, and retaining them should be a priority for every business.
To calculate the retention rate, use this formula:
Attrition vs. retention
Both attrition and retention are indicators of a business’s culture and health. They both measure engagement and loyalty, which are linked to employee engagement. Put together, they provide a snapshot of how stable a business is.
By definition, attrition and retention measure the exact opposite outcomes. In simple terms, attrition measures who your business has lost. And retention is who your organization has kept. However, the differences are much more complex than this simple distinction:
- New hires – A new hire does not count towards the retention rate for the month they are hired (so they are excluded from the retention rate). However, attrition rate calculations include people hired during that period – a distinct difference in the excluded employees per calculation.
- Involuntary turnover – Depending on your business, you might exclude involuntary turnover when calculating your retention rate (as these employees are not necessarily people a company wants to retain). However, involuntary turnover will always be included when calculating attrition/turnover.
- Period of measurement – Retention rates are based on a business change in policy, practices, and people strategies. As a result, retention is typically measured over a long period of time (i.e., 1 to 5 years). On the other hand, attrition provides a snapshot of what’s happening in terms of employees leaving. It’s easier to compare attrition rates month by month.
Why measure attrition?
- It’s a reflection of employee satisfaction – A high attrition rate could be an indicator that employees are not happy with the workplace for various reasons. This has a knock-on effect on employee productivity and engagement. Understanding employee attrition can help a business proactively develop talent strategies to decrease attrition. These range from optimizing the recruitment and selection process to hire people more suited for the roles through improving the onboarding process to employee engagement initiatives.
- Managing costs – Although employee attrition does not mean you are replacing the employee, there are associated costs. This might mean training costs to upskill employees for the skills lost or a loss in productivity due to a lack of motivation because of retrenchments. Understanding your attrition will help you manage and forecasts your costs.
- Employer brand – A high attrition rate can affect your employee value proposition and brand. A business with a known high attrition rate because it’s widespread on social media and in the news will struggle to attract the best talent.
Why measure retention
- A yardstick for your workplace practices – Employee retention provides a good snapshot of whether your employees are satisfied and if there is any positive or negative effect from your hiring and training processes.
- Provides a base to develop your people strategy – Understanding your retention rate and which departments have a higher or lower retention rate allows you to prioritize your resources and time accurately.
- Saves business money – More importantly, retaining employees means there is no cost to replace them. Onboarding costs are reduced and so is the money spent on recruitment.
It’s important to measure both attrition and retention as they tell different stories of what’s happening in your business. A high retention rate can be tied to a low attrition rate. And a low retention rate can also be tied to a high attrition rate. Having a healthy attrition rate and high retention rate means your employee engagement rate is likely good. The reasons for retention and attrition are also related:
|Employee retention: Why employees stay with the business||Employee attrition: Why employees leave the business|
|They feel respected by their manager.||They feel disrespected by their manager.|
|Employees feel they are fairly compensated.||Employees leave for better-paying jobs.|
|They receive several training initiatives.||Employees leave because of the lack of growth opportunities.|
During exit interviews, employers can uncover various reasons why an employee is leaving. This is an excellent opportunity to use these findings to improve employee retention. For example, if 80% of employees leaving a business in a period of time attribute it to poor management, then your employee retention strategy must seek to address this through training and coaching managers, or reassignment of roles and responsibilities.
It’s also important to see who is saying this (although names are not identifiable in exit interviews, you can use metrics such as gender, department, and seniority level).
Does an 80% retention rate mean that the attrition rate is 20%? No, because there is a difference in calculations. Attrition or employee turnover does not necessarily mean that you might replace those employees. So, for example, if you lose 15 employees due to resignations, and the market has changed, you might only replace them with three employees.
To sum up
Both attrition and retention rates can be measured if they’re good or bad, depending on the underlying reasons. For example, if you have a high number of retirements, that could put your business under stress as you try to replace all of them or upskill other employees in the interim. Attrition can mean eliminating a position – so it could be a business saving not having to replace these positions.
Attrition and retention both tell you a lot about the state of your workforce. Using these metrics helps you understand where the problems and opportunities are and enables you to create strategies to build a workforce that will help your organization thrive.