From the beginning to the end of their careers, not many employees stay with the same company. Every company small or big faces employee attrition at some point. So what is attrition? Is this something related to turnover? Well, yes. But they do have their differences.
Attrition’s meaning lies in the act of employees leaving a company because they either resign, retire or leave due to unforeseeable circumstances like sickness or death.
In this article, we will discuss employee attrition and its types. Moreover, you will learn its differences with employee turnover, and everything you need to know about attrition in HR. First, let’s unpack some definitions.
What Is Employee Attrition?
For any company, employee retention is important. When the rate of employees leaving becomes greater than that of joining, employee attrition takes place. It becomes problematic when employees leave and there’s no one to replace them immediately.
But attrition itself is inevitable. Sooner or later, most employees leave a company for various reasons. Some personal, some professional. The point is, no company has a complete hold on its employees in terms of attrition. A high rate of attrition has a direct effect on the success of your organization.
So what is the attrition rate?
Is there something like a good employee attrition rate?
What consequences does a high attrition rate have on the workforce?
Let’s begin answering all of these questions. Simply speaking, the attrition rate is the percentage of employees leaving your organization annually. The higher the rate, the more are the direct consequences.
How to Calculate Attrition Rate?
A simple formula can help you calculate the rate:
Attrition Rate = Number of Attritions / Average Number of Employees x 100
What is a Good Attrition Rate?
The US Bureau of Labor Statistics says that the average rate of attrition or turnover is about 15%. However, ideally, a rate below 10% is considered a healthy employee attrition rate.
A high attrition rate can tell a lot about your business. For example, it can mean you aren’t providing enough benefits to your employees or the work environment isn’t as healthy.
Other reasons for its high rate in the workplace and its outcomes are as follows:
The Salary Offered isn’t Competitive
The primary reason for the high attrition rate is compensation. Sometimes when employees are offered a considerably higher compensation from another organization, they prefer joining that. A good approach to resolve this issue can be to have a bi-annual performance-driven increment.
Employees Don’t Feel Valued
No person likes to be in an environment where they don’t feel appreciated. The same is for employees working in a place where bosses don’t acknowledge their work quality and hard work. Undervalued and demotivated employees feel they’re better off somewhere else and hence decide to leave. As reported by Achievers, 21% of employees are likely to remain with their current employer because of recognition.
When an organization restructures to keep up with the economic pressure, most employees are compelled to work more than usual. This burden ends up affecting both their work-life and personal life. Employees, therefore, leave in search of jobs that are better in terms of maintaining their work-life balance.
The Culture isn’t Healthy
Another reason for its high rate is an unhealthy culture. Of course, no human can dwell in an environment that is not healthy. The same goes for employees working in a culture that doesn’t prove to be nurturing for them after they join.
Rude behavior is another factor that contributes to unhealthy work culture. Be it supervisors or subordinates, kindness is important. When employees fall prey to this toxic behavior from their supervisors, they leave for good.
Fewer Growth Opportunities
Finally, when employees realize that a workplace isn’t helping them grow and their talent isn’t being put to good use, they decide to join an organization that helps them grow.
How to Predict Employee Attrition?
Can an organization predict employee attrition?
Some of the factors like age are easy to predict. On the other hand, some are unforeseeable. These include the particular way a company will perform in the near future etc. An analytical model can help to tell what category of employees is likely to leave. The company’s algorithms can help predict what the churn rate is going to look like. So how does it work?
- The predictive attrition model classifies all employees based on their gender, distance from homes, age, marital status, and work experience to name a few.
- The accuracy of the model is based on these classifications which help to generate a suitable type of predictive model for an organization.
- Therefore choosing a model based on these categories is important. After that, an organization can see which predictive model can be used.
- Using a predictive attrition model is helpful in not only predicting the attrition rate but also in making the right hiring choices.
But do ensure that these algorithms are fair and aren’t biased against protected classes. One such example is of Amazon, as reported by Reuters, in which their recruiting tool showed bias against women.
Many people use the term attrition interchangeably with turnover. While they may look similar, there are a few differences. Let’s take a look at them below:
Attrition vs Turnover
Attrition is the rate at which employees leave an organization and that vacancy remains unfilled for a long time. On the other hand, employee turnover is also an act of employees leaving but in this case, the vacant position is filled immediately. According to Glassdoor, the average turnover rate in the US in 2021 is 57.3%
Secondly, a high attrition rate suggests that the success of your organization is at stake and growth is shrinking. Conversely, employee turnover is not considered a negative thing. In fact, some organizations look forward to turnover to put their business on the road to growth.
Attrition is a measure of employees leaving the organization voluntarily and therefore remains unfilled by the company for longer periods. However, employee turnover can be both voluntary or involuntary. In either case, a vacancy is filled as soon as it can be filled.
The churn rate of a company or employee refers to both attrition and turnover rate i.e. the churn rate also tells you the number of employees that leave an organization at a given time annually and affects your organization. High rates of it decrease productivity, impact the company performance and affect growth.
Having a high churn rate has its effects:
The major impact of employees leaving your organization is the financial loss. Whenever a new hire is brought in, money is spent on their onboarding and training. Not to mention, the cost of hiring. Reducing the churn rate can help not only reduce hiring costs but also increase profit.
Less New Employees
When many employees leave the organization together, it puts its reputation at stake. When many employees will leave in tandem, it will make the organization less attractive to other employees. Questions about poor work culture will begin making it hard for the organization to attract new hires.
Sometimes when employees leave, loss of tribal knowledge is certain. It is a term used to define the knowledge and wisdom that pertains to the minds of only some key people in the organization. When this happens, new and less-experienced employees will take time to learn and adjust, hence reducing the organization’s productivity. For example, in the manufacturing industry, tribal knowledge can be the exclusive technical know-how of handling machines that new hires are unaware of. Even some older employees may not know the intricacies. This is why knowledge transfer before attrition is key.
Types of Attrition
As the term says, voluntary attrition is the act of employees leaving an organization willingly. Employees quit jobs due to several reasons. Some of these can be that an employee has found a better suitable job for them or they didn’t like the current work culture. Unlike other types, this is in your hands because managers can try to retain employees.
Involuntary attrition is initiated by the company itself. It involves firing an employee because of misconduct or some other reason. Another common reason for this is a merger or acquisition.
Retirement Based Attrition
If an employee or two leave the organization, that doesn’t contribute to the shrinkage of a company. However, when employees leave en masse every year, that is surely worrying. One thing to keep in mind is that retirement isn’t always due to age. Employees also retire early to work independently.
This type occurs when employees are transferred from one position to another within the same organization. Sometimes this type of transfer is in the favor of the company. However, if the same department needs a transfer every year, as an HR, you need to ask yourself why that is happening and what is wrong with that particular job.
Demographic attrition refers to a particular group of employees leaving the company. For example, if women are a major part of attrition every year, this can be indicative of a deeper problem.
In unregretted attrition, employers don’t regret seeing employees leaving their company. According to a report by Business Insider, a technique employed at Amazon, in which Amazon intentionally fires 6% of its employees annually to hire new employees.
Voluntary vs Involuntary Termination
If an employee quits a job on their own accord, it’s voluntary termination. However, if an employer fires them, it is involuntary termination.
Employee Attrition Factors
Different factors affect staff attrition in an organization. Some of these are below:
The biggest factor that has and is still affecting organizations is the COVID-19 shutdown. Since the pandemic began, it has negatively impacted organizations all over the globe. Many employees were furloughed and even terminated hence affecting the employee attrition rate.
Better Job Opportunities
Many employees decide to leave once they get a better job opportunity. According to the Global Talent Trends report, 42% of the employees are passively looking for better job opportunities
Sometimes, a lack of career development leads to a high rate of attrition. Many employees feel dissatisfied with their current careers and decide to quit.
Many personal factors on the behalf of employees also affect the attrition rate. These include the personal motivation of employees to work or the feeling that there has been no progress in their career since they joined the organization.
Can Attrition be Beneficial?
Can attrition be beneficial to an organization?
In many cases, employees leaving is a good thing for the organization. Here’s why:
Room for New Employees
When employees leave an organization, it creates room for new talent. A good replacement increases your company’s progress.
Hiring new employees can be a good opportunity to increase the diversity in an organization. This is good for the reputation of your company since Gen Z and Millenials like joining organizations that have employees from various backgrounds.
When an organization gets rid of poor-performing employees, it increases productivity. When new talent is hired they work better and more efficiently.
Removes Unfit Employees
Sometimes turnover helps remove employees that are unfit for their roles. It helps HR weed out employees who shouldn’t be hired in the first place.
Recent Trends In Attrition Rate
Here are a few facts and figures on recent trends in employee attrition and turnover:
- According to the US Bureau of Labor Statistics, in 2021, 5.5 million employees in the US left either due to retirement, resignation, and transfers.
- As reported by the SHRM, it is estimated that 41 million employees left their job voluntarily in 2018.
- According to SHRM, the annual voluntary attrition rate is 13% while involuntary attrition is at 6%.
- USA Today reports that the job with the highest attrition rate is of lobby attendants and ushers which is 24.3% of the total attrition rate.
- As reported by Aon, 2020, the highest industry-wise churn rates are seen in retail and commerce fields, rising up to 30.7%.
How to Manage Attrition and Shrinkage?
Training your employees seems like a good idea. When they know how to do a task, they will do it efficiently.
Keeping your employees engaged is the key. Provide your employees with benefits and perks. You should also have a bonus policy.
A big reason employees leave is that they are not paid well. Increasing the salary bi-annually can be a good way to bring the rate of attrition down.
Monitor your employees’ satisfaction and growth from time to time. In this way, you will know where an employee is lagging behind and where they need help.
The Bottomline on Employee Attrition
The bottom line is that an organization should pay attention to what their current employee attrition or turnover rate is. It will benefit the organization in the most healthy ways. Managing attrition strategies to retain employees will help employers in making the right decisions.