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Attrition rate is a simple metric that provides critical insight into your company and how well you're retaining employees.
You know that retaining top talent is crucial to your company's success, so you put measures in place to help you reduce employee turnover, provide good benefits, offer flexible remote work options, and incentivize continued learning.
But how do you know if these measures are working?
Let's dive deep into understanding employee attrition rate, churn, and turnover.
What is attrition rate?
The attrition rate of an organization, sometimes known as the 'churn rate,' is the rate at which employees leave. When you break it down, it's the number of individuals who have left the company divided by the average number of employees over a specific period of time. Attrition rate is typically expressed as a percentage (%).
The four types of attrition
Employee attrition rate can be affected by different factors such as an individual employee’s reasons, company decision, or an entire group decides to leave. No matter what made the employee churn, conducting an employee exit interview is typically a good way to uncover the actual reason.
1. Voluntary attrition
This is when an employee chooses to leave the company on their own accord and could point to problem areas in the way you nurture employees.
The employee might be leaving because they are not satisfied with their role or the lack of a proper learning and development strategy.
2. Involuntary attrition
A type of attrition is when the company decides to part ways with the employee and relieves the employee of their current job duties and responsibilities.
Common examples of involuntary termination include poor performance, behavioral problems, or being laid off.
3. Internal attrition
When an employee moves between departments, positions, and roles within the organization it’s considered internal attrition. Mainly because when an employee leaves their current position, that role is vacant, leading to position-based turnover.
Internal movement within the company can be considered a positive, as that employee could have been promoted or qualified for their desired position.
4. Demographic-specific attrition
Refers to an entire specific group of employees leaving the organization at the same time. The group can consist of employees with the same age, gender, or ethnicity.
Why is attrition rate important?
Understanding your employee attrition rate is important because it gives you critical insights into your organization's success. Knowing what the root causes of your staff turnover help identify ways to improve your company’s hiring, onboarding, and training processes. Constantly having to replace and train new employees has its cost.
Here are some benefits to managing your churn rate:
- Lower hiring costs
- Boost company morale
- Spend less time onboarding new employees
- Provide a better working environment
- Improve company reviews
What’s the difference between attrition and turnover?
Although attrition and turnover are used interchangeably, they have slightly different interpretations. Attrition rate is a long-term idea, focusing more on how often your employees are leaving over specific time periods and solving the overall problem. Meanwhile, staff turnover is short-term, used as a “duct tape” solution to employees leaving by hiring quickly to fill the gap.
How to calculate annual employee attrition rate
To calculate your employee attrition rate, divide the number of full-time employees who have left (known as "separations") over a specific time period by the average number of employees, then multiply the result by 100.
Simply put, attrition rate = (number of separations / average number of employees) x 100.
Let's say at the beginning of the year, your company had 50 employees, and over the course, your employee count has increased to 65. However, 13 employees recently left the company.
The number of employees that left the company is divided by the average number of employees across the year.
Of course, it doesn't have to be annual. You can calculate your attrition rate on a monthly or quarterly basis, as well. In fact, that may be a better idea.
What is the formula for calculating attrition rate?
To calculate the annual attrition rate, here is the formula you will use:
Attrition rate = # of employees that left / ((# of employees at the start of the year) + (# of employees at year-end) / 2) x 100.
What is a high attrition rate?
A high annual attrition rate can be anything over 20% according to industry averages, however these numbers vary by industry. Meaning if your company is experiencing staff turnover of over 20% for the year, they should be looking into ways of retaining employees.
Employee churn is expensive. By some estimates, it could cost a company six to nine months of an employee's salary to replace them. So if you lose an employee making $60,000, you're looking at $30,000 to $45,000 to recruit, hire, and train a replacement.
Even employees that occupy lower skill tiers are expensive to replace. Therefore, it's in your best interest to keep attrition rates as low as possible. To do that, you'll need to dive into what's causing a turnover at your company.
What causes high attrition rates?
The causes of high attrition can vary by company and industry, but the common culprits are:
1. Work culture
It's easy to overlook work culture as a cause of employee attrition, but it's an important one. Creating an employee-centric, positive work culture is crucial for retaining your best employees.
While early guesses attributed the high turnover to burnout and competitive pay, new research shows that toxic work environments are actually the biggest driver of employee attrition. Within industries, a toxic culture is 10x more likely to indicate a high attrition rate than compensation.
Of course, every company has different factors underlying turnover. And to reduce your attrition rate, you'll need to look at the specifics of your own business.
2. Stress
Employees that are highly stressed are more likely to quit their jobs. A recent study showed that job stress has a negative impact on performance and a positive correlation with leaving the company.
A Gallup survey found that 70% of surveyed employees feel overwhelmed by their workload. Helping your teams manage their workload and work-life balance is a great way to reduce attrition rate.
3. Room for advancement
No one wants to feel like they're stuck in their job forever. So if your employees don't feel like they can move up to a higher position or a different set of responsibilities, they will be looking for employers that will provide them.
Offering advancement opportunities is an easy way to counteract this turnover driver. But, of course, training and professional development go hand-in-hand with this strategy. Although it costs money to engage in these activities, remember that it will never cost as much as replacing your employees.
4. Appreciation
Gallup calls employee recognition a "low-cost, high-impact activity". But it also gets at the fundamental human need to belong.
Putting an employee recognition program in place is excellent, but you can start small. Have meetings with your employees and let them know what they're doing well. Recognize significant accomplishments and let employees know you appreciate them.
5. Pay
If your employees don't feel like they're being paid a fair wage, or they discover that they can make more money elsewhere, there's a good chance that they'll leave your company. The possibility for a higher salary elsewhere significantly increases the chances an employee will leave.
Of course, we understand that you can't just increase everyone's salary whenever you want to increase retention. But with how expensive it is to replace an employee, the investment starts to look a lot more manageable.
Annual or incremental pay raises feel like a thing of the past, but they could be one of your best tools to increase retention.
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