The migration of employees to and from a business is natural. According to LinkedIn, employee turnover is the highest it’s been in a decade, with approximately a third of the workforce job hunting. These unusually high rates of employee attrition and turnover can understandably be a concern for companies. There are a variety of reasons for both attrition and turnover, many of which might be unknown or misunderstood by employers. With so many possibilities and opportunities out there, modern employees are ready to abandon ship if they’re not fully satisfied. Or, perhaps they’re simply looking for greener pastures. This can reflect badly on the company, who then must invest more time and money into recruitment. Ultimately, high rates of turnover are unsustainable in the long term. So, how do you reduce the rates? Well, keep reading to find out!
What is Employee Attrition?
The Cambridge dictionary defines attrition as “gradually making something weaker and destroying it, especially the strength or confidence of an enemy by repeatedly attacking it”. With this in mind, employee attrition refers to organizations that don’t replace employees who resign. Ultimately this diminishes the size of a workforce as they are leaving the workplace at a faster rate than they are being hired. Thus, it makes a company weaker and gradually destroys it - just like the definition says.
There are multiple reasons why an employee might decide to leave a company. For example, they might be unhappy in the work environment or feel there is a lack of professional growth. Equally, they might be losing confidence in the company’s market growth or feel there are weak leadership and management styles. The reasons for employee attrition could be voluntary or involuntary. So, it’s often considered one of the unavoidable costs of doing business.
Difference between Attrition and Turnover
The terms attrition and turnover both refer to employees leaving an organization and are often used interchangeably. While both cost the organization in terms of money, time and efforts, by the definition of them, they are very different. Employee attrition refers to the lifetime of an employee within the organization. It is not in the control of the organization, and has no negative connotation or representation of the company. It can simply be because an employee is retiring, moving places to be with their family, going back to school to complete their education or simply because the employee passes away. Regardless of the reason, the employee leaving is not because of any happening within the organization, but as a result of life happenings.
Employee turnover on the other hand refers to employees leaving the organization for reasons like poor hiring decisions, hostile or discriminatory work environment, lack of learning or developmental opportunities within the organization, finding a better job, etc. And when turnover happens, it usually reflects negatively on the organization.
What is Employee Attrition Rate?
The employee attrition rate is a measure of how many left a company compared to the average number employed that year. This is reflected in a simple equation: (Number of Attritions/Average Number of Employees) x 100.
If Number of attritions (A) = 20
Total number of employees (B) = 200
Average number of employees (B - A) = (200 – 20) = 180
Attrition Rate = (20/180) *100
= 11.11 %
Attrition Rate = ~ 11%
How to Calculate Annualized Attrition Rate of Employees?
Attrition rate is the means by which organizations can find the percentage of employees leaving the organization over a certain period of time, and ways to improve it in order to keep growing the business. Although attrition represents a natural lifetime of an employee within the organization, a high attrition rate can be a concern among managers and HR professionals.
If you wish to calculate your employee attrition rate, complete the following steps.
- Calculate how many employees your company had at the start of Q1
- Monitor how many left the company for any reason throughout the financial year
- Keep track of how many individuals were hired that year
- Conduct a final headcount at the end of Q4
- Calculate the average number of employees for that year by adding the initial headcount to the final one and dividing by two
- Take the number of attritions and divide them by your number from step 5. Multiply this by 100 to acquire your employee attrition rate as a %.
According to Gallup and a LinkedIn analysis, the normal employee turnover rate is approximately 10%. However, this varies depending on the industry sector, with technology, retail, and media experiencing notoriously high turnover rates of 13.2%, 13%, and 11.4% respectively. How does your business compare?
Different Types of Employee Attrition and Turnover
A survey of HR leaders showed that improving employee retention was a priority for 87% of respondents. To be able to improve retention, companies must first understand the reasons behind attrition. So, here are the 5 different types of employee attrition.
Attrition Due To Retirement
As an employee reaches the end of their professional life, they will retire and leave a company. This is natural and is to be expected. So, in small numbers, the loss is usually statistically too small to count under attrition. However, the loss of employees to retirement shouldn’t be ignored. If you lose a sizable number of employees in one go, this will impact your attrition rate.
There could be a number of driving factors behind this that are not always related to age. While some people may have to retire early due to involuntary reasons such as illness, many are choosing to do so because they could afford to. For example, in the UK, out of 3.6 million who retired early, 26% of them did so because they had saved enough to be able to. Another reason could be that after having acquired decades of experience, an employee might choose to pursue a career as an independent consultant. This is becoming a common trend among senior professionals, who are looking to use their industry knowledge while having more flexibility.
The employee initiates the exit in the case of voluntary attrition. It is therefore the most common type of attrition. The employee simply decided to leave the company on their own accord. Perhaps they didn’t like the work environment or felt overworked and underappreciated.
Some employees simply choose to leave because they don’t know what they want to do in life yet and are still ‘job hopping’ and experimenting with their careers. This is especially the case with millennials. They’re looking for job-fulfillment and aren’t afraid to jump ship if they don’t get it. Luckily, there are things you can do to prevent this and keep your employees more engaged and satisfied.
On the other hand, involuntary attrition is a decision made by the company rather than individual employees. There are a variety of factors that might drive a business to do this. These may include but are not limited to:
- Mergers and acquisitions
- Structural reform
- Reduction in workforce
- Job position elimination
In some cases, a certain employee may have demonstrated workplace misconduct. Following this, it can reflect badly on the company to keep them on so they are asked to leave.
Internal attrition can be at the hands of a company or the individual. In this case, employees are quitting their jobs in one department to join another within the same business. If one department has experienced a high rate of attrition, it can be cause for concern. This might indicate that the team is failing in certain respects and merit an investigation. Is the manager inadequately skilled? Is there a hostile environment? Are they failing to meet their targets? This is something your HR department can investigate and identify solutions for. However, in certain cases, this can be a positive progression for a company! It might be re-routing talent towards more profitable areas. Also, it can lead to improved employee-job fitment in the long run.
This is of particular concern to companies. Diversity leads to innovation, and innovation leads to growth. An equal-opportunities workplace should therefore investigate if large quantities of a particular demographic are resigning. This includes employees such as women, ethnic minorities, veterans, older professionals, or people with disabilities.
In such a case, an investigation should begin immediately to identify the root cause of the problem. No one should feel uncomfortable in the workplace due to their demographic, and, if they do, it can reflect badly on the company. A simple solution like working towards a more positive and inclusive workplace culture might be all you need to address the problem.
So, What is the Real Cost of Employee Attrition?
Attrition, no matter for what reason, can prove to be extremely expensive to the organization. The total cost of losing an employee can be as large as 1.5x – 2x of their annual salary. While the financial impact is on one side of it, there are other substantial damages done to the remaining employees. Josh Bersin in an insightful article on employee attrition and retention breaks down the key factors that contribute to the costs of losing an employee. These factors include:
- The cost of hiring a new employee which will include advertising, interviewing, screening, and hiring.
- The cost of onboarding a new employee, which will include training and management time.
- Cost of lost productivity—it sometimes takes a new employee one to two years to reach the productivity of an existing employee.
- Cost of lost engagement— existing employees tend to disengage and lose productivity on seeing their fellow team mates move out.
- Cost of customer service and errors— new employees take time to settle down and until then can take longer to solve customer problems.
- Cost of employee training —for example, over two to three years, a business is likely to invest 10 – 20% percent of an employee's salary or more in training.
- Impact on organizational cultural impact —whenever someone leaves, others take time to ask why.
High attrition rate cuts much deeper than what eyes can meet. That is why it is extremely important to have a robust employee retention strategy in place, that will help reduce the damages that attrition can cost.
Do you want to avoid employee attrition and develop a healthy relationship among employees. Explore Empuls today.
How to Reduce Attrition of Employees?
If there is one thing that you really need to keep in mind to set your team/ organization up for success, striving against attrition, then it is this – “little things matter”. Understanding what are the motivators behind an employee attrition can help addressing the problem before it makes a substantial damage to the organization. Did you know, a recent study by the Work Institute revealed that in the year 2019 alone, a shocking 42 million US employees left their jobs voluntarily – which constitutes nearly 27% of the workforce. Here are some winning employee retention strategies that will help you significantly reduce employee attrition rates:
Analyze your workforce
To win in the marketplace you must first win in the workplace. - Doug Conant
We practically use technology to do everything in today’s work environment. So why not apply that to analyze your workforce as well. You can collect feedbacks, run polls and surveys across different teams to understand what employees want, where are the gaps in the work environment, how employees feel about their workplace and teams, if they are facing any specific challenges, if they are really displeased about a recent policy or happenings in the organization, etc.
Not just that, you can figure out which teams are having high attrition rates and which one have high retention. You can also hold detailed and structured one-n-one meetings with managers and employees to know the exact pulse of the teams. With this analysis in place, it is becomes easy to identify early signs of attrition and take necessary steps to avoid any potential damage to the organization. Empuls’ intuitive surveys and polls help collect precise feedbacks and get timely insights into employee data and metrics.
Build Teams based on Employee Personalities
Every organization has a variety of people with a range of personalities. While some are born leaders with exceptional leadership skills, some are carefree risk takers, some are perfectionists and detail-oriented task masters, while some are great innovators – always buzzing with ideas and solutions for every kind of problem, and so on. When people with different personality traits are put together, they can pull each other up and work wonders. Understanding how people work and what motivates them can help you building great teams and achieve better organizational results.
Relook into your Human Resource Policies
We are living in a fast-paced, communication age, where everything gets done in a jiffy. In times like these, if your HR policies still reflect the ones in the industrial era, then the current day workforce might not value it much. Rigid and out-dated HR policies can make it difficult to engage and retain employees. It’s important to relook into HR policies and reframe them to make it people-centric and suit the current day dynamic workforce. Keeping your HR policies up-to-date and in accordance with the changing ways of the world is a must to retain employees.
Offer Flexibility, Perks & Benefits
Employees move on from their jobs when their current job is not satisfying their financial needs. Offering salaries that are competent and prevalent with the current market trends is a must to retain employees. A great addition to the salary packages is offering exclusive perks and benefits that are cut out specifically for your employees – based on where they are working from and what their needs are. It can be anything from discounts on monthly grocery, exclusive cuts on branded merchandise, dining, travel, health & wellness, gadgets, apparels, etc.
Added perks like flexibility of work – which can mean a number of things a – work from home, working remotely, flexible work hours (any 9 hours in a day), flexible time offs to attend to family needs, maternity leaves and paternity leaves, sabbatical to complete education, and so on, can be extremely beneficial. All of these can increase employee satisfaction and help retaining them. Not just that, flexible work environment also shows that managers trust their teams to get the work done, even when life gets in the way. This goes a long way in building employer-employee bond.
Make Internal Movement Easy
One of the most common reasons why employees quit an organization is because they want to change their career paths. A lot of times, employees realize that they don’t fit into a particular role that they have been working in, or they develop a desire to explore a different career path. Providing an option for employees to switch departments and career paths within the organization not only gives your employees the freedom, but also reduces the overall attrition rate. Having clear policies in place can help easy internal movement of employees between departments – increasing employee satisfaction.
Create a Pleasant Workplace
We spend more time working or at workplaces than at home or with our families. So, creating a work environment where employees are happy, engaged, productive and can thrive is extremely important. Making sure that employees have enough opportunities to socialize with others in the organization, they have enough opportunities to learn and upgrade themselves, their work is recognized and appreciated, their voice and opinions are heard, etc., can play a huge role in improving retention rate.
Engage your employees
There’s no magic formula for great company culture. The key is just to treat your staff how you would like to be treated. – Sir Richard Branson
Most managers put in a lot of thought and efforts into hiring an employee. And the hope is that the employee is intrinsically motivate and driven to achieve great results for oneself and the team. However, employees may struggle to achieve results when there is no proper communication about the goals and expectations. Having a clear conversation and communicating the expectations and goals can add a lot of clarity to employees’ roles. Added to this, when you hear from them from time to time regarding the challenges and support needed, motivate them with whatever is required, appreciate their efforts through rewards & recognition, employees morale and engagement is sure to raise – encouraging them to stay longer with the company.
From the get-go, a company should set out clear and specific requirements of the job. Set goals, and outline tasks and responsibilities. This way, you can avoid disappointment as employees know precisely what to expect from a job. Then, fewer resources are wasted on continual recruitment. So, making sure that your recruitment strategy is on point and that there are no unclear expectations from either party will help you to hire the right candidates and improve retention.
Improve Work Conditions
Top performing companies provide development opportunities, benefits for employees, and positive working cultures. This type of working culture is arguably one of the most important deciding factors as to whether an employee will stay at or leave a company. So, invest in providing these for your employees to ensure that their needs feel accommodated and respected. Consider flexible working schedules, remote work privileges, and assistance programs. You could also implement benefits and incentives as a retention tactic. This will improve employee motivation as they feel valued and recognized.
If your talented employees don’t feel like they have opportunities to progress professionally and expand their skill set, they might look elsewhere. This is one of the key causes of attrition, with 22.2% of employees in a 2018 survey citing this as their reason for leaving. Ensure that you provide training and constructive feedback so that they can improve their working style and see more professional success.
Without engagement strategies, employees will feel bored and unproductive in the workplace. You must therefore make sure that you’re doing everything you can to create a positive, open work environment where your employees can collaborate and develop their skills. In turn, fewer employees will resign due to feelings of being under-appreciated.
Employee migration and turnover are natural. It only becomes an issue in the case of attrition as this usually indicates a flaw in the system somewhere. Investigating this is crucial for the root cause is not always obvious. You can then come up with solutions to directly tackle the problem. The golden rule is to communicate and engage with your employees. A respectful, happy workplace is one that is unlikely to see a high loss of talent!