The migration of employees to and from a business is natural. According to LinkedIn, employee turnover is the highest in a decade, with approximately a third of the workforce job hunting. This unusually high employee attrition and turnover rates can be a concern for companies.
There are various 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 poorly on the company, which 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 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 refer to employees leaving an organization and are often used interchangeably. While both cost the organization in terms of money, time and effort, by their definition of them, they are very different.
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 because of life happenings.
And when turnover happens, it usually reflects negatively on the organization.
What is the 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?
The attrition rate is how organizations can find the percentage of employees leaving the organization over a certain period and improve it 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 it 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 %.
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 improve retention, companies must first understand the reasons behind attrition. So, here are the five different types of employee attrition.
1. 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, the loss is usually statistically too small to count under attrition in small numbers.
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 several driving factors behind this that are unrelated to age. While some people may have to retire early due to involuntary reasons such as illness, many choose to do so because they can afford it.
For example, out of 3.6 million who retired early in the UK, 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 common among senior professionals looking to use their industry knowledge while having more flexibility.
2. Voluntary attrition
The employee initiates the exit in the case of voluntary attrition. It is, therefore, the most common type of attrition. The employee decided to leave the company on their own accord. Perhaps they didn’t like the work environment or felt overworked and underappreciated.
Some employees 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. (Source: Forbes)
They’re looking for job fulfillment and aren’t afraid to jump ship if they don’t get it. Luckily, you can do things to prevent this and keep your employees more engaged and satisfied.
3. Involuntary attrition
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.
4. Internal attrition
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 attrition rate, it can be cause for concern. This might indicate that the team fails in certain respects and merits 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, this can be a positive progression for a company in certain cases! It might be re-routing talent towards more profitable areas. Also, it can lead to improved employee-job fitment in the long run.
5. Demographic-specific attrition
This is of particular concern to companies. Diversity leads to innovation, and innovation leads to growth. Therefore, an equal-opportunities workplace should investigate if large quantities of a specific demographic are resigning.
This includes 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 poorly 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.
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 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 tends to disengage and lose productivity on seeing their fellow teammates 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.
A 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.
How to reduce attrition of employees?
If there is one thing that you need to keep in mind to set your team/ organization up for success, striving against attrition, then it is this – “little things matter.”
Understanding the motivators behind employee attrition can help address the problem before it causes substantial damage to the organization. Did you know a recent study by the Work Institute revealed that in 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:
1. 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 feedback run polls and surveys across different teams to understand what employees want where are the gaps in the work environment.
You can also find out how employees feel about their workplace and teams, if they are facing any specific challenges if they are displeased with a recent policy or happenings in the organization, etc.
Not just that, you can figure out which teams have high attrition rates and which ones have high retention. You can also hold detailed and structured one-on-one meetings with managers and employees to know the exact pulse of the teams.
With this analysis in place, it becomes easy to identify early signs of attrition and take necessary steps to avoid potential damage to the organization. Empuls intuitive surveys and polls help collect precise feedback and get timely insights into employee data and metrics.
2. 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 taskmasters, 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 build great teams and achieve better organizational results.
3. Relook into your human resource policies
We live 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, the current workforce might not value it much.
Rigid and outdated HR policies can make engaging and retaining employees challenging. It’s important to review HR policies and reframe them to make them people-centric and suit the current dynamic workforce.
Keeping your HR policies up-to-date and under the changing ways of the world is a must to retain employees.
4. Offer flexibility, perks & benefits
Employees move on from their jobs when their current position is not satisfying their financial needs. Offering competent and prevalent salaries 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 their needs. It can be from discounts on monthly grocery, exclusive cuts on branded merchandise, dining, travel, health & wellness, gadgets, apparel, etc.
Added perks like the 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 retain them. Not just that, a 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 an employer-employee relationship.
5. Make internal movement easy
One of the most common reasons employees quit an organization is because they want to change their career paths. Often, 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 gives your employees freedom and reduces the overall attrition rate. Having clear policies in place can help the easy internal movement of employees between departments hence increasing employee satisfaction.
6. 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 thrive is extremely important.
Ensuring 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.
7. 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 a lot of thought and effort into hiring an employee. And the hope is that the employee is intrinsically motivated 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 are sure to raise – encouraging them to stay longer with the company.
8. Optimize recruitment
From the get-go, a company should set out clear and specific requirements for 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.
9. 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.
10. Employee engagement
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. Therefore, you must 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 attrition 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!
Build highly engaged and high-performing teams with Empuls!
Discover how people leaders are building engaged teams through continuous feedback and improvement.