Attrition is the reduction of the size of an organization’s workforce as a result of not replacing employees who leave. It takes into account employees who leave both voluntarily and involuntarily.
In an HR context, attrition usually refers to one of two scenarios:
- Intentional attrition, when a company deliberately downsizes its workforce by choosing not to replace employees who leave, typically to reduce associated labor costs.
- Unintentional attrition, when employees leave faster than a company can replace them for reasons external to the organization.
Why Is Understanding Employee Attrition Important?
It’s uncommon to see an organization with a zero employee attrition rate. There will always be reasons why some employees leave an organization and an organization can’t replace them.
Understanding unintentional attrition helps you design recruitment and retention practices and build a resilient workforce that can adapt to natural rates.
The acceptable rate of attrition for your organization depends on its circumstances and business strategy. When it comes to unintentional attrition, many organizations aim for a low rate, equating it with low staff turnover and a sign of satisfied employees.
These organizations perceive a higher rate as a cost. They see this as losing their investment in employees, such as onboarding, training, and development. A high rate of employees leaving can also lead to a loss of institutional knowledge and a lack of continuity.
When looking at unintentional attrition, it’s also important to consider why employees are leaving. Some are natural and may not be of concern. For example, employees leaving as a result of retirement or internal mobility—where an employee moves positions within an organization—is unavoidable.
However, other reasons may suggest structural issues within your organization. For example, high attrition as a result of employees moving to another organization, or demographic-specific attrition—where a specific group of employees leaves—may be an indication of cultural problems within your organization.
Understanding intentional attrition is important for organizations looking to deliberately reduce the size of their workforce.
Why Does Attrition Occur?
Attrition occurs as a result of two factors—employees leaving an organization and an organization not replacing them.
Reasons employees leave
There can be a range of reasons why employees leave an organization. Some are entirely independent of the employee’s work situation and potentially outside an employer’s control. These may include:
- Retirement
- Illness or death
- Moving
- Changing professions
- Other personal reasons, such as schooling or family commitments
Employees may also choose to leave because of internal factors, usually related to company culture. Attrition can be a symptom of underlying company issues, such as:
- Poor management
- Workplace bullying
- Burnout
- Employee dissatisfaction, for example, as a result of poor pay, benefits, or work-life balance
- Bad working conditions
- Lack of professional opportunities
- Lack of recognition or rewards
Employees may leave voluntarily—for example, because of the above reasons—or involuntarily, such as when an organization implements layoffs or terminates an employee for poor performance.
Reasons employees aren’t replaced
When employees leave, an organization typically replaces them. However, there may be reasons why this doesn’t happen.
For example, you may deliberately implement a company hiring freeze due to restructuring or budget issues, resulting in intentional attrition. On the other hand, unintentional attrition can occur if your company is unable to replace employees because of circumstances outside of your control, such as during periods of low unemployment when there might be limited or no candidates for a role.
What Is an Employee Attrition Rate?
An employee attrition rate is an HR metric representing your employee attrition over a certain period and can help you quantify how fast employees are leaving your company. It is typically measured on an annual basis, allowing you to compare and identify any trends or issues.
How to calculate employee attrition rate
Employee attrition rate = number of employees who leave in a certain period / average total number of employees in the same period x 100
To calculate your average total number of employees, add the number of employees you had at the start of the period to the number of employees you had at the end of the period and divide by two.
For example, if you had 241 employees at the start of the year and 263 at the end of the year, and 29 employees left during that time, your employee attrition rate is 29 / (241 + 263 / 2 = 252) x 100—that is, 11.5%.
What is a good employee attrition rate?
There is no standard rate for a business. A reasonable attrition rate depends on a range of factors, including the nature of the work and an organization’s size, sector, location, and business strategy. For example, the acceptable rate for a seaside restaurant that only hires casual staff over the summer will be much higher than the rate for a professional services firm.
If you’re pursuing an intentional attrition strategy, a temporarily higher attrition rate may be exactly what you intend.
If you’re trying to establish what might be a reasonable attrition rate for your company, it’s best to look at rates from other similar organizations in your sector.
What’s the Difference Between Employee Attrition, Turnover, and Retention?
Employee attrition, turnover, and retention rates measure the employee life cycle from a different perspective.
Both attrition and turnover rates measure the number of employees leaving your organization. However, attrition rates take into account whether or not employees are being replaced at the rate they leave, and so this statistic is more to do with changes in the size of your workforce.
A turnover rate assumes the employee is replaced. Turnover rates also typically are calculated over a shorter timeframe—often month to month—than attrition.
There are a few differences in what these metrics mean as well. While a high attrition rate means an organization is shrinking, an organization with a high turnover rate can potentially still be growing. A high attrition rate may not be a concern, depending on the reasons employees are leaving and your workforce strategy. On the other hand, a high employee turnover rate is generally considered a sign of serious issues within the company culture.
Employee retention rates are a look at attrition and turnover from the other side of the coin, quantifying your organization’s ability to retain employees. They measure the percentage of your workforce who stayed during a specific period and don’t take into account new hires.
Ways to Manage and Address Attrition
Some level of employee attrition is natural in every organization. By understanding patterns in your organization, you can design a workforce around it. One way to do this is by using a mix of employee types—permanent, part-time, and freelancers—to accommodate changing levels of attrition.
If you’re not using an intentional attrition strategy and your company’s attrition rate becomes a concern, here are some ways to reduce it.
Improve your hires.
To address why your employees are leaving, you should look at how you’re hiring them in the first place. This includes making sure your new hires have the skills needed for the role and that they will fit in with your company culture. During the interview process, explore whether they want to work for your organization long-term.
Design effective onboarding.
Onboarding sets the tone for your employees’ experience and significantly influences an employee’s decision to remain with an organization. An effective standardized onboarding process can improve new hire retention by 50%. If you already have an onboarding process in place, collect feedback from the employees who complete it to identify any areas for improvement.
Offer competitive compensation.
Unless you have a different compensation strategy, you should ensure the compensation you offer employees is on par, if not better than, that of your competitors. This reduces the risk of your employees leaving for another job and builds employee loyalty. Don’t forget that compensation includes both salary and benefits.
In an SHRM survey, 92% of respondent employees identified benefits as important to their job satisfaction. In particular, you should consider job flexibility and remote working arrangements for your employees.
Improve the workplace experience.
Find out about your employees’ experience, for example, by conducting a survey, and how you can improve it. This may include offering more training and development opportunities or better office facilities.
Regular employee check-ins and exit interviews with leaving employees are also useful for identifying any issues impacting their job satisfaction. These could highlight problems that cause employees to leave, such as feeling underappreciated or unrecognized, a desire for more challenging work or responsibility, or issues with management or the company culture.
Conclusion
Employee attrition describes the shrinking of an organization’s workforce as a result of employees leaving at a quicker rate than they are replaced. It occurs when an organization either chooses not to replace departing employees—intentional attrition—or cannot replace them due to factors outside of its control—unintentional attrition.
If your attrition rate becomes a concern, you can address it through a range of methods, including competitive compensation and improving your employees’ experience as well as who you hire in the first place.
Manage Your Company Events With Complete Ease
Easily plan, create, and manage events for your employees and get quick, clear RSVPs – give Connecteam a try today.