The average turnover rate for companies and businesses globally is 18%. One of the after-effects of the pandemic meant record rates of turnover across the world. Businesses now must compete for a limited pool of talent that is willing to jump ship for better and lucrative opportunities. Employees can leave their job or the workforce for various reasons. How does it impact your business? Is it called attrition or turnover? How can you manage it? Let’s understand employee attrition and how it affects you.
What is employee attrition?
Employee attrition is the natural process through which employees leave the business (resignation or retirement). It is a gradual reduction in employee numbers. It also means that your employees are leaving faster than they are hired.
Some forms of attrition are unavoidable.
Employee attrition can be business-wide or limited to specific parts of a business. This can happen when jobs are replaced by technology. It can also happen when a business gets downsized or restructured.
Employee attrition can be negative or positive depending on several factors. Businesses try to avoid employee attrition due to other related costs and the after-effects.
Types of employee attrition
Voluntary- Voluntary attrition happens when an employee decides to leave the company. Reasons for voluntary attrition include accepting a new job offer, making a career change, and moving cities or countries. They can also be personal such as poor health or taking a sabbatical. Voluntary attrition can also happen when employees find the work culture toxic or negative. Excessive voluntary attrition in any business is a sign worth investigating further.
Involuntary- Involuntary attrition happens when the company decides to let the employee go or eliminate their position. This decision can be based on recent financial limitations, market conditions, or in a bid to reduce staffing costs.
Retirement- As the name suggests, retirement is when employees reach the stage of official retirement from the workforce.
Internal- When employees quit their jobs in one department to join another department, it is called internal attrition.
What causes employee attrition?
As we have mentioned, employees leaving the workforce is normal. However, any business needs to understand the reasons and patterns behind people leaving or quitting.
Low unemployment- Low unemployment figures or rates indicate high participation of employees in the labour market. It means more opportunities, demand, and less supply thus making attrition inevitable.
Workforce demographics- The world is changing and there is a significant need to build an equal opportunities workplace. Shifting workforce demographics can lead to certain groups of employees quitting. Demographic-specific attrition suggests that employees from a particular group (race, gender, or disabled groups) feel that the workforce no longer supports or enriches them professionally.
Toxic workplace culture- We have spoken previously about the importance of positive workplace culture. It impacts employee morale and productivity. Every business has a culture, a set of values that determines how its employees perform and feel. If the culture is toxic, negative, or causes undue stress, employees are more likely to quit. A toxic workplace culture can be extremely harmful for a business.
Poor job satisfaction and pay- Employee satisfaction is about ensuring your employees feel valued and appreciated at work. It isn’t only about how much they are paid but about their financial compensation matching their contribution and efforts. Few people will be happy without a competitive salary or benefits. Financial security forms a vital part of job satisfaction. Business owners and employers should also remember the high cost of replacing an employee.
Business relocation or restructuring- When businesses relocate or restructure, they evaluate roles and duties. During this restructuring, they find certain roles incongruent with the future of the company. This can lead to roles becoming redundant or being replaced or merged into another job.
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Employee attrition calculator and formula
The attrition rate is the number of people who left the company compared to the average number of people employed in that year. This considers new hires as well.
How to calculate the attrition rate?
Conduct a headcount of how many employees you started the year with. Let’s imagine the number to be 500.
Keep a record of how many people left throughout the year. Let’s say 100 people left the company due to voluntary and involuntary reasons.
Document the employees you hire across the year and conduct a final headcount at the end of the year. If you hired 100 people that year, this means your final headcount is 600.
Now, calculate the average number of employees for that year. In our example, it will be 500+600/2 = 550
Finally, calculate the number of employees who left as a percentage of the average number of employees. This will give you the rate of attrition: 100/550 x 100= 18.18%
Attrition rate= Number of employees who left/Average number of employees x 100.
Understanding and calculating attrition rates tell you that the impact of attrition cannot be undermined or negated by hiring more people. It is crucial to manage and reduce employee attrition for the success of your business.
How to reduce employee attrition?
Attrition is a natural form of evolution and progress for businesses and companies. But if it exceeds normal rates, it can indicate deeper problems within your workforce. Small businesses do not have the resources required to compete with bigger firms or corporations when it comes to attracting talent. Many employees know and recognize their worth and are not willing to settle anymore.
For employers, attrition has advantages and disadvantages. Often considered a last resort, there are ways they can reduce and manage employee attrition.
Ensure employee recognition- Sounds simple but it can be tricky to implement. Meaningful recognition can improve employee engagement and boost morale. Engaged employees are likely to be productive and less likely to look for external job opportunities.
Offer employee learning and development opportunities- Employees are constantly seeking pathways to progress and develop. By offering learning and development opportunities to current employees, you allow them the prospect of being prepared for a future and having adaptive skills.
Focus on employee well-being- Supporting employee well-being can give excellent results in terms of employee lifecycle and longevity. Looking after employees can help their personal lives, reduce stress, and improve productivity.
Create flexible working models- The pandemic ushered in an era of hybrid work that looks like it’s here to stay. Flexibility is no longer a necessity for employees, it is a must-have. Creating a flexible working model benefits everybody. It allows you to access untapped resources and ensures employees can contribute in an efficient manner.
Benefits of a low attrition rate
Makes room for new talent- Demotivated or tired employees leave, making room for new talent that is excited and motivated. It can bring a set of fresh eyes and dynamic perspectives to the team.
Can enable diversity- Workforces can become one-dimensional with old employees set in their ways and ideas. Attrition can let business owners implement diversity and change the outlook of the team.
Helps create a dynamic workforce- With attrition you can change things up, create a dynamic workforce that is full of employees who are better suited for the role and help you pivot quickly.
Attrition vs turnover
It can be easy to confuse attrition with turnover. However, there are some differences.
Turnover is a short-term metric. The gap created by employee turnover can be addressed by rehiring.
Vacancies left by attrition can’t be fixed by simple rehiring. It needs to be reviewed and reconsidered, sometimes even restructured before they can fill the gap.
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