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All About Employee Attrition Rate
Employees are the lifeblood of any company. Employees also serve as a direct relationship between the product and the consumer. This could happen at the time of sale or if a consumer requests technical assistance.
Any business owner understands that keeping good personnel strengthens their company. Many firms, especially small enterprises, regard their staff as family.
However, things do not always go as planned. Employees depart for a variety of reasons, ranging from better job offers to dissatisfaction with their current position. Recognizing why your attrition rate is what it is allows you to take steps to possibly reduce it. But what exactly is an attrition rate? And what can you do to make a change?
What is the Definition of an Employee Attrition Rate?
Your employee attrition rate, also known as the churn rate, is the rate at which employees depart your organisation. It’s frequently expressed as an annual amount or as a number of employees over a longer period of time. It’s commonly expressed as a percentage. For example, if your company has 100 employees and ten of them depart over the course of a year, you have a 10% attrition rate.
Some attrition is unavoidable and normal. Other types of attrition occur as a result of certain situations. Knowing how to break down your attrition numbers, how many people leave on average, and how to address any issues that affect them will go a long way toward improving that percentage in the future.
Voluntary Attrition (Attrition through Choice)
This can apply to a variety of situations in which employees quit. It’s possible that a lot of employees have reached retirement age or are migrating away from your company’s headquarters. It’s also possible that they quit because they were unhappy at work and obtained a better job offer. It may also cover voluntary redundancy in the event that your company has had to make job cuts.
Involuntary Attrition (Unintentional Attrition)
This describes a situation in which there are few options. When an employee is fired from your organisation, it can be for a variety of reasons, including disciplinary action or misconduct. It may also involve instances of forced layoffs, in which a portion of the workforce is laid off. Your company, for example, is downsizing in some areas.
Internal Employee Turnover
This is a slightly more difficult circumstance. This would generally only apply to larger organisations where attrition rates for individual teams or departments need to be calculated. Internal attrition occurs when a staff member transfers from one department to another.
Attrition in Demographics
This is a scenario that a company would be concerned about. When a given demographic group (age, gender, race, or disability) decides to quit your organisation, this is what happens. It’s possible that you don’t have adequate diversity or support policies in place. If your attrition rate in this area is excessive, you should look into it right away.
Attrition Rate Formula
When it comes to exposing any difficulties that may present, being able to explain any attrition rates within your firm as a clear number value is vital. By concentrating on any issues that are causing high attrition, you can potentially solve those issues and see a reduction in attrition rates in the following cycle.
There is a rather simple formula, as you can see in the graphic above. You multiply the number of persons who have departed your company by the total number of employees over that time period.
To give you an example, your company employs 2,000 employees. Over the course of a year, 100 employees leave for various reasons. You may get an annual attrition rate of 5 percent by dividing 100 by 2,000 and multiplying the result by 100.
The Benefits and Drawbacks of a High Attrition Rate
It’s all too tempting to dismiss attrition as a totally negative phenomenon. The truth is that some attrition is beneficial, while others are detrimental. You’ll be able to discover which staff departures had a good impact and which ones didn’t if you can analyse not only your actual attrition rate but also the reasons for it.
Also Read: Schools of Management Thoughts & Theories
Advantages of Attrition
- Cost Savings
You may have employees who have been with you for a long time and have progressed up the pay ranges in some circumstances. However, they may be earning far more than other team members who are performing the same work with the same level of efficiency. Even if you have to replace those employees, you may save money on wages and enhance your bottom line if they depart.
- Adding To The Talent Pool
When employees depart and new ones arrive, your company may experience a rebirth of ideas. Bringing in new talent might help your company innovate and progress in various areas.
- Enhancement of Performance
Similarly to replenishing the talent pool, letting go of employees who have become complacent and have harmed productivity might lead to a boost in productivity when new staff are hired. This can have comprehensive concerns for your firm.
- Getting Rid of Bad Effects
There are occasions when a member of your team is simply not a good fit for your company. They could be a bad worker or have a history of disciplinary issues. Losing them will almost certainly be beneficial.
- Poor Fit
You’ve put in a lot of effort to create a business culture that reflects well on your product or brand. There are times when someone is simply not a good fit for the company’s culture, and their negativity can have a negative impact on the entire organisation. Losing that person is a good way to reinforce your company’s culture.
Disadvantages of Attrition
- A Decrease In Output or Performance
Unplanned attrition can have a negative impact on your company’s productivity and effectiveness. Losing someone who was formerly an important member of your team may not only result in a reduction in personnel, but it may also have a negative impact on customer attrition rates and relationships.
- Costs Will Rise
When an employee leaves and you need to replace them, you may incur a variety of fees. You may need to make payments to the departing employee before finding, hiring, and training a replacement employee.
- There is a Loss of Knowledge
When you lose a long-term employee, this is a very terrible situation. They are familiar with your systems, procedures, and culture. It takes time to get someone fresh up to speed, and it might have a variety of negative consequences.
- Unexpected Departures
When an employee decides to quit, most businesses require a period of notice. This gives you enough time to find a successor and start training. However, when an individual leaves unexpectedly, it can leave a gap in everyday work or existing initiatives.
- A Negative Impression
If a company’s attrition rate is consistently high, it may have an impact on consumer trust and how the public perceives your brand or organisation. It can also affect your capacity to hire, as employees may be hesitant to join a company with a recognised high turnover rate.
- Advancement Of Your Career
Most companies devote both time and money to their employees’ professional development. Internal and external training takes money, and if you have a high turnover rate, not only is that investment squandered, but you’ll also have to start over with new employees.
What is the Distinction between Attrition and Turnover in the Workplace?
This is a zone where loads of folks get muddled. Is there a difference between attrition and turnover rates? Is it better to be worried about one or the other? Knowing how to tell the difference between the two is essential for determining when you need to take action.
The rate of one-for-one personnel replacements over a set period of time is best represented as your staff turnover rate. You should only count turnover when a departing employee is replaced with a new one.
Employees who leave and are replaced are counted as part of attrition, while those who aren’t counted as well. What matters is that you uncover any underlying causes of turnover or attrition and take corrective action as needed.
How Can You Reduce Your Attrition Rate?
The requirement to reduce your attrition rate will be determined by how high it is and the reasons for it. Any business should anticipate some natural attrition, and in those circumstances, no intervention is likely to be required. However, if your attrition rate is excessive, you may need to take additional steps.
After you’ve estimated your attrition rate, the following step is to investigate the causes of departures. There’s not much you can do if the incidents are driven by internal attrition and are primarily voluntary. Look into it more if voluntary attrition was due to discontent or leaving for a better job. Determine which metrics have an impact on your attrition rate.
Also Read: Severance Package for Layoff Employees
What can you do if you see that your attrition rate is alarming? What can you do to halt or perhaps reverse the trend?
• Keep Track Of Employee Happiness
The simple fact is that a satisfied employee is more likely to stay with a company than one who is dissatisfied. You should observe a lower turnover rate if you put employee pleasure first. Ensure that there are effective communication and employee engagement channels in place so that employees may air their issues with management.
• Bonuses and Pay Structures
Any job market is competitive, and employees will leave if they believe – or know – they can be better compensated elsewhere. It’s beneficial to stay informed about your competitors’ compensation and bonus structures.
• Plan Ahead
Some new employees may regard your company as a stopover. Others may consider their role to be long-term or permanent. You may be able to minimise future attrition rates and find prospects who regard you as a long-term employer rather than a stopgap by having a good recruitment process. Inquire about new hires, look them up on LinkedIn, and so on.
• Departure Interviews
You should always do an exit interview when staff depart, unless their contracts are terminated or they are retiring. This might help you gain a better understanding of how employees see your company.
• Take Action On Concerns and Make Policy Changes.
It may seem self-evident, but if you notice problems, take action to fix them. It’s pointless to know what the issue is if you don’t take action to improve the situation. It’s possible that it’s not anything you realised was a problem. However, if you act now, you will most likely experience lower attrition rates afterwards.
Depending on your business model, you may or may not be able to offer flexibility. Not all jobs allow you to work from home, but you can look at things like flexi-time, adjustable shift patterns, and other options. You can make similar selections by listening to what your employees want and keeping an eye on what your competitors have to offer.
Losing staff and needing to hire replacements is not only inconvenient, but also costly. According to research, the average cost of replacing an employee (based on a salary of £25k or more) is roughly £30K. So, if your attrition rate is high, you can see how much that will contribute to your expenses.
However, not only does losing and replacing staff cost money, but it may also have a detrimental impact on customer relationships and how people perceive your company. Too many companies are too focused on their markets and lose sight of what’s going on within their own walls.
Keep a tight eye on your attrition rates. If the rate is high, investigate the causes and take any necessary measures. You have a low attrition rate and a happy workforce if you have a high employee retention rate. You’re more likely to have strong productivity, satisfied customers, and a healthy revenue stream if your employees are happy.