When employee retention is low, you have a problem: Happiness is down, engagement is off, or maybe the economy is strong, and people are leaving for greener pastures. But, when employee attrition is high, you might not have a problem, per se—but you do have something to address.
In this article, we’ll dive into everything you need to know about calculating and improving attrition rates at your organization, including:
- Attrition vs. retention
- Calculating employee attrition
- What high attrition says about your business
- How HR leaders can address attrition
What is the attrition rate?
The attrition rate is the pace at which people leave a company. Essentially, the attrition rate measures how many people leave, voluntarily or involuntarily. It’s usually expressed as a percentage and used as one of the main figures HR tracks to understand how things are going at a company.
Why are attrition rates important?
Now that we’ve understood what attrition rates are, let’s dive into why it’s so important to track them. In short, attrition rates point to something HR leaders definitely need to know: how many people are leaving your organization.
To a certain extent, people leaving is normal and expected. But if your attrition rates are unusually high, it may indicate issues with your people strategy. And losing good people, especially if you struggle to replace them, means you won’t be able to operate as effectively to keep up with your business objectives.
That’s not to mention that attrition is expensive, with some estimates suggesting it costs six to nine months’ worth of a person’s salary to replace them.
How can you calculate your employee attrition rate?
For calculating attrition, you divide the average number of departures in a given period over the average number of employees in that period and then multiply by 100 to get the percentage.
This represents the number of people left after departures: in other words, how much manpower you’re losing. Note that your attrition calculation isn’t measuring retention or turnover—it measures how quickly and efficiently your organization can replace people who have left, if it can at all.
Attrition vs. retention
So what exactly is the difference between attrition and retention? The retention rate measures the percentage of people who remain employed by a company over a specific period. This is essentially the opposite of attrition metrics, which measure the percentage of employees who leave the company.
The truth is that retention is a complex metric that, on its own, doesn’t tell us all that much about organizational health. To understand the nuances, we have to look deeper into retention data, including turnover and attrition.
Because while retention tells us how many people are leaving, attrition tells us what that actually means for the organization. Because attrition isn’t a measure of headcount—it’s a measure of strength.
Attrition vs. turnover
The difference between attrition and turnover is a bit more nuanced. In fact, people often use the two terms interchangeably. However, the two terms are slightly different.
People often view turnover as a short-term issue, with the solution of quickly hiring new people to fill the gap left by those leaving being something of a temporary fix.
In contrast, attrition is a long-term concept, focusing more on how many people are leaving over more extended periods and seeking to use big-picture, strategic thinking to solve the larger organizational problems.
What is a high attrition rate?
Of course, we can’t analyze the attrition rate in a vacuum. We need to look at the attrition rate within the context of what is happening in the industry, the area, and the world. So what exactly is a high attrition rate?
According to averages, anything over 20 percent can be considered high attrition. However, this varies by industry, making it worthwhile to do some more specific research to see how your organization’s attrition rate compares to similar companies. A good rule of thumb is that a rate of over 20 percent in any given year is a sign that you should look into what may be going wrong and what improvements you can make.
What causes high attrition rates?
Several factors can contribute to high attrition rates, including:
Pay should be just one of many things keeping people with a company. But, the truth is that people simply won’t stick with a role that doesn’t pay a fair wage, especially if another company offers them more.
Growth and development
People today value development as one of their highest priorities, meaning that a person who feels stuck in the same place with no prospects for room to grow will likely start looking elsewhere. Indeed, 94 percent of people report that they’d stay in their job longer if the company invested in their career.
As HR leaders, we already know how important culture is. But it sure does put things into perspective to learn that a toxic corporate culture is the strongest predictor of attrition–10 times more important than compensation.
Stress is a large-scale problem affecting individuals as well as organizations. Studies show that occupational stress significantly increases the risk of turnover.
What do employee attrition rates say about your business?
Attrition isn’t always bad. It can often be inevitable due to retirement, layoffs, and resignations. A robust company can withstand minor reductions to its headcount and probably won’t seek immediate staff replacement.
However, sometimes your organization’s role in high attrition rates cannot be denied, which can point to many potential issues with management, employee experience, and company culture. This is a tough pill to swallow, but it also offers HR professionals an opportunity to improve the organization as a whole.
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How can you reduce high attrition rates?
HR leaders can help their companies benefit from attrition by incorporating these practices:
- Plan for varied employment. The best plans consider the company’s and people’s needs. HR leaders can adapt to the nature of the job market by researching and collecting data to plan for different types of employment within the company. Perhaps essential core team members can become full-time employees, while others can work as contingent workers or independent contractors.
- Retain people crucial to company success. After identifying the most influential and essential people for company growth and advancement, HR leaders can focus on engaging and retaining them. HR leaders can increase the chances of keeping valuable people by providing competitive compensation packages, opportunities for personal and professional growth, and establishing a company culture based on trust, appreciation, and respect.
- Incorporate a warm offboarding program. HR leaders can integrate an offboarding program that allows people to leave on good terms. It’s important to send off departing people with gratitude and well-wishes for the next step in their professional journey. This way, employers exemplify integrity, and people can serve as positive ambassadors for their ex-employer.
- Leave the door open for people to return. HR leaders can work with managers and executives to develop policies and a company culture that welcomes boomerang employees. High-quality people who leave a company and later decide to return have the potential to contribute their valuable knowledge, experience, and enthusiasm.
Don’t be afraid of attrition
Attrition is a natural part of the employee lifecycle. High employee attrition rates mean there’s room to grow—not that you’ve been doing anything wrong.
By tackling attrition’s causes, you’ll be able to keep your business strong in the face of people’s departures.