Data-driven HR

What Is Employee Attrition and How to Calculate It?

12 August 2020
Two individuals deeply engaged in calculating the employee attrition rate with open laptops in front of them
Estimated Read Time 7 minute read

An attrition rate is a mechanism that can help companies find the way to improve in order to keep their productive employees and grow their customer base. Attrition rate definition goes like this: it is a metric that helps companies measure the number of customers or employees who left the company over a certain period of time. Employee attrition is represented as a percentage compared to the customer base or a total workforce. It allows HR departments to determine the number of eliminated positions.

Attrition Rate VS Turnover Rate

The main difference between the turnover rate and the attrition rate meaning is that a turnover rate is usually considered to be negative – it is a metric used to calculate the number of people who leave the company either because they have found better job positions or because of bad job performance. In such a case, a company must fill the vacancy once employees leave. On the other hand, the attrition rate is a metric used when employees leave the company through a naturally occurring process such as employee passing away, retirement, elimination of position, personal health reasons. It’s important not to mix these two terms.

What Is Attrition and How to Calculate It?

What does the attrition rate mean? Although attrition represents a natural process where people decide to leave the company for personal reasons, it can have a negative impact on the company’s culture after some period of time. So, once attrition crosses the threshold it may cause concern among managers. To do the attrition rate calculation you just need to use a simple formula:

Count the number of people you started the year with and keep track of how many people left throughout the year. Next, keep track of the number of people you hired during that year and then count the total number of people at the end of the year. Finally, calculate the average number of people during that year and calculate the number of people who left as a percentage of the average number of employees. Put simply, attrition rate formula goes like this

Attrition Rate = Number of Attritions/Average number of employees x 100

What Types Of Attrition Are There?

There are 4 different types of attrition that occur in any company:

  • Attrition due to retirement

Retirement is one of the main reasons why people decide to leave the company. If there are only two or three people who leave the company because they are about to retire, there is no reason for concern. However, if the number of retired people starts growing, the company should make some necessary steps to avoid attrition. Also, there are cases when your senior staff may decide to retire early either for health reasons or some other factors which can then lead to higher attrition. This is why the number of people who decide to retire should not be neglected.

  • Voluntary attrition

One of the most common types of attrition is voluntary attrition. In this case, employees decide to leave their jobs voluntarily, for some personal reasons. Basically, there may be a range of reasons why employees may decide to leave their jobs, from poor salary to some personal issue. You need to be able to figure out what makes your employees want to leave their jobs and do something to prevent it or at least decrease the number. Otherwise, this may cause serious damage to your productivity and business in the long run.

  • Involuntary attrition

As the name itself suggest, in this case, managers and the company decide to initiate the employee’s exit either because of misconduct in the workplace or poor results that that specific employee has achieved. Also, involuntary attrition happens during mergers and acquisitions.

  • Internal attrition

Internal attrition happens when employees decide to move from one department to another which might be a good solution and even a desirable one because it can help fill job positions at the company. However, if there are a lot of employees leaving one department to join another one, this can be some kind of a signal that the company should do some in-depth investigation to find out what’s the cause of such behaviour. Whether managers are not doing a good job, or there is something missing at the job, it’s important that the HR department makes the necessary steps to get the answers they are looking for.

What Causes Attrition in Companies and What to Do about It?

Finding new employees and focusing your efforts on helping your employees get to know your company culture can be time-consuming and expensive. From high-stress level and overwork to toxic company culture, there are many reasons why people decide to leave the company. Once you are aware of the reasons why people leave the company, you will have enough insights you can use to make the right steps and make people stay in your company. Here are some of the reasons:

High-stress level and overwork

I am sure you have heard of the term “burnout”. It is one of the most frequent terms used in today’s business community. Due to the accumulated stress, working long hours and too many daily obligations, people easily reach the point of breaking and experience unpleasant feelings at work, also known as burnout.

Hiring people who don’t fit your culture

Finding the right talent that will meet companies’ business requirements has become a real challenge. Employees who have extensive knowledge, the right skills and experience can significantly contribute to the company’s productivity and success. Unfortunately, it seems that many companies do not take this seriously and tend to hire people because of their availability or lower salary demand. However, these people usually require a high level of training which consequently leads to higher costs. Finally, once they gain enough knowledge and experience, these employees start looking for new job positions.

Incompetent managers

One of the reasons why people may not be satisfied at work is because they are lead by bad management. In its core, if managers lack the right knowledge and skills, they may turn to another kind of mechanisms to create and maintain authority in the office. This may create inadequate patterns of behaviour like poor judgement, bad temper and micromanagement which can chase even the best employees away.

Lack of development opportunities

One of the factors why people decide to stay at work is the opportunity to grow and develop. So, if your employees cannot advance in their career and upgrade their knowledge, they may decide to move to another company and find a better job position that will help let them thrive.

Toxic company culture

Nobody wants to work in a company that sabotages morale, does not let them express their thoughts or grow in any possible way. This kind of atmosphere will only scare people away, and drive away even the best company’s people.

The Next Step

You need to focus on a few factors if you want to keep your employees in the company and make positive changes. For instance, when calculating your attrition rate you need to keep track of this metric on a monthly basis and be in the know why the percentage has significantly increased or decreased. This will help you identify the problem and take the necessary steps to find the solution. Also, it is crucial to be aware of the impact employee attrition can have on the company’s budget. Plus, apart from the facts and figures, it’s important to take the industry and the current situation into account as well to get the full picture and then act on the findings.