What is employee attrition rate and can a business control it?

What is employee attrition rate and can a business control it?

Employee attrition is the percentage of employees that leave your company. It’s an important HR metric that reveals how likely employees are to stay with you. What constitutes an appropriate employee attrition rate depends on your company and industry. But every business should aim to reduce unnecessary employee attrition as much as possible. You can do so by implementing effective HR policies that boost employee satisfaction. In the following article, we’ll examine employee attrition in detail while focusing on how your business can reduce unnecessary talent loss.

What is Employee Attrition Rate?

Your company’s employee attrition rate measures how many employees leave your company, voluntarily or otherwise. It’s one of the main metrics that your HR department uses to track your company’s performance. 

Companies measure employer attrition as a whole, but sometimes it’s more useful to check individual departments. For example, your manufacturing department could have a high attrition rate because your business adopted new technology. 

Employees could also leave for other reasons, such as dissatisfaction with compensation, an unhappy company culture, or poor working conditions. Your HR department should track the most common reasons for attrition. 

Is Attrition a good or a bad thing?

Whether employee attrition is good or bad depends on the circumstances. Are employees leaving because you’ve adopted a new technology that automates their work? That’s good for the business. Are employees leaving because they’re not paid on time and have poor working conditions? That’s bad for the business. 

Bad employee attrition is extremely undesirable for a business. Your company loses talent and has to invest time and resources to acquire new talent. Let’s say your company’s sales department has high attrition because of poor working conditions. That means you’re actively losing talent, and your company is suffering a loss. 

On the other hand, good employee attrition is when you lose people you no longer need. Perhaps you’ve invested in new technology. Or your company is outsourcing a business function. And maybe your company just needs a smaller workforce. Employee attrition is good in these cases because it decreases labor costs. 

What are the types of employee attrition?

These are the three main types of employee attrition: 

1. Involuntary attrition 

This is when a company decides to reduce its workforce. The employee doesn’t choose to leave. Hence it’s ‘involuntary.’ Companies let go of their employees all the time for a variety of reasons, including automation, position elimination, or general layoffs. 

Most instances of involuntary attrition involve eliminating a specific position. The most common reason is reducing financial costs. And while involuntary attrition can reduce costs, in many instances, it’s better to train existing talent for new work rather than eliminate it. 

2. Voluntary attrition 

Voluntary attrition is when an employee chooses to leave the company. They could do this for many reasons, like accepting a new job offer, changing careers, or relocating to another city or country. In the worst-case scenario, they could leave because of dissatisfaction with the company or poor health. 

Voluntary attrition is the least desirable for businesses because it means you’re losing talent that would have otherwise been retained. It’s not your company’s fault if an employee leaves because they’re moving to another city. But it is the company’s fault if they’re leaving because of a toxic work culture or dissatisfaction with compensation. 

3. Retirement attrition 

Retirement attrition is when an employee leaves the company because they’ve reached their retirement age, which is 64 on average in the United States. Retirement attrition doesn’t hurt your business only if a small number of employees retire. You’ll be in a crisis if a large chunk of your workforce simultaneously retires. 

Businesses have to worry the least about retirement attrition since it means an employee worked as long as they could with your company. 

What are the causes of Attrition?

As explained above, employees retire from your company for many reasons, ranging from personal to professional. You can’t completely prevent unwanted attrition, but you can reduce it by taking steps to maximize employee satisfaction. 

These are the six most common causes of employee attrition: 

1. Poor job satisfaction and pay 

Job satisfaction is naturally tied to compensation. Of course, employees can be compensated extremely well and still be unsatisfied. But virtually no employees will be satisfied if they’re not adequately compensated. The key is ensuring their pay is appropriate to their productivity and expectations. 

For instance, many people are concerned about their wages not matching inflation or expectations. That leads to people feeling financially insecure. Financial insecurity isn’t just caused by a low wage. Many people depend on non-wage compensation, like bonuses, commissions, benefits, and other financial incentives. 

Employees who aren’t provided adequate monetary and non-monetary compensation will be dissatisfied and more likely to leave. 

While some employers may argue that a high wage and benefits are expensive, replacing an employee could be more so. In fact, the cost of replacing an employee ranges between one-half to two twice as much as an employee’s salary. 

2. Not enough career opportunities 

Career development opportunities are one of the most important factors in keeping employees interested in staying with your business long-term. Knowing the career paths, they can follow employees with a clear aim and source of motivation. But the reverse is also true: a lack of clear career progression demotivates employees. 

When companies don’t invest in their employee’s career paths, they’ll likely look to other businesses. After all, if an employee has achieved all they can with you, how else can they advance their career? 

You can remedy this problem by having clear career progressions and investing in training and re-skilling opportunities. Your employees need to feel they have a future with your company. 

3. Poor workplace culture

Every workplace has its own implicit and explicit rules governing employee behavior. Maybe employees aren’t given clear access to management. Or your work culture discourages employees from asking questions. Perhaps, it’s routine for junior employees to work long hours for their seniors. These habits form your work culture. 

Bad work culture is one of the most effective ways to convince employees to leave. They feel exploited, unappreciated, or abused and leave your organization. 

Your company can prevent this by setting good working habits from the start and providing a positive work culture. 

4. Lack of employee motivation

Highly motivated employees are usually the most productive. Being motivated drives employees to come to the workplace on time, invest more effort in their work, and gives them a reason to stay with your company. In fact, motivated employees are one of the best assets for any company. 

A motivated workforce is the least likely to leave your company or become unproductive. High employee motivation also improves the relationship between your management and employees. So it’s worth ensuring your workforce is motivated. 

5. Poor work-life balance

Employee satisfaction is closely linked with their work-life balance. The better their work-life balance, the greater their job satisfaction, hence their likelihood of staying with your company. 

A good work-life balance makes your employees happier and makes it easier for them to maintain their mental and physical health. Without a good work-life balance, they’ll quickly burn out and lose the ability to work productively. This will lead them to quit. 

To prevent this, your HR department needs to prioritize balancing employees’ personal and professional commitments. Specifically, you need to prevent overwork and give your employees appropriate free time. 

6. Not fitting in and feeling a sense of belonging 

Human beings are social creatures. This holds true even for professional settings. People need a sense of belonging with the people they interact with. A good company culture goes a long way toward making your employees feel part of a community. 

The more people feel that they belong in a corporate community, the likelier they are to stay long-term. In fact, research reveals that improving a sense of belonging in a workplace leads to as much as a 50% lower risk for employee turnover. 

How is the Attrition rate calculated?

You’ll calculate your company’s employee attrition rate by dividing the average number of departures or a time period by the average number of employees for that time period and multiplying by 100. 

You’ll get this equation: 

(Average number of employee departures/ Average number of employees) * 100

For example, a company with 100 employees with an average of 9 departures per year has an attrition rate of: 9/100*100=9%. 

This figure means that 9% of a company’s entire workforce left that company on average in that year. Note that this figure does not include the cause of attrition. 

What is a good attrition rate?

An employee attrition rate of 10% or less is generally considered desirable. But what constitutes a good attrition rate for your company depends on several factors, including the cause of attrition. A high attrition rate caused by layoffs is different from a high attrition rate caused by a bad work culture. 

An attrition rate above 20% is also generally considered high and undesirable. But again, depending on factors like your industry and the cause of the attrition, it may not be a problem. 

The best way to judge a good attrition rate is to examine a company, its goals, and its industry individually. 

How can a business control its attrition rate?

On average, a company loses around 18% of its workforce annually. Employee attrition is an inevitable part of doing business. Even the best companies in the world experience employee attrition. So a business can’t prevent employee attrition, but it can minimize unwanted attrition with good policies, especially at this time. 

The recent COVID-19 pandemic and the Great Resignation caused record employee attrition rates across industries. Many highly skilled employees have their employers over inadequate working conditions, lack of organizational support, and better opportunities. This loss of talent has hurt many businesses. 

As a business owner or manager, one of the most important mindset shifts you can take to reduce attrition is to hold onto talent. Even if a job gets phased out, don’t lose the employee. Retrain them for a new role. Retain loyal employees with a good work ethic and institutional knowledge of your company by giving them new opportunities. 

A great example of how companies can retrain employees is Schneider Electric. This company built its own internal talent marketplace. They regularly retrain employees and give them opportunities to develop new skills. For that reason, the employees of Schneider Electric have a reason to stay long-term with the company. 

Why retrain your employees?

Why should your business invest the time and resources to retrain and re-skill your employees? Because not doing so likely costs you even more. The cost of replacing employees is massive. 

According to one study, replacing a skilled worker costs the following: 

  • Hourly paid employees: $1,500 
  • Technical workers: Between 100% and 150% of the employee’s salary 
  • C-suite executives: Over 213% of the employee’s salary. 

And those are just the explicit financial costs. Employees who leave your company take invaluable institutional knowledge and experience with them. Replicating that experience and knowledge is a difficult process that could take years. 

A high attrition rate makes it harder to attract new talent because it affects your employer value proposition (EVP) and brand. Talented professionals prefer not to work with companies where they’re less likely to be employed long-term. So it’s in your company’s complete interest to minimize your attrition rate. 

And these are five of the best ways to reduce unwanted employee attrition.

Ensure employee recognition 

Employees want their hard work to be recognized and appreciated, which keeps them engaged and productive. And engaged and productive employees are the least likely to search for alternative employment.

1. Offer training and development programs

Employees value growth opportunities. So they’re more likely to leave your company if they feel they’ve hit a dead end. Prevent this with regular training and development programs to keep your employees’ skills relevant and productive. Schneider Electric’s model is a good example. 

2. Focus on employee well-being 

An employee’s wellness deeply impacts their productivity and longevity with their company. Ensure your employees are happy, productive, and physically and mentally healthy. Specifically, you want to focus on reducing their stress. That way, they won’t need to seek alternative employment. 

3. Ask for and give feedback 

Asking your employees how they feel gives them appreciation and offers an opportunity for them to express themselves. It’s also great for understanding whether they have any specific issues you can correct, which would improve their productivity.

4. Contribute to career growth and planning 

Give your employees clear career paths. Doing so gives them a reason to remain with your company. Specifically, you want to focus on the benefits they’ll receive by remaining loyal to the company long-term. 

5. Ensure proper employee benefits 

Today’s businesses compensate their employees with more than just a salary. They provide benefits and perks, like health insurance, paid vacation time, and flexible working opportunities. 

Provide your employees with the benefits your company can afford. Doing so adds stability to their lives and lessens the need to switch to alternative employers. 

6. Create flexible work models to keep valued talent engaged

The traditional 9-5 at the office is now being swapped out for more flexible options. Flexible working arrangements are great for companies and employees for many reasons, but they’re especially great for retaining talent. 

Switch as many roles as possible to a flexible or remote working arrangement. The added flexibility will improve your employees’ lives, reducing reasons to leave. 

7. Conduct thorough exit surveys 

Exit surveys reveal why an employee is leaving your company. They’re the best way to learn what went wrong and why. Learning this information will teach your company how to prevent these issues from repeating. 

8. Create and engage an alumni network 

An alumni network connects your extended workforce and potential employees. Building such a network is a great way to advertise for your company. Another benefit is that your network could potentially refer new talent to your company. 

In conclusion, employee attrition is when employees leave your company voluntarily or involuntarily. It’s a key HR metric because it reveals how likely people are to stay with your company. There are different ways to calculate your company or department’s attrition rate, But your HR department should monitor your company’s attrition rate to judge performance and ensure you don’t lose valuable talent. 

Author: Ramish Kamal Syed | Editor: Syed Hamza Ali | SEO Editor: Muhammad Waqas Aslam