The attrition rate provides useful information for businesses looking to retain valuable personnel and expand their clientele. Understanding how to compute an attrition rate can aid organizations in keeping tabs on employee tenure, recruiting expenses, and clientele. One can track development by determining attrition rates on a monthly, quarterly, or yearly basis. In this article, we will explain the attrition rate formula, how to calculate it, its types, and the difference between attrition rate and turnover rate (attrition rate vs turnover rate). So, keep reading!
What is Attrition Rate?
The term “attrition rate” refers to the pace at which an organization loses employees due to natural causes like retirement and resignation without making any effort to replace them. Attrition has a pejorative perception despite the fact that there might be beneficial results arising from a decrease in personnel because, outside of the HR context, the phrase refers to a reduction in energy.
In addition, losing staff through resignation or retirement can be expensive if your business isn’t ready for it. When an employee who is the only or one of the very few who knows how to execute their job leaves, the organization may experience a decline in output. There will be a loss of intellectual capital in addition to decreased production. Long-term workers have an in-depth familiarity with the firm’s inner workings, objectives, and guiding values. They will likely educate new workers because they know a lot about the firm’s procedures, principles, and goals.
Also see: Detailed Explanation of Attrition in Business
What Is a Good Attrition Rate?
While it may be difficult to put a number on what constitutes a “good” attrition rate, most organizations seek to keep theirs at 10% or below. Also, take into account that this figure will shift as the needs of individual businesses and entire industries change.
Types of Attrition
Understanding the various types of attrition can help you pinpoint where your business is losing staff. It also helps to dictate whether or not your retention efforts are succeeding. The various types of attrition are as follows:
#1. Voluntary
This is one of the types of attrition that occurs when an employee opts to leave the organization. They might do so for personal reasons, such as having to take care of a family member, for example. Another example of voluntary attrition is when one employee resigns to take up a role with another company that offers a greater salary.
#2. Involuntary
A company’s decision to stop employing people is an example of involuntary attrition. This is one of the types of attrition that eliminate roles to reduce personnel costs or decide that a position is no longer necessary. Attrition of involuntary employees is a prevalent practice among corporations as a cost-cutting measure.
#3. Internal Attrition
Internal attrition is the process through which a person moves between departments, roles, and responsibilities inside an organization. The primary reason for this is that if a person quits their present employment, that position becomes vacant, which in turn leads to position-based churn. Moreover, one may consider the transfer of an employee within the organization as a positive result. This indicates that the individual either qualified for the sought role.
#4. External
This is also one of the types of attrition. An example of an external type of attrition is when a person decides to quit their current employer and seek employment elsewhere. They might decide to leave to take on a position that is more suited to their professional path or so that they can have a better lifestyle.
#5. Attrition That Is Demographically Specific
This is one of the types of attrition that describes the simultaneous departure of an entire department or team of personnel from an enterprise. Employees who share a common age, gender, or culture can make up the group if they choose to do so.
You may want to see: EMPLOYEE ATTRITION: Meaning, Rates, and Analysis Report
Attrition Rate Formula
To determine the attrition rate of a company, the formula asserts that you have to divide the monthly total of full-time employees who resign by the average monthly number of workers, and then multiply the result by 100. Hence, to calculate the attrition rate of a company, you would use the formula: attrition rate = (number of separations / average number of employees) times 100.
You can calculate annual turnover rates by adding up the monthly rates over a year. For instance, suppose your company started the year with 50 employees and had expanded to 65 by the end of the year. Despite this, 13 employees have recently left. The number of employees who left the company is divided by the average annual staff size. Obviously, it does not have to happen every year. You can calculate your attrition rate quarterly or monthly. Perhaps that is the preferable choice.
In conclusion, the formula for attrition rate is: attrition rate = (number of separations / average number of employees) x 100.
How to Calculate Attrition Rate
While most businesses have dedicated tools for calculating attrition rates, it is still beneficial to understand the formula for calculating the attrition rate. We do this to better grasp the percentages and figures involved. Businesses commonly use monthly, quarterly, and annual attrition rates as measurement intervals. One can calculate the attrition rate with reasonable precision. We may need to investigate and approximate more to estimate client attrition. Thus, you can determine a worker’s attrition rate by using the following formula:
- Begin with the employee count at the outset of the period.
- Determine the number of outgoing employees during the period.
- Determine the number of employees employed during the period.
- To determine the final number of employees, add the number of outgoing employees to the number of fresh recruits.
- To calculate the employee average, you need to add the initial and last numbers and then divide by two.
- To determine the decimal rate of attrition, divide the typical employee count by the number of outgoing employees.
- Lastly, multiply the decimal by 100 to obtain the attrition rate in percentage terms.
The Causes of High Attrition Rate
The causes that result in high attrition vary by organization and sector, but often include the following:
#1. Appreciation
According to Gallup, recognizing employees is a “high-impact activity,”. But, it also speaks to the universal desire to feel accepted. Creating a system to reward hard work is a great idea, and it doesn’t have to be elaborate at first. Get your staff together and praise their accomplishments. Acknowledge employees’ hard work and show your gratitude by rewarding them for their achievements.
#2. Organizational Culture
Learning that a toxic organizational culture is the largest indicator of attrition is a sobering realization. It is ten times more essential than remuneration.
#3. Stress
This is a widespread issue that has a negative impact on both individuals and businesses. Research has shown that workplace stress significantly increases the chances of employees leaving their jobs.
#4. Pay
Salary is only one factor that should influence employee loyalty. However, the reality is that no one will stay in a job that doesn’t pay fairly, especially if some other firm is willing to pay more.
#5. Development and Progress
As personal growth is so important to modern individuals, those who feel they have reached their full potential in their current position may start searching elsewhere. This happens when they aren’t given any new chances to get ahead.
#6. Open Space for Advancement
Nobody wants to have the impression that they are destined to remain at their current job forever. Hence, if your employees don’t believe they can advance to a top-level or assume a distinct variety of duties within the company, they will hunt for other employers that can offer them those opportunities.
Furthermore, providing opportunities for promotion is a simple method to address this factor that contributes to attribution. Training and furthering one’s education in one’s field are necessary components of this approach. It is important to keep in mind that even while engaging in these activities, it will never cost the same as finding and hiring new staff.
Attrition Rate vs Turnover Rate
Some people argue that attrition represents a more long-term concept, even though these two terms are occasionally used interchangeably. Hiring new employees as soon as feasible is a common practice for companies dealing with high rates of employee turnover. So, if your company is experiencing high turnover, it may be an indication that you need to treat the symptom rather than the underlying reason. Meanwhile, attrition rate and turnover rate differ in the following ways:
The common solution to turnover is to swiftly fill the vacancies left by departing employees, however, this is only seen as a short-term measure. Attrition, on the other hand, is a longer-term notion that looks at turnover rates over longer periods and tries to solve greater organizational issues through high-level, decision-making ( Attrition rate vs Turn over rate).
The attrition rate is a long-term concept that looks at the rate at which employees leave over set time intervals and how to address the issue as a whole. However, turnover is temporary and implemented as a “duct tape” remedy to staff departures by swiftly filling open positions( Attrition rate vs Turnover rate).
Attrition occurs when employees leave voluntarily, whether for professional or personal reasons like retirement. Vacancies caused by attrition are rarely filled swiftly, even when they have been anticipated or announced in advance. However, turnover occurs when an individual is not a good fit for the firm or the job, or when the company has a negative culture or incompetent leadership. So because issues lie within the company, turnover vacancies come as a complete surprise. The company’s problems and open positions require prompt attention( Attrition rate vs Turnover rate).
Why Are Attrition Rates Important?
An attrition rate indicates something very important for HR management to know, and that is the number of employees that are departing a firm. It is natural and, to some extent, to be anticipated that people will depart. But this could be a sign that there are problems with the way you manage your workers if your attrition rates are abnormally high. Also, if you are unable to find suitable replacements for the good employees you lose, you will likely be unable to maintain the same level of productivity necessary to accomplish your company’s objectives.
Consequently, this type of loss can be rather costly, with certain estimates indicating that it might cost anywhere between six and ten months’ worth of an individual’s salary to replace them.
What Is Attrition Rate as KPI?
A business’s attrition rate as a KPI is defined as the percentage of its workforce that has left within a certain period, regardless of the reason(s) for its departure. This periodic review carefully observes how efficiently a company is keeping its personnel and should be performed periodically.
What Does 30% Attrition Rate Mean?
An attrition rate can be used to assess the percentage of clients or staff members that a company loses over a given time frame and does not replace with fresh ones. The 30% attrition rate is presented as a percentage when compared to the overall number of employees or customers. Attrition rates are frequently utilized by personnel working in the HR department to ascertain the total number of jobs that have been terminated or left vacant.
In a Nut Shell
The attrition rate, like any other business indicator, merely represents a very small portion of the overall picture. There is no one correct approach to lowering attrition, nor is there a predetermined target number that should be shot for. Every company has its characteristics and will possess unique objectives. The most essential thing is to keep progressing while also attempting to comprehend what factors are behind the high turnover. Afterward, you should give it your all to lessen the effect that those reasons have. Offer your staff compelling reasons to remain with the company. Keep track of your employee turnover rate and do all in your power to bring it down. Thus, it’s all about maintaining a constant forward motion, just like it is with anything else.
References
- indeed.com
- peoplehum.com
- personio.com
- factorialhr.com
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