Editorial

14 Apr 2021

Unpacking the Attrition Rate and Why It Matters

Kelsey Kaczynski

It’s a common business trope to say that “our people are our greatest asset” and while it may sound trite to some, it could not be more accurate.

Regardless of what industry you’re in, the ability to recruit and retain top talent is one of the most important components of growing a thriving business. But your job doesn’t stop at recruiting. You also need to retain those employees.

This all comes down to your corporate culture. Career development, customer relationships, and your benefits package can impact your corporate culture.

The attrition rate formula is a simple calculation. You simply take the number of people (team members) that have left the business and divide it by the average number of employees over that same time period.

Employee turnover is a growing concern for companies everywhere.

Retaining employees all comes down to your employee satisfaction and your corporate culture. Career development, coworker and customer relationships, and your benefits package are just a few components that make up your corporate culture.

Employee satisfaction is an entirely different beast. That depends mainly on the management at the helm of the organization and the environment your employees work in.

Good managers and a cooperative and transparent workplace will ensure that employees feel heard and valued, which is one of the best ways to retain employees.

However, in many cases, businesses will focus their attention on the recruitment part of the process and not the retention of employees once they’ve brought them into the organization. This can hurt their attrition rate over time.

That’s why it’s essential to understand your employee attrition rate and how it impacts your business. We think it is one of the most critical human resources metrics to keep an eye on.

What is the Attrition Rate?

Simply put, the attrition rate (also known as churn rate) refers to the percentage of your staff that leave your organization over a specified period of time. You might hear this referred to as employee turnover or your turnover rate.

There are so many reasons why people leave their jobs, but if your voluntary attrition rate is higher than the average, which is about 12% to 15% annually, it is cause for concern.

However, attrition rates vary depending on the company, industry, and even city. The attrition rate in the above equation would be just on the brink of a voluntary attrition rate that should make you stop and consider your company policies and how they’re impacting employees.

In most cases, you’re hoping that your employee attrition rate is as low as possible because that shows that your employees are happy and believe in the company’s vision. A high attrition rate indicates issues within the work environment and company culture.

It’s a shame when one employee leaves the company for another opportunity. When employees start leaving the company all at once, it’s a significant cause for concern.

When the rate of attrition starts to rise, it can be a sign of something going wrong internally. Employees might be having bad experiences with management, are unhappy with your business models, or are not feeling heard on an individual level.

All that being said, be wary of oversimplifying things here because there are a number of things that can influence the attrition rate, so you have to do the work to identify what the major contributing factors are in order to make any sense of the figure.

What’s the Difference Between Attrition and Employee Turnover?

These terms are often used interchangeably, but there is a slight difference that is worth noting.

To make it simple, employee attrition is a long-term concept, while turnover refers to more of a short-term issue.

Turnover is usually handled by HR teams, quickly filling gaps in employment. Attrition is more of a long-term issue that can impact a company.

If a company goes through a brief month-long period of losing a few employees, that would be considered a turnover. If over the course of a year or several years, a company loses many employees, that would be regarded as attrition.

According to HR Toolbox, “vacancies left by attrition aren’t immediately filled up. Turnover, in contrast, is a more short-term metric.”

What Influences Your Attrition Rate?

There are a number of different things that can influence whether you have a higher internal attrition rate. We will look at some of the most common and what they might say about your turnover rates.

Some of the more common types of employee attrition factors and types of attrition include:

  • Voluntary resignations. This is the most relevant resignation to consider in your rates of attrition – employees who choose to leave the organization for their own reasons. They might be unhappy in their role or not aligned with the company vision, or they may just have been offered a better position somewhere else. Each case will be different here, so you’ll need to use your exit interview carefully to identify the personal reasons for each person, so you can look for more significant trends if there are any. But if you notice a high number of voluntary resignations, that can be cause for concern.
  • Necessary layoffs. Sometimes, as a business, you will need to fire employees for a variety of reasons, and this will play into your company's involuntary attrition rate. Whether it is layoffs due to a budget issue or one based on performance or behavior, it is hard to let an employee go. No one likes to do it, and it can be a long and challenging decision for managers. This step should, of course, always be a last resort after trying various other means of reconciliation, but sometimes – it just needs to be done.
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  • Redundancy. As a business grows and technology advances, you’re likely to see specific tasks and roles lose their relevancy over time. This is especially pertinent in modern times as automation of all types threatens many jobs currently out there in the market. When an employee becomes redundant, and they are either moved internally or leave the company altogether, that will affect the employee attrition rate. You shouldn’t worry too much if occasionally someone is let go or moved around internally due to this factor, but if it becomes a big reason behind an increasing attrition rate, you’ll need to look more closely at it.
  • Retirement. Employees will retire and leave a company for that inevitable life change at a certain age. Depending on your company’s demographics, this might be a key factor influencing your employee attrition rate. This is an unavoidable fact of doing business; people retire. So this shouldn’t be a concern when it comes to your attrition rate.
  • Rapid Growth. On the other side of the equation, it’s worth noting that if you’re rapidly hiring new employees, it can make the employee attrition rate look better when compared to previous periods. Because you have more employees on board, your equation will be slightly skewed because, even if you lost a few people, you gained even more. So, be sure to be careful as to how you measure your attrition rate when you hire a bulk of new employees, so you don’t underestimate your rate of attrition.
  • Internal attrition. This is an attrition factor that can actually be a positive. While it does technically factor into your attrition, moving employees around internally can often be for the better. Restructuring due to layoffs is one thing (we already covered that). But internal attrition due to promotions is a great sign that you’re promoting from within and giving employees an incentive to work harder and feel appreciated for their work.

Some of these factors that can play into your attrition rate are a cause for concern, and others are just natural trends that occur within any organization. But how do you know when to be concerned or take action about your attrition rate?

When Should You Worry About Your Attrition Rate?

Employees will come and go; that is just a fact. But when it becomes a trend, that is when you should start looking into your workplace environment.

Ultimately, some reasons for employee turnover are a cause for concern when they happen en masse, while others are simply the cost of doing business. Employees switch jobs, retire, and are occasionally laid off—all of this is normal.

It’s when you notice a significant uptick in voluntary resignations, layoffs, or redundancy restructuring that you should begin to pay attention and try to get to the root cause of the issue.

Voluntary turnover is the main factor you should be looking at when you take a close look at your attrition rate. Unlike retirement or layoffs, voluntary resignations signal that, at some level, your employee was not happy at the company.

There are, of course, natural factors such as relocation, having children, or switching career paths that you simply cannot control. But employees who consciously leave your company for a similar role at another company are always an opportunity for introspection.

Were they leaving because they were offered a better salary elsewhere? Perhaps you should check that your salary is competitive with the rest of your industry. Were they leaving because another company offered them better benefits? It might be time to take a closer look at your benefits package.

Either way, you should treat employees' voluntary resignations as learning opportunities. One employee leaving can give you the chance to closely inspect your offerings and make sure that they are competitive before more employees leave for the same reason.

Another essential factor to consider when inspecting your attrition rate is demographics. If you see an uptick in your attrition rate, try to narrow it down to the demographics leaving the organization the most.

You might find that young employees voluntarily resign the most often and learn from surveys that young employees feel overshadowed or not valued compared to the more senior employees.

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One specific demographic leaving the organization at an alarming rate is undoubtedly cause for concern and should be treated with demographic training and diversity management. Because this could be an indicator of toxic workplace culture, this is something you should take very seriously.

On the other hand, is a high attrition rate always a bad thing? It depends on how you look at it and if your company is undergoing large-scale organizational change.

Some companies use restructuring as a way to revitalize their company and move closer to their goals. Some companies with aggressively low attrition rates risk becoming stale and nonexperimental. It can be hard to grow and innovate with no new blood and the same employees the company has always had.

It’s essential to strike a balance between revitalizing the company with new employees and letting go of employees that aren’t helping the company grow without losing too much talent.

Let’s talk more about why your attrition rate matters and when you should take action to improve it.

Why Your Attrition Rate Matters

What is your attrition rate trying to tell you about your company?

All of the employee satisfaction surveys in the world can’t tell you as much about your company as your attrition rate can. It is a clear indicator of your success as an organization and how happy employees are (or aren’t) working there.

And keeping employees around will not only ensure you have an experienced team, but it will also save you money.

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With the cost of hiring a new employee being so high, turnover can cost you money. That cost adds up fast if you have a lot of turnover.

Another primary reason employee turnover hurts companies is that no matter how good the transition process is when an employee leaves the company, their wealth of knowledge about the company goes with them.

It’s not easy to train a new employee to learn all about the company, and it takes years to become a complete expert on the ins and outs of a workplace.

That is invaluable information that you lose when an employee leaves, and it will hurt not just the company but that employee's team and closest coworkers. They’ll be forced to pick up the slack while the new person is trained, and that can be stressful for everyone.

Overburdening employees is a significant factor in employee turnover. In that way, one employee leaving can cause a ripple effect of other close coworkers leaving that department or the company as a whole.

In general, being aware of your attrition rate is a good thing. Whether your attrition rate is high or low, you need to know and track that number to ensure your company’s growth and overall success.

So, what can you do to bring down your annual churn rate as an organization? Let’s talk about it.

How to Improve Your Attrition Rate?

Employees spend a considerable chunk of their lives at work, so it is crucial to cultivate an environment that they enjoy being in every day. Whether remote or in person, everyone wants their employees to be as happy and productive as possible while working.

So what do you do if you notice your employee attrition rate is rising? Or if you do your first attrition rate calculator and it is far above average?

The only sustainable way to reduce your annual churn rate is to improve the working conditions for your employees to keep them satisfied. But that is easier said than done.

Much like you probably focus on your customer churn rate and creating a loyal customer base, it's essential to work on your internal attrition as well. Use statistical analyses to estimate attrition prevalence and then move forward by taking some of the steps below.

Did you know that employees are the most likely to leave within their first year at their job? That means that you need to get to work right away when an employee starts to make them feel appreciated and heard.

In the short term, you might succeed in throwing money at the problem by giving out raises and bonuses. Of course, employees value earning more money.

But not all employees leave a job just because of financial concerns.

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Well, of course, there are the factors we listed above. There is also the factor of employees simply not believing in the company or feeling generally unhappy with their position in the company.

Studies have shown that the number one reason why employees voluntarily leave companies is because of a lack of career advancement opportunities.

These are the types of issues you can address without spending tons of money on raises and bonuses. Though, you may consider doing both.

Your employees will work harder and stay longer when they have a defined career path and a set time period for advancements and raises. It's all about clear communication and transparent leadership.

Over an extended time period, employees are ultimately going to stay because they enjoy working there and believe in what the company is trying to achieve. This, combined with increased support and communication from management, can make all the difference in your employee’s happiness.

Here are some other ideas for improving your company culture and your employee’s overall experience:

  • Give them a mission to believe in. Employees need to feel like they are part of something bigger than themselves. The company mission increases employee engagement and employee retention since it helps employees bond and gives them the motivation to push through times when work is demanding, long, or uninspiring. One of the best ways to retain top talent is to continually communicate this mission and how each person’s job contributes to the greater good. And you have to ensure that leadership buys into the company goals as well. People can tell when others are uninspired, and it can be contagious.
  • Be responsive to feedback. As a company, you should be taking your employees’ feedback seriously and acting when needed. Employee satisfaction is crucial within the business journey. If employees feel like they aren’t being heard, they may feel irrelevant to the company and are more likely to leave. By listening to your employees and doing whatever you can to make their working conditions as pleasant as possible, you can keep your employee attrition rate low. You shouldn’t wait for employees to come to you with feedback; you should actively seek it out. With flair's performance review feature, you and your team will be able to exchange feedback easily.
  • Work on your company management. We’ve all heard the saying, “people don’t leave jobs; they leave bosses.” Now, of course, that doesn’t always mean that the only cause of your employee attrition rate increasing is the managers, but they can be a significant factor in employee satisfaction. Bad management can destroy a company from within and force good employees out. In your efforts to improve employee retention, consider holding workshops or hiring experts to do management training with your management team. It may be an invaluable experience that vastly improves your company’s culture.
  • Give bonuses and wage increases when earned. Employees want their reward (monetary or otherwise) to be tied to their efforts so that they can see the benefits of working hard for the company. When this isn’t the case, and remuneration feels arbitrary, employees are more likely to seek other options. So, give bonuses when it makes sense, and carefully give raises to those who deserve it. Yearly raises are traditionally expected but make sure that these raises are clearly tied to performance, and that performance metrics are clearly communicated with employees consistently.
  • Promote from within. Promoting employees goes along with giving financial incentives, and while it might seem obvious, it is vitally important. Career development is an important factor for employees who decide to stay with a company. If they can see themselves growing and being promoted within the company, they are more likely to stay and work harder to earn those promotions. Hiring externally for specialized positions will, of course, be necessary occasionally. But whenever possible, promote from within, and you will be impressed at how it improves workplace performance and morale.
  • Keep employees busy and engaged. No one wants to do the same thing day after day without novelty. The more variety you can inject into your workplace, the lower your employee attrition rate will be. Just by breaking things up every now and then with something fun to keep morale high, you can stave off the monotony that can creep into work if you’re not careful.
  • Encourage a healthy work-life balance. Make sure you foster an environment where employees feel comfortable taking time off when they need it. Burnout is real and can impact your employees’ work and overall outlook on their job. Work-life balance has become a buzzword in the HR industry, and it is a hard thing to get right. One of the best things you can do as an HR team member or manager is to model a healthy work-life balance for your employees, so they feel comfortable asking for time off and taking mental health breaks.
  • Consider offering flexible work from home options. More and more jobs are going remote, and more employees are interested in finding jobs that allow them the flexibility to work from home, at least part-time. Not every job can offer these possibilities, but if your company has that flexibility, it can significantly benefit employees. Consider asking your employees how they would feel about a hybrid or full-time remote work schedule. This can also save you lots of money on building maintenance and supplies if you have a physical location.

Those are just some examples of what you can do to keep employees satisfied – but all of this needs to be informed by real data you’re collecting from those employees who are leaving.

Use Exit Interviews to Your Benefit

The infamous exit interview. HR professionals can use these meetings to pick the brains of their most recent employees who are leaving the organization.

Exit interviews are the best time to ask the right questions about employee wellness and satisfaction. This will be your last chance to pick their brain before they are gone.

Ask them honestly what has impacted their decision to leave the company and listen to their responses closely. This is your best hint at how you can improve your work environment.

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As such, it’s imperative that you run a proper exit interview with each employee who is on the way out to ascertain why they are leaving and whether that points to other things within your organization that can be improved.

Here are some examples of questions that you can ask employees to gauge their overall happiness with the company before they leave their position.

  • Why did you start looking for a new job?
  • When did you start looking for something new?
  • Did you overall enjoy the work you did on a daily basis?
  • What led you to accept the new position ultimately?
  • Did you feel that you were well supported by management in your time here?
  • How would you describe our company culture?
  • Are there any benefits to your new position that we don’t currently offer?

They might not always answer entirely honestly, but make sure to be clear that you are just looking for input and that your response to their feedback is encouraging and positive. If they aren’t willing to share much, don’t worry.

On the flip side, you might find that employees become more honest and open during their exit interview now that they aren’t planning on being with the company any longer. This information can be your roadmap to improving employee morale and satisfaction. Use it wisely.

It Can Make All the Difference

Improving your annual attrition rate can improve your business and your company culture.

By now, you have all the information and tools you need to determine your attrition rate, improve employee retention, and get to the root cause of your employee turnover.

When improving your attrition rate, you can improve your company culture, raise salaries, and take small steps to improve your organizational culture. But sometimes, you have to go way beyond that and make significant structural changes for the good of your organization.

As we’ve learned recently, company culture is more than snacks in the break room and a dog-friendly workplace. Employees love perks, but you have to work harder than that to keep the good ones around.

Clear communication and good management practices can help you retain employees longer and foster a productive and happy work environment.

Suppose you can get a handle on some of the principles above, improving career development and creating a working environment that employees love to be a part of. In that case, you’ll ensure a low employee attrition rate and give your business the best possible chance to reach the lofty heights you’re dreaming of.

Your employees and managers will thank you, and your business will run smoother and more efficiently. You’ll likely see a direct link between lowering your attrition rate and rising sales and success within your company.

It might just be the secret weapon that takes your company to the next level!

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