What is attrition?
Attrition is a familiar and much feared word among HR professionals. But what is attrition, why does it happen and how does it affect an organization?
More importantly- what can the company stakeholders do to manage this problem?
Let us try to understand.
The general meaning of the word ‘attrition’ is the gradual reduction or decrease in size, number or strength. There are two ways to define the word with respect to a business: employee attrition and customer attrition. Both of these have a great impact on the company, and business owners should constantly track these and take quick action.
Employee attrition is when employees voluntarily or involuntarily leave an organization, and the company does not fill the position of the departing employee. Employees can leave the job for a professional or personal reason.
Customer attrition (also known as customer churn) is the reduction of customers or clients. It takes place when customers stop buying the company’s product or service. This may happen due to some negative customer experience. It may also happen due to unavailability of the product in the customer’s area or some other reason which will harm future sales.
Attrition vs turnover
Employee turnover: When employees leave voluntarily or involuntarily and the vacant post is occupied by a new employee. It is marked by replacement of departing employees with new employees.
Employee attrition: Employees leaving voluntarily or involuntarily. The vacant post is not filled by the company intentionally.
What does attrition rate mean?
The employee attrition rate is a metric that helps in measuring the rate at which the employees leave an organization without hiring their replacements.
It is in the form of a percentage. It is the comparison of the percentage of the number of employees who leave the organization with the total workforce.
Marketing departments use the customer attrition rate to determine the reduction in the customer base. Organization should cater to the customers and understand what are their unmet needs. By ensuring better customer experience, they can retain the latter and ensure that the organization stays on track for growth.
Human resource departments use employee attrition rate to understand how well they are retaining their employees. Furthermore, high attrition rate means that the company needs to take quick action to ensure business continuity with optimum manpower.
Employee attrition refers to the state in which the company does not replace the voluntarily departing employees. The reasons for employees leaving the organization can be both personal and professional. Some factors that lead to employee exits are poor working conditions, retirement or resignation, unfair pay, lack of professional growth, or other personal reasons.
Frequent attrition can be a cause for concern. If attrition is high among a certain employee group, the company needs to pay extra attention to the same and find out the reasons.
How to calculate attrition rate?
Calculation occurs on a quarterly, monthly, or annual basis. There are many apps available that can help you calculate it. However, it is always helpful to know the formula.
Data required on the number of employees:
- At the start of the year
- Who left in the same year
- Who were hired in the same year
Step 1: Find the average number of employees. This can be done by adding the number of employees at the start to the number of employees at the end of the year and divide it by 2.
Step 2: Find the percentage rate of employee attrition. To do this, divide the number of employees who left the company by the average number of employees and multiply it by 100.
Number of employees:
Who left during the year = 20
Who were hired during the year = 10
Present in the company = 190
According to the steps mentioned above:
Step 1: 200 + 190 = 390
390/2 = 195
195 is the average number of employees at the company.
Step 2: 20/ 195 = 0.102
0.102 x 100 = 10.2 % is the employee attrition rate.
Hence, the Employee Attrition Rate = Number of attrition/Average number of employees x 100.
Significance of attrition rate
By having insights into employee attrition rate, you can identify if there is a need for improvement in employee retention strategies. Furthermore you can identify the reasons and work towards lowering it.
Keep track of employee and customer attrition rates to get a clear insight into your business. Equally important is to identify organizational problems or policy points that are impacting the working environment negatively.
Tracking and reducing customer attrition rate is important. Customer retention is important and consequently the results are visible on the revenue growth of the company.
Tweak your business and HR strategies to ensure that your business stays on the track for excellence.
Advantages and Disadvantages of a High Attrition Rate
A high employee attrition rate can be beneficial only for saving on salary costs. This can be done by removing unnecessary job positions during the downsizing of a business. Consequently, the workforce productivity improves if low-performing employees leave voluntarily or involuntarily.
A high attrition rate is not good for any business.
- It means that the responsibilities will shift from the departing employees to the existing employees. It is not good for an organization as the work pressure on existing employees increases drastically.
- Businesses can incur increased cost by losing an employee. Research has shown that onboarding new hires is more costly than the losses business have to bear due to missing out on work.
- It can be harmful for the organization if top-performing employees decide to leave. This can affect the overall performance of the team as the new employee who just joined the job may need time to get trained and be productive.
- High attrition rate has a negative effect on the brand reputation.
Low employee attrition indicates that employees are satisfied with the company. It also indicates that HR initiatives to improve the workplace culture are on the right path.
This also means that your organization provides better opportunities for the growth of an employee. Employees are geting a stress free work environment and appreciation for their efforts.
Types of employee attrition
There are different types of employee attrition, and understanding them can help organizations to take steps to manage them.
Voluntary or natural attrition
If an employee decides to leave the company, then it is known as voluntary attrition. Resignation, retirement, or some other personal reasons can be the cause of this.
Involuntary or forced attrition
Involuntary attrition is when a job position becomes obsolete or the company wants to reduce the expenditure on staff.
When an employee leaves their current job position to acquire a new position at the same company. Promoting and transferring employees falls under this area.
Employees exiting the company for another job is an example of this. The reason for accepting a new job can be due to a shorter commute, better pay, or professional growth etc.
Reasons for attrition
To understand the reasons, Empxtrack has analyzed the data of about 52,000 exit records. The data spans across 4 key verticals and mentions the main employee exit reasons. Understanding these reasons can be helpful to the business.
Personal reasons for employees changing their jobs can be many. It can be either taking care of someone in the family, change of residence, or medical reasons etc.
In some cases, employees may leave due to lack of growth prospects. When the employees don’t see enough opportunity to develop their skill set, or don’t anticipate career growth then the likelihood of their exiting the organization increases.
It is vital that the hiring process includes skill tests and reference checks to get a better understanding of the potential hires. This approach may help get a perfect fit for the job.
Lack of employee training too affects employee performance. This in turn can lead to a decrease in employee efficiency. This can be a reason for employee exiting the organization.
What can the company do?
A persistently high employee exit is a cause for concern. Businesses risk becoming understaffed if employees continue to leave without their replacements coming in.
It is important that HR looks into this issue and retains the top talent and reduces employee turnover. Employee exit due to a toxic work culture, lack of organizational ethics, poor pay, lack of growth etc should raise an alarm for the management. Taking timely remedial action becomes necessary!
To gain insights into this matter, it is advisable to deploy a good employee off-boarding software and let HR managers conduct exit surveys. The data and insights they gain from these will help the company enforce strategies that can be more inclusive and employee-friendly. Succession planning also reduces employee attrition risks by developing people, preparing them to manage the responsibilities that await them.
Businesses need to keep track of employee attrition to retain top talent. Understanding the cause and taking timely actions will ensure that the company stays on the path of sustainable growth. By listening to employee feedback, you can create a positive working environment, and retain talent.
Organizations must look into how they can respond to their customers’ needs better. This way, they can ensure business growth in the long run.
Frequently asked questions
Is employee attrition good or bad?
|Ans.||It can be both good and bad depending on the situation. If the company is downsizing, then the organization can save money on staff costs through salary. It may also mean that more responsibilities will shift to the existing employees, which will bring down the employees’ morale. If high-performing employees are part of employee attrition, the organization will lose assets of value.|
Does attrition include termination?
|Ans.||Employee attrition consists of employees who leave voluntarily as well as involuntarily. Termination falls under involuntary type.|
What does high attrition mean?
|Ans.||It means that more employees are leaving the organization. The high staff turnover rate indicates a problem within the organization and it’s culture. It is important to quickly address this issue.|
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