There are very few people who begin and end their careers in one company. Most people move on after a time, or the company forces them to move on with an involuntary termination. People leaving organizations seems like a quite straightforward matter, but there is a lot to unpack with employee attrition.
Even though the term is often used interchangeably with employee turnover, it’s not the same. Let’s take a look at what employee attrition is, its causes, how to calculate your attrition rates, and how to manage attrition at your organization.
What is employee attrition?
Employee attrition is when an employee leaves the company through any method, including voluntary resignations, layoffs, failure to return from a leave of absence, or even illness or death. Whenever anyone ceases working for the company for any reason and is not replaced for a long time (if ever), that would be employee attrition.
There are two main types of employee attrition:
Voluntary attrition: When an employee chooses to leave the company, that is voluntary attrition. This can include any reason an employee leaves on their own accord, whether it’s truly voluntary or not. True voluntary terminations, such as resignations for a new job or to move across the country, are the ones you’re probably most familiar with. But an employee who leaves due to health reasons or only quits because the work situation is toxic can also fall under voluntary attrition. The company retains the decision not to replace the employee–although there are some times the company would like to replace someone but cannot.
Involuntary attrition: When the company decides to part ways with an employee, this is involuntary attrition. This can be through a position elimination, for example, due to reorganization or layoffs, for cause (such as stealing or fighting), poor performance, or termination when someone abandons their job. (You can argue the last one is a voluntary termination, but the company makes the final call to terminate.) The company then doesn’t backfill the position or eliminates it.
Involuntary attrition through position elimination is the most common form of attrition, as the company decides proactively to eliminate a position. For other types of termination, the company usually decides after the termination to leave the job vacant.
Is employee attrition always bad?
While having employees leaving in droves can be bad, if a company needs to eliminate positions to stay financially afloat, attrition doesn’t have to be a negative thing.
When your business struggles, it can be easier not to replace people who leave voluntarily than eliminating positions. (Depending on where your organization based, you may be required to pay severance or pay for long notice periods if you decide to eliminate jobs proactively.)
However, if your attrition levels are too high, you can run into some serious problems. You can have a lack of continuity, training gaps, and a lack of institutional knowledge. It can take a long time to fill positions (especially specialized roles), and if you leave these positions empty, it can become difficult to fill these positions later. These holes can cause burnout for your remaining employees and lower overall productivity, leading to unhappy customers.
Sometimes companies implement hiring freezes in an attempt to increase attrition. If someone quits, the remaining employees must absorb their work. The work ceases to be done, or managers reorganize employees to fill holes.
Even when the attrition is involuntary and the result of carefully planned layoffs, you need to be concerned about the future. If you lay off all your salespeople today because product sales are down, you’ll never have a chance to recover. No salespeople mean no sales, and no sales mean no company.
Recruiting, hiring, and training new employees is costly, so you might consider not terminating someone and not eliminating that position if you need it again later. It may make more sense to cross-train that employee for a time and retain the person.
Employee attrition vs. employee turnover
While many people use these terms interchangeably, the key difference is that turnover measures all terminations–including those positions that are refilled. Attrition looks at long term vacancies or position eliminations altogether.
If your attrition rate is high, your company is shrinking. You can have high turnover rates and still have a stable or even growing company. For example, restaurants and retail often have high turnover rates, even if the business grows.
What causes employee attrition?
Several factors affect attrition, some of which are under your control and some of which are not. Here are a few:
Low unemployment: If your area or industry has low unemployment rates, you may not be able to replace employees who leave, even if you wanted to. You can either leave the positions vacant (attrition) or reduce your hiring standards or expand your search.
Workforce demographics: If your company is filled with Baby Boomers, their upcoming retirements may result in a loss of staff that you cannot easily replace.
Toxic workplace: If your business is not a good place to work, you may find it challenging to keep positions filled. You may wish to lower your attrition rate but find it challenging to do so because people leave quickly, and your company’s reputation as a toxic employer spreads. If you’re experiencing a high level of attrition, this is one of the first areas you should investigate. Listen to employees in exit interviews and pay attention to your online reviews. If your Glassdoor reviews are negative, take them to heart and work to correct them.
Business relocation: For example, it might make sense for your company to move from California to Texas, as Elon Musk just announced he would do. Even if you offer to pay full relocation costs for all employees, many will choose not to come with you. It will take you time to hire replacements.
Covid-19 shutdowns: This has been a unique problem to 2020 (and hopefully will resolve shortly in 2021), but many companies needed to terminate employees when governments required all non-essential businesses to shut down. Even businesses that remained open may have lost business and, therefore, needed to let employees go.
Reorganizations/restructuring: This type of attrition is the goal of these company reorganizations. Positions are intentionally and carefully eliminated with the plan of never refilling them.
How to calculate the attrition rate
You want to regularly look at your attrition rate to make sure you are not losing more employees than you want. (Sometimes, businesses will want to have fewer employees, so they are looking for high attrition rates.)
The formula for the attrition rate is pretty easy:
However, you first need to collect your data to make the calculation.
First, find your average headcount. To make this easy, we’ll use an average by month. Let’s say this is 95 employees.
Then, you look at the number of employees who have left unfilled positions in December: 8. Divide 8/95 (average headcount) = 0.0842.
0.0842 X 100 = 8.42 percent.
Again, this number also assumes that you are not planning to fill those eight vacant positions in December. If you are planning to fill three of them, then your attrition rate is
5/95 = 0.056
0.056 * 100 = 5.6 percent.
You’ll now notice that this number would be different from your turnover number, which takes replacement into consideration.
Turnover is Number of Terminations/Average Headcount*100. If you have lots of people quit and replace them all, it’s possible to have turnover over 100 percent. It’s not possible to have attrition over 100 percent.
Bear in mind that the attrition rate you’ve calculated doesn’t tell you anything. You have to consider it in the context of your organization. For example, how has it developed year-over-year, month-over-month, or after you have taken steps to manage it better?
What’s more, when looking at attrition rates, it may be essential to look at them by department or site. You may find that while your overall company has low attrition, you have one site losing employees while another site grows, canceling each other out. Take the time to make reports that give you useful information. After all, if your Paris site is growing while your London site is losing people right and left, you may want to change your London management or figure out what causes the drastic difference.
The larger your company is, the more you will need to break down this information by groups. You can also use it to look at your diversity statistics. Is attrition high in one protected group but not in the others? You might be about to uncover an issue you didn’t know you had.
How to prevent voluntary attrition
If you’re finding it difficult to hire and retain employees, resulting in high attrition rates, you can work to fix the problems.
- Get your managers the training they need to manage employees effectively. Remember, management is a different skill than doing. Invest in management training if you want to lower attrition. This will help you maintain managers as well as staff.
- Do a salary survey and benchmark all your salaries. If you’re paying below-market rates, it can be difficult to retain staff.
- Conduct stay interviews. Only do this if you are interested in listening to the employees and willing to make changes based on what you learn. If you hold these and then don’t act on all the information collected, you will build resentment among employees.
- Revise your benefits and perks to offer ones that your employees like. You may need to do this every few years as your employees’ needs change. For instance, if your company has mainly younger employees, they won’t be as concerned about time off for school attendance. But as your employees age–if you retain them–they are likely to have children and favor more child-friendly perks.
- Consider allowing more flexibility, either in start times or telecommuting. 2020 taught a lot of businesses that many positions could be done from home just as effectively as from the office.
- Take care to hire the right people in the first place. You shouldn’t be wasting time looking for a unicorn candidate, you should focus on finding someone who can do the job and wants to do the job. Finding the right fit in your selection process in the first place can reduce your resignations.
- Have accurate job postings. This helps attract the type of candidates who are happy to work for your company. For instance, many companies are listing jobs as “remote” but plan to bring those employees into the office when governments lift restrictions. That type of bait and switch will likely result in increased attrition.
- Remember to promote from within. Yes, it takes a lot of effort. However, if you employ strategic workforce planning – and succession management to make sure that you’re filling in the skills/leadership gaps, you’ll be able to promote people and plan for the business’s future even when your employees retire or leave due to other reasons.
There are also ways to manage involuntary attrition. For example, throughly prepared hiring plans will help you prevent overstaffing and then having to let people go when your business doesn’t grow as intended.
Over to you
Many companies focus just on their employee turnover rates, but that can leave out essential information. You need to know if your company is losing people, why you are losing them, and what you can do to manage skills gaps. A recent report showed that most of the time, people quit for things that companies could change. By understanding the causes of employee attrition at your organization and having an overview of your attrition rates, you can employ long-term workforce planning strategies to manage attrition so that it doesn’t hurt your organization.
If you want to learn more about HR metrics and future-proof your HR skill set, check out our HR Metrics & Reporting Certification Program!
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