Attrition Rate: What You Need to Know

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When an employee leaves, that’s sad. When lots of employees leave you need to be concerned about your attrition rate. Employee attrition is a serious business and a high attrition rate means something in your company probably needs to change. This blog post provides helpful guidance on the steps to take to identify good and bad attrition and work towards the right balance.

What Is Attrition Rate?

Also known as a churn rate, a company’s attrition rate is the rate at which people leave the business. In slightly more complex terms, the attrition rate is the number of people who have left the company divided by the average number of employees over a period of time expressed as a percentage.

The concept of attrition covers voluntary attrition (when employees leave) involuntary attrition (when people are fired), internal attrition (when people move internally) and demographic-specific attrition (when people from a specific ethnic group, gender, sexual orientation, age-group or ability level leave). The most concerning types of attrition are voluntary and demographic-specific attrition.

Why is Your Company’s Attrition Rate Important?

Employee turnover can have a bad impact on your company’s performance, which is why it’s important to know what your attrition rate is. Firstly, the cost to replace a highly-trained employee can vary between 120% of their annual salary to more than 200%, according to some sources.

When employees leave, unless they have an extremely rigorous handover process, they also take the knowledge they gained while working at the company with them. Their departure will also impact those people working around them – often adding more work to already over-burdened team members. Their departure can also reduce morale, increase stress, and perhaps even impact the company’s overall business performance. Whenever someone leaves it definitely changes the team dynamics and can even hurt the company’s image – for example, recruiters often say that they struggle to recruit new people when the company has a history of high turnover.

What’s the Difference Between Attrition and Turnover?

Although the terms are often used interchangeably some say that attrition is a longer-term concern. HR Toolbox, for examples, defines them separately saying that “vacancies left by attrition aren’t immediately filled up. Turnover, in contrast is a more short-term metric.” They say that the turnover must be addressed by hiring people to fill the gaps as quickly as possible.

Calculating Your Employee Attrition Rate

Regardless of whether you call it employee attrition or churn (or, perhaps less accurately refer to it as turnover), it’s important to know how to calculate employee attrition. So here’s an example. Let’s say you started with 160 employees in your company at the beginning of the year and finished with 200 but, during the year, 40 employees left. Here’s the formula to calculate the attrition rate:

Annual attrition rate = 40 / ((160+200)/2)
= 40/(360/2)
= 40/180
= 0.222 or 22.2 percent

If this looks complicated, don’t worry – there are several ways of calculating staff turnover as we explain in a blog post on the subject – take a look here to see if an alternative method makes more sense to you.

Putting Attrition Rates in Context

Generally, high attrition rates or churn rates indicate that employees are turning over pretty quickly while low attrition rates mean that people are staying with your company for a longer period of time.

Attrition rates vary widely

According to a source quoting the US Bureau of Labor Statistics “About 3 million Americans quit their job each month”. This is not the norm worldwide, though. It is very important to remember that attrition rates vary widely across sectors, countries and job types. So, while Monster says that the UK average employee turnover rate is approximately 15% a year, in 2018 LinkedIn reported from their own data that the global average was 10.9%. They also reported very wide ranges of turnover, even within industries. For example, in the LinkedIn survey, the software / technology businesses had an average turnover rate of 13.2% at the time but while user experience designers turned over at 23.3%, the e-learning sector showed a turnover trend of only 11.6%.

As a further illustration of the diversity of attrition rates, a survey by XpertHR published in 2019 indicated that the average turnover for sales and marketing staff was as high as 31%, while only 17.2% of HR staff turned over and engineers only turned over at an 8.8% rate.

This image below, adapted from the Science of Work, helps put attrition rates into perspective.

Attrition Rate

Source: Science of Work, based on Rubenstein, A. L., Eberly, M. B., Lee, T. W., & Mitchell, T. R. (2017). Surveying the forest: A meta‐analysis, moderator investigation, and future‐oriented discussion of the antecedents of voluntary employee turnover. Personnel Psychology, 1-43. doi:10.1111/peps.12226

Find Out Why People Are Leaving

However, while your company’s attrition rate is important – especially if the number has changed significantly over a period of time – what’s more important is to know why employees are leaving. If employees leave because they have to – they’re moving to a new place, they’re changing career, their family circumstances are forcing them to change – then it’s not really anything you can do and isn’t worth worrying about. But employees also leave because they’re pushed – either intentionally or because there’s something in your business that isn’t quite right. If that happens then it’s worth paying a lot of attention to what made them decide to leave so you can fix it.

What’s Causing Your Attrition Rate?

Figuring our why employees are leaving is critical to improving your attrition rate. That’s partly why many companies do exit interviews: employees are more likely to be honest about what they didn’t like about the company or what went wrong once they have a secure position somewhere else. When they leave it’s helpful to ask questions about:

  • Managers
  • Team atmosphere
  • Job characteristics
  • Pay and rewards
  • Stress
  • Workforce demographics

People often leave in order to get a promotion, salary increases or better career progression opportunities so money is often a contributing factor. But there’s also a saying that goes ‘people don’t leave jobs, they leave bosses. Having a good manager is very important to employee satisfaction. But employees don’t just leave because of their managers, they leave because of the role and the value they perceive in their work. Employees are more likely to leave a job if the responsibilities of the role are ambiguous, if the job is made up of seemingly unimportant tasks, and if they don’t feel that what they do is meaningful.

Sometimes It’s a Good Thing When Employees Leave

However, a low attrition rate isn’t always a good thing – some companies with low attrition rates become stale over time without new people bringing in new ideas. Similarly, sometimes it’s hard to get a challenging employee to leave a business. If they’re a poor fit for the business or their job it can reduce productivity and morale across the business, so it may be a good thing if they leave. A high attrition rate is usually bad, though.

How to Calculate Employee Turnover Automatically in Personio

Reporting illustration

Personio allows you to automatically display the staff turnover broken down by department, month and reason for leaving.

The Pros and Cons of Focusing on Your Company’s Attrition Rate

Being aware of your attrition rate is a good thing. It allows you to identify how many employees are leaving and why. If you have a high employee turnover rate pay attention to it. Fixing underlying issues can help improve business performance, productivity, morale and possibly even your overall business issue. However, a change of employees can also be an opportunity for the business. It allows you to restructure a team and possibly even save costs – either by hiring more junior people or by splitting the role up among other team-members or promoting someone internally. The important thing to remember is that a high attrition rate shouldn’t cause vast amounts of concern unnecessarily. Make sure you compare your rates with industry and country averages because what may seem alarming to you might actually be quite commonplace. The thing to be aware of is what happens when attrition rates start to increase – that’s when it’s time to interrogate your employee data thoroughly and to make changes, quickly.

When People Are Ready to Leave, Make it Easier to Let Them Go

While it hurts to lose talented employees and it’s expensive to replace them, it’s also wise to let them go graciously and painlessly. It’s easier if employees’ records are up-to-date, easily locatable and you have the right termination processes documented and ready to follow. That’s why Personio’s document management tools are helpful.

Keep your finger on the pulse of employee satisfaction, look out for pots of dissent, dissatisfaction and frustration and fix these issues before they come problematic enough for your top performers to take their skills elsewhere. Not only is this generally good practice, but it may actually help reduce your employee attrition rate over time and improve employee retention. After all, the idea is to get people on board, keep them happy and help your business thrive. We exist to help HR professionals do that every single day.

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