What Is Your Company’s ‘Attrition Rate’ Telling You?

written warning discussion between employees

When one employee leaves, that’s sad. When a lot of them leave, that’s a concern.

Why? Because your attrition rate may be reflecting a deeper problem within your organization and company culture (click here for our full guide to corporate culture). Employee attrition is a serious matter. In fact, a high attrition rate means something in your company probably needs to change.

In this blog, we’ll provide helpful guidance on identifying different kinds of attrition rates, as well as how your business can work to strike the right balance.

At the heart of your attrition rate, is the culture your company is setting and promoting. Click here to download our free guide to corporate culture.

What Is An Attrition Rate?

Commonly referred to as a ‘churn rate,’ a company’s attrition rate is the rate at which people leave. If you break it down, it is the number of people who have left the company, divided by the average number of employees over a period of time. Typically, it is expressed as a percentage (%).

There are different kinds of attrition, though. They are as follows:

  • Voluntary attrition – When employees leave.
  • Involuntary attrition – When employees are fired.
  • Internal attrition – Employees moving internally.
  • Demographic-specific attrition – A specific group (age, gender, ethnicity) leaves.

Which Types of Attrition Rate Are The Most Concerning?

Most notably, concerning types of attrition are voluntary and demographic-specific attrition. That’s because both of these may be pointing to structural issues within your organization.

The first, voluntary attrition, could point to flaws in the way you nurture employees. They may be leaving because they are not getting what they need, what they want, or are not satisfied in their roles. Having an idea of the ‘why’ behind an employee leaving is typically a good place to start.

In addition, demographic-specific attrition can also be a cause for concern. That’s because it could speak to a toxic corporate culture that could be harming your company from the inside out. Diversity is crucial, and a company lacking in it may have significant internal issues worth interrogating (read more about diversity management right here).

 

Is Your Corporate Culture Causing Higher Attrition?

If you’re concerned about your attrition rates being affected by your company culture, be sure to download our free guide to identifying, establishing, and optimizing your culture today.

Why Is Your Company’s Attrition Rate Important?

Employee turnover can have a negative impact on your company’s performance. That is why it’s important to know the status of your attrition rate (click here to learn more about staff turnover and what it means).

First, it’s about the cost. Replacing a highly-trained employee can vary between 120% of their annual salary to more than 200%, according to some sources.

Unless there is an extremely rigorous handover process, institutional knowledge will leave the organization. That’s because it is almost impossible to transfer all the knowledge an employee has gained over the years.

Their departure will also impact those people working around them. Often, that results in 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 dynamics of a team 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 these terms are often used interchangeably, some suggest that attrition is more of a long-term concern.

HR Toolbox, for example, defines them separately saying that “vacancies left by attrition aren’t immediately filled up. Turnover, in contrast, is a more short-term metric.”

Typically, turnover is addressed by hiring people to fill 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 explained in a blog post on the subject. Make sure to have a read to see if an alternative method makes more sense for you.

What Constitutes A ‘High’ Attrition Rate?

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 Wildly

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 specific industries. For example, in this LinkedIn survey, software/technology businesses had an average turnover rate of 13.2% at the time, but user experience designers specifically turned over at 23.3%, while 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 specifically only turned over at a rate of 8.8%.

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

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 in the first place.

If employees leave because they have to – they’re moving to a new city, they’re changing careers, their family circumstances are forcing them to change – then there’s nothing that you, as a company, can do about it.

That said, employees don’t just leave because they have to. They may be pushed, whether intentionally or because there’s something in your business that isn’t quite right. If that happens, it is worth paying attention to what made them decide to leave so you can fix it.

What Is Influencing Your Attrition Rate?

Figuring out 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, about 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 and workload
  • Workforce demographics

People often leave in order to get a promotion, salary increases, or better career progression opportunities. Therefore,  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. That said, employees don’t just leave because of their managers, they leave because of the role and the value they find in their work.

Employees are more likely to leave a job if the responsibilities of the role are ambiguous. Or, 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 Good 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, it can be difficult 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. It may be a good thing if they leave.

In most cases, though, a high attrition rate is usually bad.

Calculating Employee Turnover Automatically Using Personio

Reporting illustration

Personio allows you to automatically view staff turnover and attrition rates, broken down by department, month, and even the reason for leaving. Learn more by clicking the button below.

When Is The Right Time To Focus On Your Company’s Attrition Rate?

Awareness of your attrition rate is most certainly a good thing.

That’s because it allows you to identify how many employees are leaving and why they are leaving. 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 business overall. 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. This can be done either by hiring more junior people, 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 concern for no good reason. Make sure to first compare the rates within your industry and country averages. In fact, what may seem alarming might 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, without haste.

What Should You Do When Employees Are Ready To Leave?

While it does hurt 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, easy to locate, and you have the right termination processes documented. And, when they are ready to follow.

That’s what makes Personio’s document management tools so helpful. It’s a streamlined way to keep your finger on the pulse of your employee satisfaction, with an eye peeled for any dissent, dissatisfaction, or frustrations. This way, you can fix issues before they ever become problems for your top performers.

It’s not only good practice, though. Over time it may help reduce your employee attrition rate and improve employee retention. After all, the idea is to get people on board, keep them happy, and help your business thrive. Our mission is to help HR professionals do that every single day.

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