Employee attrition at an alarmingly high rate is one of the most crucial issues in today’s competitive world, which respective business is required to handle in order to keep pace with the growing competition.
High employee attrition can largely impact the organizational bottom line, productivity, and overall success of an organization. Employers should understand the value of employee attrition along with the strategies that need to be taken to reduce the same as in the current market scenario; this is really very crucial for businesses to grow.
In the below sub-sections, let’s see some of the important parameters related to Employee attrition rate.
What is the Employee Attrition Rate?
Employee attrition rate is the percentage of employees who leave a company (voluntarily or involuntarily) over a period of time, typically in a year. There is another interchangeable term called “Turnover rate. ” The Turnover rate is when employees leave the organization voluntarily. It is also known as the “churn rate”.
The attrition rate is one of the important metrics tracked for the organizations, as a high attrition rate can significantly impact the company’s bottom line and spoil the company’s reputation.
It’s an important indicator for the HR team, the TAG team, and respective stakeholders to judge their retention effort and gather insights into the dynamics at play in the organization.
Employee attrition is one of the major concerns that businesses have in today’s highly competitive world. High attrition can cause a loss to the business because it involves striving for subsequent recruitment and, at the same time, training new staff members and yet experiencing reduced productivity from the existing ones.
High employee attrition may equally damage their reputation through the negative feedback from former employees and perhaps give competitors an overly upper hand on them on the virtue of innovation or customer service.
Organizations would, therefore, need to concentrate on the development of different retention strategies in order to resolve the same. A clear understanding and knowledge about the factors behind high attritions could help firms to develop those precisely focused initiatives required for enhancing satisfaction and engagement levels among the employees.
How to Calculate the Employee Attrition Rate?
To calculate the attrition rate, you need to know two things:
The number of employees who left the company during a specific period of time.
The average number of employees during that same period of time.
The Formula is
Attrition rate = (Number of employees who left / Average number of employees) * 100
The attrition rate is typically expressed in percentages.
Let’s take one example to understand it.
If a company has 1000 employees at the beginning of the year and 180 employees leave the company in that specific year. So, at the end of the year, there are 820 employees in the company.
Let’s put these numbers in the attrition rate formula:
Attrition rate = (Number of employees who left / Average number of employees) * 100
Attrition rate = (180 / 1000) * 100 = 18%
So, the attrition rate of this specific company is 18%.
The high attrition rate standards for any industry can vary significantly depending on factors like sector, size of the organization, current economic conditions, etc.
Generally speaking, anything over 20% is considered to be an elevated level within most industries.
Some of the attrition rate across industries includes 70% in restaurants and 25-30% in retail environments, while healthcare organizations routinely record figures around 15%. Technology companies are often positioned at 15 -20%, while financial services have been recorded between 10 -15%.
It must, however, be noted that these are mere averages, and actual numbers could fall under or above this benchmark due to prevailing market forces.
Statistics of Employee Attrition Rate
Let’s see some research and survey data about the employee attrition rate globally.
According to the Statista research report, the global employee attrition rate for professional services organizations experienced a gradual increase from 2013 to 2022, with minor fluctuations observed. Findings from the 2022 survey indicate that respondents reported an average employee attrition rate of approximately 14 percent.
Region-wise, the employee attrition rate in 2022 decreased slightly in the USA and EMEA region, and relatively, these numbers were higher between 2015 and 2022, as can be seen below graph:
Another survey conducted by Mercer on employee turnover in the US and Canada revealed that the average turnover rate in the US was 17.3% in 2023, down from 24.7% in 2022. The highest turnover rates were in the Retail and Wholesale industry (32.9%), and the lowest were in the Chemicals and Energy sectors (11.7% and 12.3%, respectively).
Mercer’s survey also notes that turnover rates are higher for entry-level positions than for executive and management roles.
As per the official website of the United States Government Bureau of Labor Statistics, Each month in the US, 3 to 4.5 million employees quit their jobs.
According to the research organization Gallup, the cost of replacement of an employee costs up to 150% of an employee’s salary.
Types of Employee Attrition and Factors Leading to Higher Attrition
After serving 20 years in the IT industry at various senior positions, I can provide a comprehensive insight into Employee Attrition.
There are two types of Attrition rates: Voluntary and Involuntary.
Voluntary attrition: Voluntary attrition is initiated by the employee, while the employer initiates involuntary attrition. Voluntary attrition happens due to dissatisfaction with salary/benefits, unhealthy work environment, personal reasons, better prospects, Health reasons, no growth for a certain period, etc.
Involuntary attrition: Involuntary attrition occurs when an employee is terminated or laid off by their employer. This can be due to various reasons, such as poor performance, misconduct, employee restructuring, client complaints, cyclic downturn, etc.
Factors Leading to Higher Attrition
A high attrition rate can be costly for a company, as it can lead to lost productivity, increased training costs, and damage to the company’s reputation. It is important for companies to track their attrition rate and identify areas where they can improve employee retention.
There are a few common reasons for high attrition rates and employees resigning and moving on, and some of them are low salaries and benefits, limited or nil opportunities for growth, poor work-life balance, unfavorable company culture, toxic work environment, poor management, etc.
How to Reduce the High Employee Attrition Rate?
If you are concerned about your company’s attrition rate, there are a number of things you can do to track it and identify areas where you can improve employee retention.
One of the first and foremost steps to take to tackle the high attrition rate is connection. Managers can connect with their teammates and discuss the issues they are facing on the ground level. You can get feedback on what they would like to see change in order to make them stay with the company.
Further, according to a Gallup study, 52 percent of the employees have not been engaged, and 18 percent were actively disengaged. So, contacting the team or employees frequently helps in retaining the best talents and delivering successful projects.
Following are a few steps that the stakeholders or companies can consider to lower the attrition rate:
🔷 An attractive compensation and benefits package that helps retain your employees, including competitive wages, comprehensive benefits scheme, and performance-based incentives.
🔷 Investing in developing employees is imperative in motivating the staff members to boost their potential. Design the career growth track for your team, and learning new skills will allow them to learn and advance their career – which returns increased engagement in the workplace.
🔷 Open collaboration, teamwork, and frequent communication are essential to create a positive working environment. Thus, employees’ morale and job satisfaction can be increased, leading to a decreased attrition rate.
🔷 Foster a healthy work environment that reduces burnout or attrition because of increasing workloads or unfair treatment.
🔷 Good leadership and management are a must for the success of any business. For an engaged culture, it is necessary that clear expectations and regular feedback, together with growth opportunities, exist in the workplace, which will help build loyalty in its employees.
With proactive measures taken by companies towards mitigation of employee attrition issues, they get to retain some of the best talents, hone their bottom lines, and stand to be in a good position to outpace their competitors.
What is attrition, and how does it differ from retention?
Attrition is simply the natural decrease of people that belong to a specific company over time, while on the other hand, retention is the attempt to keep those people inside that company. The key distinction between these two concepts is that one represents whether or not you are losing company employees versus just maintaining them. The attrition rate will include all employees who left a firm, no matter how long at the firm that particular employee was employed. The retention rate has only employees with a specific clean period with the organization, most often one year or more. Also, retention rates usually do not include performance-based termination issues or layoffs arising out of external circumstances.
Why Attrition Matters to Success of Business?
Attrition tends to impact any business out there negatively. This commonly manifests in loss of institutional knowledge, lowered productivity levels, and rising hiring and training costs. A high attrition rate may also indicate problems in the internal environment or conditions that a company faces since employees leave their positions usually by their own volition.
What are the Causes of the High Attrition Rate
Common factors that lead to employee attrition are:
⚫️ Dissatisfaction with work conditions. ⚫️ No shoulder tap for growth. ⚫️ Poor wages are paid to them. ⚫️ Lack of work-life balance.
What steps an organization can take to reduce employee attrition?
Companies should do their best to cut this rate by heavily emphasizing employee retention through better management practices, including continuous feedback sessions, creating a balanced work and life culture, and providing more attractions like flexible hours, etc., so attractive work culture prevents the workers from leaving.
What can businesses undertake to improve retention rate?
Businesses intending to have increased employee retention rates have to strategize for competitive salaries and benefits packages, create opportunities for professional growth and development, and offer a good work environment by means of recognition and rewards while at the same time allowing the employees to realize a healthy balance between work life. Pursuing these steps would help reduce costs, become more productive, and create a better atmosphere in the workplace for all concerned.
Is attrition and retention able to be measured against quantitative measures?
Yes, attrition and retention can be quantified. There are metrics like turnover ratio for employee-customer churn that could also apply in measurement. Such application of the now-identified metrics brought about quantitative information on the efficiency of respective strategies on attrition and retention, respectively.
What are some of the best practices for managing attrition and retention?
Managing attrition and retention in an organization requires regular assessment, feedback, and culture building to deliver the desired organizational performance.
Is attrition always negative, and is retention always positive?
Attrition may connote more than negative consequences when facilitating growth and change. Retention, on the one hand, should not always connote all things good, especially at times when organizations find themselves low productivity with the retention of incapable employees or unprofitable customers.
What does it take to improve retention in an organization?
The fact of the matter is that companies serious about the business of turning around employee retention will have to focus on competitive salaries and benefits, a good work environment, offering growth opportunities, and recognizing their input. The leaders should also encourage feedback from the staff to create a conducive atmosphere of honesty and trust to make meaningful changes.
What are some of the potential positive side effects of higher retention?
Some of the likely positive effects associated with strengthening retention will include:
⚫️ Reduced recruitment costs. ⚫️ Improvements in productivity and morale. ⚫️ Greater customer satisfaction. ⚫️ A workplace with more ‘know-how’.
The attrition rate is growing year by year, as per the statistics number explained above. Many businesses now seek to understand how to measure, monitor, and improve their retention rates.
To successfully accomplish this task, an organization needs to know how they may define, track, analyze, and act upon data in regard to why employees might be leaving an organization.
Understanding these parts is key to actually being able to take the first step forward in improving the retention rate. With such insight into this matter, companies can make informed decisions regarding personnel regulations that could help them arrive at stability during high employee attrition times.