In a previous article, I wrote about the differences between turnover and attrition as metrics relating to your overall employee numbers. You can read the full post here.
Today, I thought I would go a bit deeper into attrition.
What is it, how do you calculate it, how can you analyze it, and how can you improve it?
Employee attrition is defined as the number of employees who willingly leave your company and who you do not replace. They have to leave of their own will; terminating them, restructuring to eliminate their positions, or letting them go does not count. You also must not fill the role voluntarily. It can’t be a role you keep open and haven’t found the right person to fill it yet.
Attrition is shrinkage in your organization. Sometimes it happens when you realize you’ve overextended with your growth and, when an employee leaves, realize you can dial back your spending and operate fine without them. Other times, it’s a sign of impending doom; you may find that it indicates a decline in the public perception of your company or interest in your product. A lot of information can come from measuring attrition over time.
Attrition is “better” than other forms of employee churn because it’s entirely voluntary. You aren’t shrinking because your company has no one interested in working for it, and you aren’t forced to fire or terminate an employee. On the other hand, the ideal for any business is ongoing growth or standing still with profits at the bare minimum. Losing employees and shrinking payroll can indicate problems.
On the other hand, attrition can also be an opportunity. It’s a way to reduce overall payroll costs without downsizing or firing employees, and can help stave off lean times a little longer while you figure out other changes to make to get your business back on track.
Additionally, attrition doesn’t have to be permanent. Choosing not to fill a role when an employee departs can be a temporary decision, and you can always open up that role later when interest and the economy begin to climb again.
Note: Some HR professionals view attrition as any employee turnover and consider “voluntary attrition” a sub-type of attrition. That is largely incorrect but pervasive. If you subscribe to this definition, assume that I’m talking about voluntary attrition throughout this blog post. The information is the same either way.
Calculating attrition for your company is a matter of defining three numbers.
The first number is the time period you’re measuring. Annual, quarterly, and monthly attrition rates are common, though you may not have any attrition on a monthly basis depending on the usual turnover rates for your company and industry. Define a length of time to measure, so you can compare apples to apples when you analyze your metrics later.
The second number is the number of employees who voluntarily leave during your defined period. This is a number of people, not a number of roles; for example, if you have a middle manager who leaves via retirement, you hire a replacement, and the replacement chooses to leave within a month for unrelated personal reasons, that’s two instances of attrition, even though both were the same role.
The third number is the total number of employees your company had throughout the measurement period. This number is an average, so if you had 110 employees at the start of the period and 100 at the end, the average number is 105. To calculate this, take the number of employees you had at the start of the period and the number at the end, add them together, and divide the result by two.
The formula for attrition is simple:
Attrition Rate % = (Number of Departed Employees / Average Employee Number) * 100
So, say you have 2500 employees on average throughout the year. You have 328 employees voluntarily leave throughout the year through retirement, leaving for new jobs, leaving for personal or medical reasons, etc. Your equation would look like this:
Attrition Rate % = (328 / 2500) * 100 = 13.12% Attrition for the year.
Remember, as well, that you can chart this number out in different ways. Monthly attrition numbers compared to the annual numbers can show you spikes of attrition at different times of the year, for example.
You can also calculate different kinds of attrition. For example, you can divide attrition into the people who retired versus those who resigned versus those who transferred to another branch or another department. Attrition can be measured on a department level, a location level, a national level, or a global level, depending on the scale of your business.
Once you have your attrition numbers, what information can you get out of them? What should you look for? Here are several ideas, though bear in mind that the information most relevant to your company can vary.
Analyze the reasons why employees leave.
Employees leave voluntarily for a lot of different reasons. You will need extra data for this analysis – exit interviews should provide it – and correlate that data with your attrition metrics.
Different causes of attrition have different repercussions. For example:
- If a large number of your employees are leaving around the start of the school year, they could be leaving to free up time for classes.
- If a large number of employees are leaving and citing the relationship they have with their manager, you may investigate that manager for possible reasons.
- If a large number of employees are leaving for better salaries at other companies, you may need to examine your payroll and improve compensation to increase retention.
Seeing a spike in attrition can show you when an issue that was simmering starts to boil over, when a new hire starts causing problems, or when something dramatic changes in the industry or within your company.
Analyze spikes in attrition and narrow down causes.
In some companies, attrition tends to be stable from month to month, and year to year. Other companies have dramatic seasonal swings in part of their workforce or across the board. Sometimes, spikes in attrition are easily explained, but other times they aren’t.
It’s those unexpected spikes that herald issues you need to identify. This can be anything from a general labor movement to a competitor poaching your employees to a lousy manager making bad decisions.
Identify trends in attrition that might warrant preparation for the future.
Looking at attrition across a long enough period can show you trends that can help predict the future. You can’t be completely accurate with predictions – the unexpected can always happen – but if your attrition is inching a few percentage points higher every year, year over year, it can be cause for concern.
Why is it increasing, and what can you do to stem the tide? Do you need to readjust the direction your business is operating and further realign with consumer interests?
Compare different kinds of attrition.
Attrition comes in many forms, and comparing those different forms can be valuable.
If we go back to the initial definition of attrition, we can see that many HR experts define attrition as any time an employee leaves for any reason. They also define what I’ve labeled attrition above as “voluntary attrition.”
Thus, you can identify different kinds of attrition as:
- Involuntary attrition: the people who leave because you’ve restructured to eliminate their position, fired them or laid them off, or otherwise removed them from your workforce.
- Voluntary attrition: the people who leave of their own will. Described heavily above.
- Retirement attrition: the people who reach retirement age and choose to leave the workforce entirely.
- Internal attrition: the people who “leave” your role but take another one within the company in another department or at another level.
- Demographic attrition: the people who leave for one reason or another but who share certain traits as a group.
Different kinds of attrition can reveal patterns that may need addressing. For example, a large amount of retirement attrition can indicate that your workforce is aging out and needs to be replaced with younger talent; it also means you may need to guarantee a company knowledge base and knowledge transfer so you don’t lose critical institutional knowledge as more of your older workers retire.
Demographic attrition is another one to watch for. If many of your employees in a particular demographic group are leaving, it can indicate some kind of inclusivity problem. For example, if most of your attrition is women, your company culture may be leaning towards sexism somehow, and they’re clearing out before it becomes a problem. The same goes for minority groups and other forms of bigotry. Seek causes and investigate issues before they become legal problems.
Compare attrition and turnover.
Employee churn comes in many forms. Attrition’s key is that you aren’t replacing the employees when they leave, while turnover is when you do.
Comparing these two can show you whether or not your company is on a decline, if it has retention problems, or if it’s undergoing a restructuring. These all have unique repercussions.
Once you measure attrition and analyze the data you receive, you can start working to improve attrition rates.
First of all, it can be beneficial to recognize that there’s no singular “good” attrition rate. Different roles, levels, and industries have their own average attrition rates.
“Attrition rates vary across industries, subsectors, and job titles. According to LinkedIn’s 2018 talent turnover report, attrition rates were the highest in the technology (13.2%), retail/consumer products (13%), and media/entertainment (11.4%) industries. However, certain positions within industries are subject to higher attrition than others; the same report indicated that within the media/entertainment industry, marketing specialists had an attrition rate of 19.8%.” – Business.com.
Improving attrition is always going to be a goal, but getting attrition down to zero may be impossible.
High attrition rates often come from one of a few sources.
- Poor company or workplace culture. Whether this is a pervasive culture throughout the entire company, a department or team culture, or even just a few toxic individuals, workplace culture is a huge driving factor for turnover and attrition.
- Stress and a poor work/life balance. Modern employees recognize the value of personal and family time and want to maintain a healthy balance between their work and personal lives. A poor balance or a stressful workplace can contribute to attrition.
- Lack of advancement. Suppose attrition is exceptionally high amongst skilled professionals, and they often leave for increased pay and benefits, or an increase in job title. In that case, you may find that a lack of advancement opportunities is hindering your workplace. This situation can be challenging, especially if you have little flexibility or room for growth in advanced positions.
- Poor compensation. Closely related to a lack of advancement, poor pay and benefits are frequently one of the most significant drivers of attrition. Increasing compensation over time helps retain employees and keep them satisfied and can paper over many issues that would otherwise drive them away.
Luckily, all of these issues are well-documented and solvable, though depending on the level and scale of the issue, it may require dramatic changes throughout your organization. Sometimes, it’s easy. Sometimes, it’s putting you between a rock and a hard place.
Unfortunately, seeing the effects of improving attrition can take months or years before you have the metrics to show the impact of your changes. Attrition is a long-term metric, and the changes you make need to be equally long-term. Thankfully, they’re typically universally good for any business and improve more than just attrition rates. Improving attrition rates can be hugely beneficial if your business can benefit from improved morale, productivity, engagement, and reputation. Plus, it can help you identify problems before they become crises.
Do you have any questions about calculating or analyzing your employee attrition? Was there anything we mentioned today that you would like more clarification on? If so, please feel free to leave a comment down below, and we’ll get a conversation started! We’d be more than happy to assist you in answering your questions however we possibly can!
Andrew Greenberg’s roots in recruiting date back to 1996. He has experience both on the agency-side and corporate-side of the staffing business, with a focus in the financial services space at companies like Bloomberg and UBS. He also has core experience with information technology staffing, and has worked for major software companies such as SAP Business Objects and IBM/Informix Software. To get in touch with Andrew, you can reach him by email or by phone at (800) 797-6160.