A company’s attrition rate is a significant pointer to the viability of the business. It is one thing when one staff leaves and another when people keep leaving. Your business attrition rate is a viable tool for assessing business success. It might be a call to fix the mode of operation, culture, or overall business strategy.
Employee turnover can hurt a company’s productivity and result in losses of money. The average yearly employee attrition rate in the US is 19%, with rates as high as 40% in some industries, according to a recent analysis by Hibob.
You must gather information on the number of employees who have left the organisation and determine the causes of their departure in order to measure and improve your attrition rate. Attrition can be decreased by providing competitive pay and benefits packages, offering chances for professional advancement, and fostering a healthy workplace culture.
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This article will enlighten you about the attrition rate, why it matters, how to calculate and improve it. Keep reading to learn more!
What is attrition rate?
Attrition rate is also known as churn rate. It is the frequency at which people leave a company, expressed in percentage. Employee attrition is slightly similar to employee turnover because people go in both cases. Both terms loosely mean the same thing. As a result, both words are often misconstrued. Employee attrition deals with people leaving for unavoidable reasons, like retirement, moving, death, etc.
In contrast, employee turnover deals with people leaving for avoidable reasons like toxic management, work politics, or discrepancies in corporate culture. The indices for calculating attrition rate are number of employees gone, number of current employees, and specific time. All calculation indices for attrition relate to 100 for the percentage expression.
Now that you know the difference between attrition and employee turnover let us look at the various types of attrition.
Why are attrition rates significant?
An important measure that can aid firms in reviewing their retention and recruitment strategy is the attrition rate. Attrition, commonly referred to as employee turnover, can be expensive and disruptive to a business’ operations. Employees leave organisations for a variety of reasons, such as low compensation, little possibilities for career advancement, a negative workplace culture, and high levels of stress.
The cost of replacing an employee in the US ranges from 50% to 200% of the person’s annual compensation, according to a Workforce Logiq research from 2023. The average cost of turnover was discovered to be roughly $15,000 per employee after data from more than 2,000 US businesses in a variety of industries was evaluated for the report.
The efficacy of a company’s recruiting and retention strategy can be determined by looking at attrition rates. A high attrition rate might be a sign that the business is having trouble keeping hold of top personnel, which can have a negative effect on morale within the workplace as well as lower productivity and higher recruitment costs. A low attrition rate, on the other hand, shows that the business is keeping its workers, which can lead to a more reliable and effective workforce.
As a result, it’s critical for businesses to evaluate and monitor their attrition rates, pinpoint the reasons behind employee churn, and put solutions in place. Companies may enhance their employee satisfaction by providing competitive pay and benefits, opening up career options, encouraging a positive work environment, and lowering workplace stress.
Types of attrition
There are four primary types of attrition:
- A Voluntary Attrition-The employee willingly leaves the company.
- An involuntary attrition-The employee gets fired.
- Internal attrition-where the employee moves within the company.
- Demographic-specific attrition- The leaving employees consist of a specific group by gender, age, ethnicity, etc.
What your company’s attrition rate could be trying to tell you
Your company’s attrition rate can help you run and manage your business correctly. When you get a notice of exit from your employee, it is crucial to find out why.
Employee exit interviews, opinion surveys, or a detailed letter of exit are examples of tools you can employ to determine why the employee is leaving. This way, if it is a situation of unhealthy workplace culture, corporate toxicity, etc., you can begin creating an inclusive workplace to counteract it.
The negative impact of churn on your business productivity cannot be overemphasised, which is why it is necessary to calculate the attrition rate regularly. Essentially, high turnover can increase the cost of hiring, create problems with handing over, and even burn out existing staff. It also negatively impacts the leadership branding of an establishment. As a result, companies with high turnover might encounter problems when recruiting new staff.
How to calculate attrition rate
Calculating the attrition rate is not rocket science. With a few relevant data powered by accurate records, you can just as easily run the calculation. Here is how!
Attrition Rate Formula
Attrition Rate=(Number of separations/average number of employees) X 100
Where the number of separations stands for the number of employees that left.
For instance, you had 50 workers at the beginning of 2021 and hired 30 people as the year progressed. Then 40 people left the business; your number of separations is 40. Therefore, your total number of employees for the year is 50+30=80 employees.
Then, your employee attrition rate is (40/80)X 100=50%.
What is a reasonable attrition rate?
It is pretty tricky to define a reasonable attrition rate. Perhaps because of how variable the results can be. Also, the attrition rate is different for every company and industry. However, it is generally safe for companies to aim for an attrition rate of 10% and below.
What causes a high attrition rate?
Although attrition can happen quite naturally, it is pertinent never to let it slide without an investigation. Knowing the possible causes of high employee turnover can create valuable insight into improving the situation. Here are a few!
Poor employee recognition
Your workers are human and so crave human interaction. It can be pretty frustrating for them to work and feel unseen. While giving direct feedback might be challenging, checking in with your staff is vital. Ask about their day, their health, and try to find out if they have any challenges on the job. This way, your team will feel more integrated with the company and be more motivated to contribute their best.
Furthermore, do not forget to celebrate the little wins of your staff. It takes a great deal of effort for workers to hit certain milestones. As a result, you should never let their efforts and achievements go unrecognised.
Problems with compensation
Disproportionate and delayed compensation are often the culprits when the compensation becomes a problem for employees, causing their exodus. Often, it might be an accounting or documentation problem. Regardless, people are unhappy when they do not receive their pay on time or when payment is disproportionate compared to their effort.
As a business owner, you should look into and possibly review your workers’ compensation. Ensure that some dedicated staff who are due for a raise get it. Additionally, you can utilise online paystub generators to create online check stubs and w2 forms to ensure proper documentation of company finances. That way, you can be up-to-date with the amount spent on compensation and promptly track each worker’s pay.
Need for career growth
Workers do not appreciate being redundant at work. Everyone seeks an opportunity to grow and advance their careers while making money. Essentially, several people think of career growth as any opportunity that challenges them professionally to be better while enriching them. Therefore, you should ensure opportunities for promotion and career advancement. That way, you’ll be able to keep more of your staff for long.
Unhealthy Workplace culture
Toxic corporate culture is responsible for creating an unhealthy workplace. As a result, workers can get frustrated with the work and look elsewhere. When the workplace becomes toxic due to work politics, poor corporate culture, etc., it creates a divisive environment. Then when people feel drained of productive energy, they have no option but to leave. As an entrepreneur, you should maintain an ideal corporate culture at work. Also, the leadership should keep company core values strictly maintained.
How to improve attrition rate
It takes less effort to keep/ retain existing employees than to hire new ones. Therefore, it is imperative to take proactive measures towards improving employee turnover. Here are a few pointers!
- Maintain a formidable workplace culture by encouraging inclusivity and diversity.
- Keep your workers intellectually stimulated and challenged
- Create opportunities for financial growth and compensate workers accordingly
- Connect with your employees and give honest but constructive feedback
- Allow for a healthy work-life balance
- Evaluate your employee goals and expectations
5 Techniques for decreasing attrition rates
Companies must determine the causes of employee turnover and take action to resolve those problems if they want to lower the attrition rate. The following are some top techniques for decreasing attrition rates:
- Learn the causes of individuals leaving: To learn the reasons why people are leaving the organisation, do exit interviews. This can be used to find patterns and problems that need to be fixed in order to raise retention rates.
- Offer appealing perks and salary packages: If workers believe they aren’t getting a fair deal, they may decide to leave. Enticing top personnel with attractive pay and perks can help retain them.
- Offer possibilities for professional development and growth: Workers want to feel like their careers are moving forward. Offering employees the chance for professional development can aid in employee retention.
- Encourage a positive workplace culture: An engaging workplace culture can make employees feel appreciated. This might lead to higher retention and job satisfaction rates.
- Reduce workplace tension: Excessive tension can cause burnout and staff churn. Businesses may aid in the retention of outstanding talent by minimising workplace stress.
It takes a company-wide effort to develop a happy and encouraging work environment in order to lower the turnover rate. Companies may increase their retention rates, lower the cost of hiring new employees, and build a more reliable and effective staff by taking efforts to analyse and solve the reasons why employees are departing.
Wrapping up
You can save your company lots of money by calculating your attrition rate and taking active steps to keep it low. This article has provided an excellent start for you to begin re-organising your business for a more robust output.
FAQS:
How do you know a good attrition rate?
A good attrition rate is anywhere from 10% and below. However, there is no definite matrix for the correct turnover. But, companies want to keep their turnover rate as low as possible to maintain optimum workplace productivity.
What is negative attrition?
Negative attrition is something some people call bad attrition. It is characterised by a company regularly losing productive employees. The loss of productive workers could often be bloody work politics, poor leadership, management, lack of growth opportunities, inadequate compensation, etc.
How do you attract and retain top talent?
People with top talent care about intellectual stimulation and career advancement. They are constantly seeking opportunities to learn and grow. As a result, if you want to attract and retain top talent, you have to make your enterprise one that prioritises career advancement and growth opportunities. Furthermore, there should be an opportunity for workers to learn new skills.
