Employee attrition occurs when workers leave a company and are not replaced, causing a reduction in workforce size. Understanding the causes and types of attrition is crucial for businesses to manage staffing and improve retention strategies effectively.
By Brad Nakase, Attorney
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While it may seem simple, job attrition is actually a complicated issue. It is not the same thing as employee turnover, despite the fact that we frequently use the phrase interchangeably with it. What is employee attrition? What causes it? How can you quantify your attrition rates? How can you control attrition at your organization? Let’s have a look.
The term “employee attrition” describes the situation in which a worker quits a company for whatever reason and is never or very slowly replaced. When employees leave, positions aren’t always filled, which means that the size of a company or department’s workforce often goes down.
Employees can leave a company as a whole or just in certain areas or divisions. This usually happens when new technologies or robots take the place of workers.
For instance, a factory that makes cars might have needed people to do jobs on the assembly line like attaching wheels or putting in windshields. Automation is getting better, so robot arms and other tools could do these jobs instead of people working on assembly lines.
The attrition rate is a useful tool for estimating employee attrition.
People sometimes use the words “attrition” and “turnover” to mean the same thing, but they mean different things. The number of employees who leave their jobs and are replaced by new ones is called “turnover.” The phrase “attrition” refers to the elimination of positions or long-term vacancies in an organization.
Your business is shrinking if you have a high employee attrition rate. It is possible to run a stable or even expanding business with significant employee turnover rates. For instance, even if the business grows, there is often a lot of staff change in restaurants and stores.
When Human Resources workers know the difference between employee attrition and turnover, they can come up with and use the best strategies to keep their company running smoothly.
Although there are many ways that employees can leave a company, there are two main types of attrition:
During circumstances of termination for cause, such as when an employee’s performance was subpar or when they engaged in misconduct, the employer may elect to leave the position empty after the fact.
A high turnover rate can cause a lot of problems for a business. You can have gaps in training, a lack of continuity, and not enough institutional understanding. Sometimes it takes a long time to fill positions, especially specialized jobs. If you leave key positions open, it may be hard to fill them later.
People who already work for you have to pick up the extra work, which can make them tired. That makes everyone less productive, which makes people unhappy and hurts your bottom line.
Chief People Officer at Vaco, Tracey Power, talks about the bad effects of losing employees: losing employees can affect strategy plans because there aren’t enough skills to carry out projects or key initiatives. Power also says that there is a higher chance of reputational or employer branding damage, which can make it harder to hire new people and make current workers less likely to stay with the company.
Bruna Vasconcelos, Head of People at the hiring platform Revelo, says that when employees leave, they take their expertise, abilities, and knowledge with them, which means the company loses information about the business as a whole. This has a direct effect on how well the team works together and the quality of the work they produce.
While a high rate of job attrition is usually a bad thing, it can be useful in some situations. Here are some ways that losing employees can be good for a business:
A lot of things can cause people to leave your company, and some of them are out of your control. Let’s take a look at some of them:
Low unemployment and the makeup of the workforce
How quickly new jobs can be filled depends on the job market. People may not be able to find new jobs when they leave if unemployment is low in your area or business.
Also, a skills gap could happen if a lot of experienced workers decide to leave or quit at the same time. It can take a long time to find qualified people to take on these jobs or train current employees to do so.
Leaving voluntarily
Every business has to deal with employees quitting on their own. Even if nothing changes, people will leave some jobs and join others or look for work elsewhere. Low pay, a bad work-life balance, not getting enough credit or career advancement, bad management, and a toxic work environment are all common reasons people leave their jobs.
When recruitment efforts are unable to meet the need, a high rate of voluntary turnover can lead to increased attrition.
Restructuring the company
It’s common for businesses that are restructuring to want to get rid of employees. Hence, restructuring is associated with higher employee attrition. Employees will not know if they will have a job after a merger, purchase, or other reorganization, and they may quit during this time.
Since the reorganized company is likely to have roles that are redundant or no longer needed, HR leaders can carefully get rid of these positions by letting people leave.
Having money problems
When businesses are doing well and making a lot of money, they may hire a lot of people. When a business is having money problems, firing workers is always an option as a way to save money.
As an example, the Dutch healthcare company Philips had to recall one of its goods, which took 70% off of its market value. To make more money, the company is letting go of 5% of its staff by 2025.
Changes to the business plan or main goal
When things change in the business world, leaders need to be able to adapt by changing their goals or plans. During the pandemic, when jobs were hard to come by, Bank of America hired more people. Now, even though Bank of America has had good financial results, it has rethought its staffing levels. It has already cut more than 1,000 jobs and wants to cut another 3,000. When people leave, the company hopes to not hire anyone to take their place.
When you use new business models, some jobs will change, stop being useful, or go away. When Crocs’ sales slowed down in 2017, the company closed 158 stores, which meant that no one would be working as a retail worker at those locations.
Improvements in technology
When a business uses technology to run its operations, it can change who does what. For instance, if a store has self-checkout, they might not need as many cashiers.
The skills needed to do standard jobs may change because of new technologies. Sam’s Club, a membership grocery store, has updated its store model so that it no longer has registers or cashiers. Customers now use an app to find their way around the store and scan things. People work from one place to help customers and collect payment by reading a barcode on their app.
If Sam’s Club uses this plan in more places, it will change how they staff some of their stores.
Outsourcing
More and more businesses are hiring outside services to do their work to save money or avoid having to keep staff with specific skills. It is normal to outsource IT and customer service.
Walmart, Inc., an American retail company, hired Genpact, a company based in New York, to handle its accounting and financial work in 2018. This change affected about 550 workers at Walmart’s main office in Bentonville, Arkansas. However, Genpact gave them similar jobs.
You can track your organization’s progress toward its goals—maintaining, decreasing, or increasing staff attrition—by determining the annual attrition rate.
The method for attrition is pretty easy to understand:
The employee attrition rate is equal to the number of workers who have quit divided by the total number of employees.
But you need to gather information to figure out how many employees are leaving.
Here’s an example:
First, find your average number of employees per year. Suppose there are 1,500 workers.
After that, count how many employees have quit in the past year, leaving open jobs. Let’s say this number is 35.
35/2,500 = 0.0233
0.0233 times 100 equals a 2.3% attrition rate.
This number is based on the idea that you don’t plan to fill those 35 open jobs. With a goal of filling five out of thirty-five spots, your attrition rate would be:
30/1,500 = 0.02
0.02 times 100 equals 2% attrition rate.
It’s important to note that this figure differs from your turnover figure, which accounts for replacement.
The turnover rate is:
The number of layoffs divided by the average headcount and multiplied by 100.
Staff turnover rates above 100% are feasible in extreme cases where a large number of employees leave and are subsequently replaced. It’s not possible to have more than 100% turnover.
Remember that the rate of employee attrition won’t tell you everything you need to know about your business. It’s more useful to look at employee attrition rates by area or site when the company is bigger.
Even though your organization as a whole has low attrition, you can see that one of your sites is losing staff while another is gaining them, effectively canceling each other out.
Your employee attrition data’s statistics might help you spot trends and trouble spots if your objective is to lower attrition. Here is some information you might want to think about:
Data-driven approaches can help businesses figure out why workers are leaving, whether it’s bad pay, few chances to grow, or problems with the company culture. Then they can really work to keep people, says Joe Colletta, founder of 180 Engineering, a company that hires people for engineering and IT jobs.
Experian, an Irish company that works with data analytics and client credit reports, did just that. Someone put together a group to figure out why there was a high attrition rate by using prediction modeling to look at employee data and find problems in the workforce. They were also able to figure out which perks workers liked the most and use those in plans to keep workers.
Tillo, a platform for rewards and incentives, uses data to figure out patterns in why employees are leaving, which has been very important as the business has grown.
That way, they can take steps to make sure that low turnover numbers happen. To do this, they keep a close eye on data points every three months, like how happy employees are and how many are leaving.
These insights are very important for helping them make decisions and take action. They also help them move the business forward while staying true to their company culture, says Briony Robertson, VP of People at Tillo.
While it is possible to lessen the likelihood of involuntary attrition by careful planning that guarantees adequate staffing, unexpected events are always a possibility. Businesses have more power to stop employees from leaving on their own. A new study found that most of the time, people quit because of things that companies could fix.
Here are some ideas to help you deal with employees leaving:
The way managers deal with their staff is crucial, since research shows that 34% of workers leave their positions due to leaders who aren’t caring or inspirational.
Give team leaders the interaction, decision-making, conflict resolution, and time-management skills they need to build good relationships with the people who work for them.
People want to work for an employer who recognizes the value of their time and effort, and they value financial compensation and benefits packages that are comprehensive. It can be hard to keep employees if you pay them less than the going rate. It’s a good idea to look at what you’re paying your workers every so often.
You can find out how competitive your pay is with other companies by doing a salary survey and comparing all of your salaries to a standard. It may be time for pay bands to get bigger and some people to get raises. Also, make sure that your perks and benefits are still valuable and meet the needs of your workers.
39% of men and 44% of women surveyed by Yoh would think about switching jobs if they offered more flexibility. Companies can attract and keep more talent if they think outside the box when it comes to teamwork and scheduling.
People can find a better work-life balance with the help of telecommuting, flexible plans, and shorter work hours. People who are close to retirement or who are returning to work after sickness or parental leave may be interested in part-time hours.
Trust grows when people can talk to each other comfortably. Leaders should be open and honest about business plans and changes, and workers should be involved in making decisions as much as possible. Members of the team should feel free to talk to managers about their thoughts and worries.
Asking for feedback and keeping workers in the loop makes them feel like they are important contributors.
Attrition will go down if you have a selection method that helps you hire people who can and want to do the job. This starts with job postings that are complete, accurate, and clearly explain the job.
If you focus on choosing people based on their skills instead of their degrees, job titles, or years of experience, you can find people who have the real skills and abilities needed to do well in the role. That way, you can help your new employees stay with you for a while.
Getting feedback from employees is a key way to deal with employee turnover. If you do exit and stay interviews, you can see trends in why people leave and stay at a company.
With this information, you can figure out what the company does well as a workplace and what it could do better. After that, you should take steps to improve your products and fix any problems.
Pay attention to how you can reskill and upskill people as your business grows. You can avoid firing people if they can take on the new jobs that come up. Also, this helps with your strategic planning for your staff and your succession planning. If you train people to fill in the gaps in your skills, you’ll have someone ready to take over when an experienced worker leaves.
When internal promotions are frequent, workers have faith in the value of their institutional expertise and feel encouraged to pursue opportunities for advancement.
When people leave your company, you should know why, and you should also know what you can do to handle the situation. By knowing how many employees leave each year and why they leave, you can make long-term plans for your workforce that will keep your company from having to cut staff without wanting to.
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