What is attrition in business? Meaning, types, and benefits

Explore the impact of attrition on businesses, a strategic reduction in workforce without replacements. Understand its benefits, types, and how it contrasts with layoffs and turnover.

By Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Have a quick question? I answered nearly 1500 FAQs.

What Does Attrition Mean in the Business World?

When workers leave an organization without being replaced, there is a slow but intentional decrease in the workforce, a phenomenon known as attrition.

Human resources professionals frequently use it to characterize the reduction of a company’s workforce. Here, the corporation is not replacing the resigned or retired personnel; instead, the reduction in staff is voluntary.

Important lessons learned

  • When employees leave a company and do not get replaced, attrition happens and the workforce shrinks.
  • Layoffs are considered to be a more disruptive method of reducing payroll and personnel than attrition, which is often referred to as a recruitment freeze.
  • The term “attrition” additionally refers to the decline in a client base, which frequently happens when people leave and less number of clients come on board.
  • Separate from layoffs, which happen when an organization lets workers go without finding replacements, is attrition brought on by voluntary departures of workers.
  • When individuals quit their positions either willingly or involuntarily in a short period of time, they are replaced by new talent, which is known as turnover.

Knowing About Attrition

The intentional reduction of the staff of a business is known as employee attrition. When workers retire or quit, there is a downsizing. This kind of layoff is known as a recruitment freeze. It is a method that helps a business cut labor expenses without having to deal with layoffs.

Attrition among employees occurs for a variety of causes. They consist of:

  • Inadequate compensation or benefits
  • Insufficient opportunities
  • Unfavorable working circumstances
  • Inadequate work-life balance
  • Death or Illness
  • Relocation
  • Retirement

Quick Fact: To help reduce employee attrition, businesses could want to think about boosting training, having conversations with staff members, and offering more benefits along with additional perks.

Attrition Types

1. Voluntary Attrition

When workers depart a company voluntarily, it’s known as voluntary attrition. Voluntary employee departures could be a sign of issues inside the organization. It could also imply that individuals are leaving for non-business-related personal reasons.

As an illustration, certain workers willingly quit to take a position elsewhere. The trip to work may not be feasible for them now that they are relocating. It’s possible that they require a new kind of work because they’ve chosen to try their hand at something else.

Retirements are another instance of voluntary attrition. Natural attrition is another term for this. Managers shouldn’t be concerned about employees retiring unless there is an exceptionally high percentage of premature retirements at the organization.

2. Involuntary Attrition

When a company fires staff members, it causes involuntary attrition. A worker’s subpar or unruly performance may be the cause of this. A worker’s wrongdoing may be a factor in their dismissal.

Employers may be required to remove a worker’s position from their employment. Alternatively, because of the concerning state of the economy, they may need to fire workers.

3. Internal Attrition

Changes in departments or divisions are referred to as internal attrition. The worker is not quitting the organization. All they’re doing is moving within it.

An employee may experience internal attrition, for example, if they are promoted to a higher management position. Alternatively, they go across to a new department as a more suited position is found there.

An organization may offer strong prospects for professional advancement if internal attrition is high. However, it can be an issue if a department exhibits a high rate of internal attrition. If necessary, the business ought to look into them and take appropriate action.

4. Attrition Related to Demographics

When individuals who belong to specific demographic groups leave an organization abruptly and without warning, this is known as demographics-related attrition. These can be elderly workers, women, veterans, members of racial or ethnic minorities, or people with impairments.

A mass departure like this could indicate that workers have experienced discrimination or harassment of some kind. This is something that all businesses should be concerned about because it can compromise both a productive work atmosphere and profitable operations.

It is imperative to move swiftly to ascertain the reason for these deviations. Since inclusiveness ought to be every business’s primary objective, it is imperative that demographic attrition be corrected. Additionally, a business can stop the departure of highly valuable and promising personnel. Training on diversity can be beneficial.

5. Customer Attrition

It is imperative for a firm to acknowledge consumer attrition, even though it is unrelated to staff attrition.

A corporation experiences customer attrition when its clientele starts to dwindle.
The term “churn rate” can also refer to the rate of client attrition. A corporation may experience revenue loss if there is a high rate of customer churn.

Numerous factors might lead to customer attrition:

  • Loyal consumers begin to favor other companies’ items.
  • Younger consumers aren’t taking the place of aging ones.
  • Inadequate client support
  • Modifications to product lines
  • Not updating product lines
  • Low-quality products

Quick Fact: 4.2 million American workers willingly quit their employment in June 2022.

Attrition Benefits

There are advantages to attrition. It’s just the natural decline in the workforce, to put it simply. This might be advantageous when an economy is struggling or an economic downturn is approaching since, without attrition, a business might have to consider firing workers—a move it would prefer to avoid.

Attrition may also be useful in the following situations:

  • When two businesses merge and have to deal with layoffs.
  • When a business shifts its focus to a different objective and needs to reorganize or downsize its personnel.
  • When hiring new staff is necessary to bring fresh ideas and vitality to the workplace.
  • When a business looks for organic ways to improve departmental or divisional diversification.
  • When it’s time to fire workers who don’t work well or have bad attitudes in order to decrease expenses, enhance workplace morale, or create space for highly qualified new personnel.

The Rate of Attrition

The rate of employees quitting an organization within a specific time frame is known as the attrition rate. A company can tell if departures are rising or falling by monitoring attrition rates across an extended period of time. Any shift in the rate of attrition might serve as a warning to management about possible issues that could be driving away staff members.

This is the attrition rate formula:

Attrition rate = (The number of workers who quit their jobs without being replaced/ the number of workers at the start of a given period of time) x 100

Let’s say that last year, 25 workers left XYZ Company. Furthermore, the company employed 250 people on average annually ((200 + 300)/2).

You can determine the attrition rate using those numbers:

Rate of Attrition = (25/250) x 100

Rate of Attrition = 10%

The number of employees at the start of the time period and the number at the conclusion of the period are added to determine the average number of workers. Divide by two after that.

Why Attrition Measurement Is Important

An organization can identify issues that are leading to voluntary attrition by tracking attrition rates. That matters since it might be extremely expensive to replace valuable personnel who you would like to have on staff.

In the event of a voluntary departure, for instance, the expense of hiring and training a replacement employee may equal 1.5 to 2 times the yearly compensation of the departing worker.

When competent, experienced workers depart and productivity declines, it can have a detrimental impact on the earnings of a company.

Losing important personnel can coincide with losing customers. This could result in further losses to the company’s earnings due to former workers’ knowledge of the goods and services and their ability to market them.

Layoffs vs. Attrition

Employees occasionally decide to leave their current position in order to accept another one or perhaps they are retiring. An attrition plan uses these kinds of voluntary leaves as a means of reducing the overall workforce.

An employee who is laid off does not do so voluntarily. Attrition does, however, occur when a corporation doesn’t hire back as many people as it fires.

Layoffs happen when a business has to reduce its employment in order to survive an economic downturn.

Occasionally, specific divisions are merged or cut as a result of structural changes to the company. This typically calls for layoffs as opposed to depending on the natural attrition that results from voluntary departures of workers.

Turnover vs. Attrition

Employee turnover occurs when workers quit and are substituted by new hires in an organization. There isn’t any attrition in these kinds of situations.

Typically, a year is used to calculate employee turnover. A corporation may lose talent for a variety of reasons. Employees can retire, move, change careers, or obtain a better position, much like attrition which is voluntary.

Companies that want to make adjustments can look at turnover. For example, a business that experiences a high turnover rate may have internal concerns that need to be addressed.

Management may utilize turnover data, like in voluntary attrition, to start implementing adjustments that will improve the company’s appeal to both new and current employees.

What Distinctions Do Employee and Customer Attrition Have?

Employee attrition is the term used to describe the reduction in the total number of workers employed by a company as a result of departing employees who are not replaced. Conversely, customer attrition describes a declining client base.

Is Worker Attrition a Positive or Negative Thing?

For businesses, losing employees can be problematic since it may result in a reduction of valuable expertise in the labor force. But it might also be advantageous. A company may be forced to determine the problems that may be creating attrition. Also, since workers depart voluntarily and are not replaced, businesses can reduce labor expenses. Eventually, it might result in the appointment of new staff members who have vivacious ideas.

How Do I Reduce the Attrition of Customers?

Ensuring your business offers the goods and services your clients desire, gives them outstanding customer support, keeps up with industry developments, and resolves issues brought up by client complaints are all effective ways to reduce customer turnover.

The Final Word

When employees depart a company without being replaced, there is a slow but intentional decrease in the workforce. This process is known as attrition.

Workers may quit on their own volition or unwillingly. Alternatively, they can just relocate within the department. When the employee is not replaced by the previous department, attrition happens. Discrimination is another factor that can cause an employee to quit.

Organizations can benefit from measuring and calculating attrition rates. High rates of attrition suggest that more individuals are quitting. They may indicate that a problem has to be addressed in order to enhance the working atmosphere and is the reason behind these departures.

Naturally, in lean economic times, a certain amount of attrition might be advantageous since it can prevent the necessity for layoffs.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:

What is a default judgment

What is a default judgment

A default judgment is issued when a defendant fails to respond to a lawsuit, allowing the plaintiff to win by default. Understanding this process is crucial for both parties involved in litigation.
What is a quitclaim deed

What is a quitclaim deed

Quitclaim deeds offer a quick way to transfer property ownership without guarantees, distinct from warranty deeds. Ideal for non-sale property transfers among family or into trusts, they require careful legal consideration.
Sole Proprietorship Business License

Sole Proprietorship Business License

Sole proprietorships offer simplicity and fewer formalities for new business owners, with benefits like no separate taxes. Remember, personal and business assets aren't distinct, impacting liabilities and the need for proper licensing.
What is the most important part of your business plan

What is the most important part of your business plan

The executive summary shines as the pivotal element of a business plan, serving as a decisive factor for readers to delve deeper. A comprehensive guide on crafting an impactful business plan, focusing on unique strategies and essential components.
Easy Businesses To Start

Easy Businesses To Start

Unleash your entrepreneurial spirit with these straightforward home-based business ideas, from e-commerce to creative pursuits. Embrace the flexibility and potential for financial independence with diverse options suited for various interests and investment levels.
What is the standard deduction

What is the standard deduction

Understand the IRS standard deduction, a straightforward option for reducing taxable income without needing detailed documentation. Delve into eligibility, amounts for 2023-2024, and considerations for itemizing versus standard deduction.
How to get a business license

How to get a business license

Grasp the essentials of obtaining a business license in California, focusing on local and state-level requirements. Uncover specifics on when and why different types of business licenses are needed.
Why Do Businesses Fail

Why Do Businesses Fail

Uncover the key factors contributing to small business challenges, including financial obstacles, inadequate management, and flawed marketing strategies. Understand the role of a comprehensive business plan in ensuring long-term success.
What is a BOC 3

What is a BOC 3

Understand the essentials of a BOC-3 filing for transportation businesses in California, detailing the designation of process agents for FMCSA certification. Learn the requirements, costs, and benefits of choosing the right process agent for your business.
Standard deduction vs itemized deduction

Standard Deduction vs Itemized Deduction

Understand the key differences between standard and itemized deductions to effectively reduce your taxable income and potentially save on taxes. Choose wisely to maximize your tax benefits based on personal financial details.
How to calculate net income

How to calculate net income

Unveil the significance of calculating net income for business profitability, a key indicator for financial health and decision-making. Understand the formula and practical applications for determining net earnings.
Itemized deductions

Itemized Deductions

Optimize your tax return by understanding the differences between itemized and standard deductions, crucial for minimizing tax liability. Learn the benefits and challenges of itemizing to make informed financial decisions.
What are intangible assets

What Are Intangible Assets

Discover the value of intangible assets like patents and trademarks in your business, crucial for strategic and financial planning. Learn how to manage and amortize these non-physical yet essential resources.
What is accounting

What Is Accounting

Understand the importance of accounting in monitoring financial activities and making informed decisions for your business. Gain insight into accounting fundamentals and its role in legal and tax matters.
Dysfunctional family

Dysfunctional Family

Explore the impact of growing up in a dysfunctional family, where constant conflict, neglect, and various addictions shape childhood experiences. Understand common traits, the consequences on children, and the cycle of unhealthy parenting behaviors.
When Was the Great Recession

When Was the Great Recession?

Delve into the Great Recession's timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
When Was the Last Recession in the US

When Was the Last Recession in the US?

Review discussions on America's most recent downturn, comparing the impacts and definitions of Covid-19 and the Great Recession. Analyze the significant effects of past economic crises on US policy and business approaches.
What to Invest in During a Recession- 4 Ideas

What to Invest in During a Recession: 4 Ideas

Uncover effective strategies for investing during a recession, assessing personal goals and current market situations. Examine four robust investment approaches to manage through economic declines effectively.
Will the US Get Hit with a Recession in 2024

Will the US Get Hit with a Recession in 2024?

Experts debate the likelihood of a 2024 US recession, analyzing factors like the yield curve and consumer confidence. Predictions vary, with a focus on interest rates and tech layoffs impacting the economy's future.
How Long Do Recessions Last

How Long Do Recessions Last?

Learn about typical US recession lengths and influencing factors, noting recent trends with shorter durations averaging 10 months. Investigate how external factors and government decisions affect recession timelines, comparing historical data.
When Will the Recession End

When Will the Recession End?

Economists predict a mild US recession with limited impact on employment and spending. The duration and impact of the recession depend on Federal Reserve policies and business cycle patterns.

When not to sign a severance agreement?

Do not sign a severance agreement if you do not understand it. By agreeing to a severance agreement, you give up your right to sue your employer. Remember, it is possible to negotiate the terms of your severance package. You are not required to sign a severance agreement.

How Do You Deal with a Toxic Business Partner?

Address concerns directly to the bad business partner; communicate openly and clearly. Consider mediation or seek legal advice from a business dispute attorney. Document disagreements, consider amicable separation if necessary.

Contact our attorney.

Please tell us your story:

7 + 1 = ?