While attrition rates can vary widely across industries, locations, and even company departments, a high attrition rate can signal a grave problem within an organization.
Over time, it can hinder the company’s performance and growth.
Studies show that approximately 60% to 70% of employee turnover is voluntary and in the year 2022 alone, the overall cost of voluntary employee turnover added to over $1 trillion.
Keeping proper track of the employee attrition rate is essential to any business or company as it helps reduce hiring costs and optimize business strategies and productivity.
So, what is a good attrition rate for a company?
The answer to the same will vary depending on the size of the company. However, the rule of thumb is if your company has an annual attrition rate of more than 20%, it’s time to review the details.
Read on to learn more about attrition rate and other related FAQs like the following:
- What is an attrition rate?
- Why does attrition rate matter?
- What are the common causes of attrition?
- How do you calculate the attrition rate?
Employee Attrition Rate Meaning
The employee attrition rate of a company can be defined as the rate at which employees leave a company for various reasons and vacancies created due to attrition. These vacancies are usually not filled immediately or the position simply gets eliminated.
Attrition rate is also known as churn rate and differs slightly from employee turnover rate as attrition is a long-term concept, while in turnover, the vacancies are filled almost immediately.
Employee attrition rate can be calculated by dividing the number of employees who have left the company by the number of employees working for the company during a specified period.
It can be calculated on a monthly, quarterly, or yearly basis for either specific departments or the company as a whole.
Furthermore, there are different types of attritions, and not every kind of attrition is a cause for concern. The following are the 4 types of attritions:
- Voluntary attrition - when a worker leaves the company on their own accord
- Involuntary attrition - when a worker is dismissed, fired, or laid off from the company
- Internal attrition - when an employee takes over a different position within the company
- Demographic attrition - when a specific group (based on age, race, & gender) of workers leave the company
Why Should You Pay Attention to Your Company’s Attrition Rate?
Out of the 4 types of attritions, a high voluntary and demographic-specific attrition rate are the worst types of attrition.
Because this signals serious structural and cultural issues within the organization, which, if not addressed, can hamper the company’s longevity.
One of the initial impacts of a high attrition rate is an increase in hiring cost as studies show that replacing a highly skilled employee can cost your company:
- Hourly paid employees: $1,500
- Technical positions: 100 to 150% of a worker’s salary
- C-suite position: over 213% of an employee’s salary
And even if your company has a well-established and thorough handover process, some institutional knowledge is bound to leave the company along with the employee, as it is impossible to consign everything that the employee has learned over the years.
Additionally, when a valued employee leaves the organization, it affects the dynamics of the team, and professionals working with them will take time to adjust to a new colleague’s or boss’s work style.
Needless to say, a high turnover and attrition rate affects the company’s employer value proposition (EVP) and its employer brand, making it increasingly difficult for them to recruit professionals.
Also Read: What are the top signs of a toxic workplace?
How to Calculate the Attrition Rate of Employees
First things first, to calculate your company’s attrition rate, you must gather the following information:
- The time period you want to calculate the attrition rate for. It could be monthly, quarterly, or annually.
- Analyze if you want to calculate the attrition rate for specific departments or the organization as a whole.
- The number of employees working for the company during the specified period.
- The number of employees who left the organization during the specified period.
Now, here is the attrition rate formula you can use with the above information:
Attrition rate = (No of resignees/No of total employees) x 100
For example, if the no. of employees who left the company is 8 and the number of employees working for the company at a given time is 50,
Attrition rate = (8/50)x100
Causes of Attrition
Understanding the cause of a high attrition rate is the first step to combating it.
Entry-level employees are more likely to leave the company for academic pursuits and better pay.
And if your recruits leave the company within 1-2 months after being hired, the fault could lie in an inefficient onboarding process or how your company nurtures employees.
Meanwhile, senior-level professionals may resign from an organization for better work culture, work-life balance, career change, or reduced work pressure.
Demographic-specific attrition, on the other hand, is caused when the company lacks diversity management and has an unhealthy corporate culture with grave internal issues requiring immediate attention.
Furthermore, voluntary attrition can also be caused by the following reasons:
- Medical emergencies
- Family requirements
- Poor job satisfaction
- Low pay
- Inadequate employee retention practices
- Lack of growth opportunities and employee motivation
- Poor employee engagement
Also Read: How to know when it is time to leave a job?
Key Points from the Blog
- The employee attrition rate of a company can be defined as the rate at which employees leave a company for various reasons and vacancies created due to attrition are usually not filled immediately or the position gets eliminated altogether.
- Attrition rates can vary widely across industries, locations, and even company departments; a high attrition rate can signal a grave problem within an organization.
- Tracking employee attrition rate is essential to any business or company as it helps reduce hiring costs and optimize business strategies and productivity.
- There are four types of attrition - voluntary, involuntary, internal, and demographic-specific attrition.
- Employee attrition rate formula = (no of resignees/no of total employees) x 100.
- A high attrition rate can be caused due to poor job satisfaction, low pay, inadequate employee retention practices, lack of growth opportunities, and employee motivation.