The world is marching towards a great recession after the post-pandemic effect. As a result, the traditional marketing strategies are no longer working and hence companies are looking for alternative strategies to hedge their bets. One of the alternatives is to measure the attrition rate of their employees. In any business, the problem with attrition is that it can significantly reduce the workforce and can have a huge negative impact on their profits.
Though, the employees that join companies on a probationary basis (or on a trial period) do not show a high attrition rate. But the more experienced employees usually leave the job within 2 to 3 years. According to common sense, talented people either by themselves or under the direction of their managers usually decide to move on. Hence, it is important for the company to measure the employee attrition rate and keep a close watch on it.
Companies employ numerous efforts to reduce employee attrition rate, but the approach can be difficult for new businesses to execute. Here are some tips for new businesses on how to reduce employee turnover.
What is Attrition Rate?
The attrition rate is the number of people losing their job in a specific period. The more people who leave a company, the higher attrition rate it has. In other words, it reflects how many people leave a company for better opportunities each month. With more attrition, it is sometimes seen that fewer people are willing to join the company, which then will lead to an estimated drop in new hires. The attrition rate is a key part of understanding the effectiveness of employee management in a company.
Employee Attrition Rate Phases
At any stage, it is reasonable to have some employees quit your company, but when its rate exceeds certain levels, it may be a sign that something is going wrong. Concerned stakeholders want to know what the attrition rate holds in order to help troubleshoot and prevent it from getting worse. It includes critical thinking and may offer a way to/answer some of your hypotheses as to why some employees are leaving.
Here are the three phases in which attrition rate can take place in the business:
1. Early Employee Attrition Rate
This is easier to measure because it occurs early in the process of the company. It’s obvious that the employee has left the company. As a result, the company’s turnover rate is higher in the first year of business. There are several causes of early employee attrition, including the employee not having the right experience or the right set of skills to perform their job.
2. Late Employee Attrition Rate
In contrast to early employee attrition rate, which happens in the first year of the employee’s contract, late employee attrition rate occurs after three to four years of employment. It may be caused by an employee’s retirement or it may be due to poor performance. Accordingly, the company’s employee turnover rate will be higher in this time period.
3. Total Employee Attrition Rate
In the end, all of these employee turnover rates should be added together to obtain the total employee turnover rate. This rate will reflect the level of the amount of employee turnover that occurs due to different causes. A low employee turnover rate shows the dedication of the employees to the company and the team. The product of this employee turnover rate and the average duration of employment should be compared to the total employee turnover rate required for an excellent level of employee retention. This equation can be adjusted for specific industries for analytical purposes.
Types of Attrition Rate
1. Voluntary Attrition
Voluntary attrition occurs when a worker decides to quit the firm. Any excuse an employee gives for leaving on their own, whether it’s actually voluntary or not, falls under this category. You’re probably most familiar with true voluntary terminations, like leaving your job to start a new one somewhere in the country.
However, a worker who departs for medical reasons or merely because the working environment is poisonous might also be considered voluntary attrition. Although there are occasions when the firm would like to replace someone but cannot, the corporation has the right to decide not to replace the employee.
2. Involuntary Attrition
Involuntary attrition occurs when an organization decides to let a worker go. A post may be eliminated by restructuring, layoffs, termination for misconduct (such as harassment or policy breach), subpar performance, or voluntary resignation. (You might argue that the last one was a voluntary termination, but the business ultimately decides whether to do so.) After that, the organization either cuts the position or doesn’t backfill it.
The most frequent type of attrition is involuntary position elimination, wherein a corporation intentionally acts to terminate a position. Other terminations typically result in a decision by the employer to leave the position open.
3. Retirement Attrition
Employees who are nearing retirement age experience retirement attrition. A tiny number of people leaving your organisation will not have a significant impact. However, a high attrition rate may result if a sizable portion of your team departs at the same time.
Once a worker retires after finishing their employment with a firm, it is usually considered as the period of retirement. The majority of this loss is normal, and businesses have succession planning in place for it.
4. Internal Attrition
Internal attrition describes the transition from one section or department to another. The worker won’t be quitting the organisation. Simply speaking, they are moving within it. It may happen, for instance, when a worker is promoted to a new management position. They could also shift laterally to a different area if a position there is more fit.
Internal attrition may indicate that there are strong chances for professional advancement at a corporation. On the other side, a department may be having issues if it has a high internal attrition rate. If necessary, the firm should look into them and take action.
5. Demographic Specific Attrition
Demographic-related attrition occurs when individuals belonging to particular demographic groupings abruptly and quickly leave an organisation. These can be women, people of colour, veterans, senior workers, or those with impairments.
An exodus of this kind may indicate that there has been harassment or discrimination towards the staff. This should worry all businesses since it may sabotage a productive work atmosphere and smooth corporate operations.
How to Calculate Attrition Rate
Even though the attrition rate formula appears difficult at first, learning how to compute an attrition rate is actually pretty easy. It is very simple to determine the typical staff size for a certain time frame. Consider the number of employees who separated at a specific period.
Attrition Rate Formula
Subtract the average number of workers for that time period. Divide by 100.
Number of separations / average number of employees multiplied by 100 = attrition rate.
Count the number of workers at the start and the finish. These numbers should be added up and then multiplied by 2.
Employee Attrition vs. Employee Turnover
Employee turnover and employee attrition are frequently conflated. Both attrition and turnover happen when an employee departs the organization, but there is a significant distinction. In situations of turnover, the corporation makes an effort to find a replacement for the lost worker, whereas in cases of attrition, the post stays vacant or the employer entirely removes it.
You may gauge how successfully you’re keeping talent by looking at attrition rates. A high attrition rate, for instance, implies that your employees are quitting frequently, whilst a low rate indicates that you are maintaining your staff for longer periods of time.
A low attrition rate often suggests that a business doesn’t have to spend money on recruiting and training new employees since its current workforce is already feeling happy and content.
How to Reduce Employee Attrition
Numerous remedial measures may be taken by businesses to guarantee that staff stay with them and to lessen the number of persons departing. The following are a few employee retention tactics to reduce employee attrition:
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Encouraging staff members with a growth strategy.
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Honor employee achievements with prizes.
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Introduce staff and employees to fresh positions and encourage internal training and development that will assist them to advance their careers.
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Continual employee feedback might encourage dissatisfied employees.
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Continually plan the organizational structure to eliminate unnecessary work roles to lower the hiring of misfits.
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During the hiring process, evaluate candidates for job and culture fit.
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To promote employee development and expedite career progress, provide learning opportunities.
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Ask for input on employee satisfaction issues on a regular basis.
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Make sure the salary is reasonable compared to competitor firms and according to the market standards.
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After an employee leaves, conduct in-depth interviews to identify attrition patterns.
Closing Thoughts
Businesses around the nation have been hit by The Great Resignation, which has compelled them to focus more on attrition rates in a post-pandemic society.
More than ever, firms must be aware of:
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How to Calculate Attrition Rates
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How to Define Employee Attrition Rate
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Why Attrition Rates Matter and Ways to Increase Employee Retention
Regularly measuring attrition rates might help you identify attrition patterns. Calculating the attrition rate on a monthly and quarterly basis may reveal changes in the rate. A lower attrition rate often indicates that you are keeping your customers or workers. You may discover correlations between the two that help the business improve if you compare attrition rates with employee or staff surveys.
