Click the button to start reading
The Ultimate Guide to Employee Attrition: What It Is, Causes, Risks & Prevention
Employees are a company’s greatest asset … which is why rising employee attrition rates are giving businesses cause for concern. They’re smart to be worried because high employee attrition rates often go hand-in-hand with other undesirable outcomes, like lower employee morale, declines in productivity, and recruitment challenges.
To prevent those doomsday scenarios, it’s important that businesses understand what employee attrition means (and what it doesn’t), the risks that are associated with employee attrition, and what steps they can take to prevent employee attrition.
In this article, we’ll take an in-depth look at those topics and we’ll also explain the different types of employee attrition, what causes employee attrition, and how to calculate the employee attrition rate, so you can determine whether a potential problem exists at your organization.
However, before we dig deep into the topic, let’s make sure we’re all on the same page by first, defining what employee attrition actually is.
What Is Employee Attrition?
Employee attrition refers to the process of workers leaving a company for voluntary or involuntary reasons, without being immediately replaced. Sometimes employee attrition is due to a hiring freeze, at other times, there are deeper issues at play. However, whatever the cause of employee attrition, there’s one inevitable result: the company’s workforce shrinks in size.
How Is Employee Attrition Different from Employee Turnover?
Although employee attrition and employee turnover are often used interchangeably, there’s one critical difference between the two terms and that is: what happens after an employee departs.
In the case of employee attrition, when an employee leaves, their position is eliminated or it remains unfilled. With employee turnover, the company replaces the departing employee — keeping the size of its workforce the same.
What Are the Different Types of Employee Attrition?
There are 4 main types of employee attrition:
Voluntary attrition occurs when someone departs a company for personal or professional reasons, such as retirement, a cross-country move, health issues, or to accept a new job elsewhere.
Although this is the most common type of employee attrition, it can be a cause for concern, especially if employees are leaving en masse, which can be a sign of a toxic work environment, employee burnout, or bad management.
At any rate, when voluntary attrition is high, it’s well worth it for companies to conduct exit interviews with departing employees. Doing so can provide helpful insights into why people are leaving and with that information, an organization can develop a plan of action to improve employee retention.
One especially concerning HR problem is demographic-specific attrition. Demographic-specific attrition occurs when people from a certain demographic — such as women, older employees, ethnic minorities, veterans, or LGBTQ — leave an organization at a significantly higher rate than other employees.
This type of attrition can be an indicator of deep-seated issues within a company, such as systemic sexism or racism–both of which signify a corporate culture problem.
To resolve demographic-specific attrition, companies need to find out what’s causing it by deploying employee surveys and conducting exit interviews. However, once they’ve uncovered the reasons behind demographic-specific attrition, they’re only part way to resolving the problem.
Before they can expect to see improvement, they have to act on the information they uncover. While that may seem blindingly obvious, most HR executives (58%) when surveyed report that their companies don’t act on the data they receive from employee engagement surveys — or if they do, they only address the easy issues.
However, if companies fail to do anything about the information they’ve gathered, workers are likely to grow even more frustrated, which can worsen employee attrition.
Internal attrition means that employees are quitting jobs in one department to work in another one. Typically, internal attrition isn’t a cause for concern, since people are staying at the company, which indicates that they’re generally happy.
Also, internal attrition isn’t necessarily a bad thing, since experienced employees are still using their knowledge, skills, and abilities for the benefit of the organization. Furthermore, by switching departments, employees may find their new positions are a better fit, which can improve engagement, work output, and quality.
However, internal attrition can be an issue if throngs of employees are exiting one department or manager in particular. In such a case, HR needs to determine why by evaluating the answers to questions, like:
- Are there clear opportunities for advancement?
- What’s the manager like to work for?
- Do employees feel appreciated?
Once the cause has been determined, HR can develop a plan of action to address the issue.
With involuntary attrition, companies are responsible for letting workers go — employees don’t leave voluntarily. There are many different reasons companies might do this.
For instance, sometimes companies decide to eliminate a position for structural reasons. Other times, involuntary attrition is due to mergers, acquisitions, poor performance, or employee misconduct.
The most common reason for involuntary attrition is because a position’s been eliminated. In such cases, involuntary attrition is planned in advance.
By contrast, when an employee is let go due to poor performance or misconduct, the company usually doesn’t plan for involuntary attrition. Instead, the decision not to fill the position is usually made farther down the road.
What Causes Employee Attrition?
By now, perhaps you’re wondering how to predict employee attrition. While there’s no surefire method for doing so, there are certain factors that can contribute to employee attrition, such as:
- Low Unemployment
When the unemployment rate is low, it’s more difficult for businesses to attract and hire talented candidates. As a result, companies may stop trying to fill open positions and instead, eliminate them altogether.
- Toxic Work Environment
Toxic workplaces are typically rife with gossip, aggression, and pettiness. Take, for instance, this description of a toxic working environment, recounted by Susan Fowler in her book, Whistleblower:
“At Uber, every meeting had been a short painful skirmish, where managers and employees fought like starving dogs over a scrap of meat.”
As you can imagine, in an environment like the one Fowler described, employees tend to leave in droves. Worse, word gets out, and the company’s bad reputation makes replacing the employees who’ve departed that much more difficult.
- Company Relocations
Companies will often relocate to resolve supplier issues, take advantage of tax breaks, or to consolidate offices. When a company relocates, workers may decide to remain behind, even if their relocation expenses are covered.
- Mergers & Acquisitions
When two companies join forces, some positions become redundant — since there isn’t a need for two marketing managers, database administrators, or graphic designers. As a result, companies often lay off employees after a merger or acquisition, without filling their positions.
A sizable percentage of the workforce consists of Baby Boomers on the brink of retirement. This is especially true of those industries where workers tend to skew older, like airlines, utilities, and insurance. Companies that employ a large number of Boomers can expect voluntary attrition to rise as more and more Baby Boomers retire.
- Poor Job Fit
Sometimes a person just isn’t a good fit for the job they’ve been hired to fill. For instance, maybe the role doesn’t match their strengths, perhaps they lack the temperament for the job, or the responsibilities are such that nobody could be successful in the role–which often occurs with newly created positions. Regardless of the reason, poor job fit can cause employees to feel bored, underutilized, and frustrated.
While a bad fit can be immediately apparent after someone’s been hired, in other cases, the duties of the position can change over time — making a once-strong match a poor fit some years later. In either case, when there’s a job fit mismatch, employee attrition increases.
- Lack of Growth Opportunities
A lack of growth opportunities is another factor that can affect employee attrition. If there’s no room at the top to grow, or there’s no clear path for moving up the corporate ladder, employees are more likely to seek greener pastures elsewhere.
How Is Employee Attrition Rate Calculated?
To calculate employee attrition rate, you’ll first want to pick a period of time to evaluate–such as a month, a quarter, or a year. Then, you’ll want to perform the following calculations:
- Determine how many employees you started with at the beginning of the period. For instance, let’s say that we’ve decided to calculate the employee attrition rate for one year and on January 1st, our company has 250 employees.
- The next step is to figure out how many employees you ended with when the period came to a close. Let’s say that our company has 400 employees on December 31st.
- Next, you’ll want to determine the average number of employees during the period you’re measuring. To do this, simply add your starting and ending number of employees, then divide by 2. So, in this case, our average number of employees is (400+250)/2, which equals 325.
- Over the course of the year, you’ll also want to calculate the number of employees who left, due to both voluntary and involuntary attrition. For the sake of our example, let’s say that 75 people left over the year.
To calculate the attrition rate, we’d divide the number of employees who left by the average number of employees, then multiply by 100, which would give us the following equation (75 ÷ 325) x 100. So, in this example, our employee attrition rate is 23.08%.Attrition Rate (%): 100 X (# of Employees Who Left/Average # of Employees)
What Is a Good Employee Attrition Rate?
Great question. Although there are no hard and fast rules, a general guideline is that companies should aim to keep their employee attrition rate below 10%. However, keep in mind that a good employee attrition rate can vary from company to company, as well as from industry to industry.
That’s why it’s useful to track your employee attrition rate over time, rather than just relying on a one-time snapshot. Then, if you noticed your employee attrition rate consistently increasing, you could reasonably assume there’s a problem meriting further investigation.
What Are the Risks of Employee Attrition?
Employee attrition is something that companies need to take seriously. To illustrate why it’s important, let’s take a look at the typical risks companies face when they have employee attrition issues.
- Inexperienced Staff
When workers leave a company and aren’t replaced, the employees who remain are forced to pick up the slack and take on additional work duties. Because these employees are less experienced, they’re more likely to make mistakes and fulfill these responsibilities slower than someone with more experience might.
- Employee Burnout
Employees may feel overworked if they’re forced to assume additional responsibilities–making them prone to burnout, which is associated with disengagement, increased absenteeism, and lower productivity.
- Employee Turnover
Employees who are forced to take on more work may be more inclined to leave themselves. This can cost companies a significant amount of money as now they’re forced to recruit, hire, and train new employees to replace those who are leaving.
- Unhappy Customers
Inexperienced staff, employee burnout, and high turnover don’t just affect the internal workings of a company. They can also affect customer satisfaction. As a result, customers may be inclined to take their business elsewhere.
- Lower Productivity
When a company has a high employee attrition rate, there are less workers to get things done. As a result, productivity declines, which can ultimately affect a company’s long-term performance and goals.
Is Employee Attrition Always “Bad”?
Interestingly enough, employee attrition isn’t always undesirable. In fact, sometimes it can be a good thing, such as when it …
- Improves Corporate Culture
If a company’s employee attrition rate is high due to a toxic working environment, leadership may decide to make sweeping changes. In such cases, employee attrition can be a catalyst for much-needed improvement.
- Increases Diversity
At businesses that have a high percentage of a certain demographic — such as men in the tech industry — employee attrition creates an opportunity for a more diverse workforce.
- Saves Money
Sometimes companies are looking to save money but don’t want to resort to layoffs. In such cases, employee attrition can be beneficial, since it gives companies the opportunity to reduce labor expenses without having to lay employees off.
- Removes Weak Performers
Attrition can also be beneficial when those leaving the company are underperformers. Not only does their absence have less impact on a company’s productivity, but it can also improve the morale of those who are happy to see the deadweights gone.
- Aligns with Company Goals
Companies may want to make changes, for instance, by eliminating a product line or reorganizing the corporate structure. In cases such as these, employee attrition may actually align with company goals.
How Can Companies Reduce Employee Attrition?
There are several things companies can do to reduce voluntary employee attrition, including:
- Offer More Flexibility
More so than ever before, employees are seeking flexibility in the workplace. There’s an increasing desire for flex-time, as well as the opportunity to work remotely.
Since a whopping 80% of employees say they’d be more loyal to an employer who offered flexible working options, this is a great place to start if you want to prevent or reduce employee attrition.,/p>
- Train Managers
Managers play a big role in how happy (or not) employees are at work — which is why it’s worth investing in management training, so managers possess important interpersonal skills like active listening, constructive criticism, and that oh-so-important managerial asset, emotional intelligence.
- Benchmark Salaries
Salary benchmarking helps companies assess whether the wages they’re offering are competitive. If they aren’t, companies may struggle with employee attrition.
However, by making sure employees are fairly compensated, companies will find it easier to retain workers. And, as an added benefit, they’ll also improve employee morale and satisfaction.
- Create Better Job Descriptions
To reduce employee attrition, you want to get the right person in the right role from the get-go. One way to do that is by creating more accurate job descriptions.
The best job descriptions explain the responsibilities of the job, required skills, working conditions, and information about the company culture itself, so potential candidates can accurately assess whether they’d be a good fit.
- Hire from Within
Workers are more likely to seek out a new employer if there aren’t any opportunities for growth in their current role. One way companies can avoid this is by improving internal hiring practices, for instance by developing an internal hiring policy and creating an internal job board.
Ideally, companies will also provide employees with development opportunities, so they have the skills they need, should a position become available that they’re interested in.
- Survey Employees
To reduce employee attrition, it’s worthwhile to annually survey workers to assess how happy they are. By doing so, employers can measure engagement, then make improvements if necessary to improve morale.
- Evaluate Employee Benefits
Interestingly enough, satisfaction with benefits is strongly correlated to job satisfaction. According to one survey, 59% of workers who are extremely satisfied with their benefits are also extremely satisfied with their job–compared to just 18% who are very satisfied with their benefits or 8% who aren’t satisfied with their benefits.
With benefits playing such a huge role in job satisfaction, companies should regularly assess whether their benefits plan is meeting employees’ needs, so they can make adjustments if necessary.
With employee attrition on the rise, company leadership has become increasingly concerned about the issue. Fortunately, there are a number of steps that companies can take to reduce employee attrition rates.
Perhaps the most important among them, however, is to be proactive. By acting before there’s an employee attrition problem, companies can help safeguard against it. As this quote suggests, “Initiate the preservation process when the person is still in love with the place, not when they are fed up and ready to leave.”
For some great suggestions on how you can do that, check out our blog post, 7 Secrets to Keeping Employees Happy.