Employee attrition

What is employee attrition?

Employee attrition refers to the situation where employees leave their positions within a company and are not replaced for a long time, if at all. This can occur naturally, for example, when employees retire or their contracts end, or it can be due to challenges faced by employees like inadequate compensation. Attrition also comes into play when a company introduces new technologies and automations that gradually take over employees' duties without hiring new staff to fill the resulting vacancies.

Although employee departure isn't inherently negative, it's important for HR departments to monitor it closely by observing the employee turnover rate. Research conducted in 2019 indicates that new companies (operating for less than a year) face the greatest challenges with employee departures, primarily because they are less attractive employers without a stable structure, strong brand, or adaptable HR policies. The more stable a company operates, the lower the turnover rate, influenced by the company’s organizational culture and established HR policies.

Difference between employee turnover and attrition

Employee turnover and employee attrition are distinct concepts. Turnover implies positions are refilled, allowing the company to continue growing. For instance, the hospitality industry frequently experiences high turnover rates but continues to operate effectively. However, a high attrition rate indicates a company is shrinking, reflecting weakening ties between employees and the company.

How to calculate employee attrition rate?

The attrition rate is calculated by dividing the number of employees who voluntarily left the company during a specific period (e.g., a year) by the average number of employees during the same period, and then multiplying the result by 100. The attrition rate is a percentage value.

Formula for employee attrition rate:

Employee Attrition Rate = (Number of Departures / Average Number of Employees) x 100

Example:

If your company has 1000 employees and 25 leave within a year, leaving their positions vacant:

25/1000 = 0.025

0.025 × 100 = 2.5%

Your attrition rate is 2.5%. If you decide not to fill these positions, the rate remains the same. However, if you plan to fill 10 of these positions:

15/1000 = 0.015

0.015 × 100 = 1.5%

Your attrition rate would then be 1.5%.

Understanding the attrition rate requires a broad perspective to grasp the situation's entirety. Key considerations include:

• Determining whether the attrition rate is changing and identifying the reasons behind these changes.
• Assessing if departures are predominantly occurring within a specific department or among a certain group of employees.
• Exploring the reasons employees cite during exit interviews for leaving.
• Comparing the attrition rate to the turnover rate to identify trends and implications.

Causes of employee attrition

Employees may leave for retirement or to join competitors, often because they've received an offer with higher pay and better career development opportunities. However, the final decision to leave typically involves multiple factors, including:

• Poorly organized management within the organization.
• Unclear professional development and promotion paths, or their absence.
• Communication problems and a toxic work environment.
• Lack of trust, integration, and cooperation within the team.
• Discrepancy between professional and private life, stress, and burnout.
• Lack of attractive employee benefits or benefits that don't meet employee needs.
• Absence of leadership.
• Inappropriate task management.
• Misalignment with the role.
• Lack of proper work tools.
• Personal issues.

Other factors, beyond voluntary employee decisions, also impact the attrition rate, such as:

• Labor market situation. Low unemployment levels make it difficult to find new employees, leaving vacancies unfilled longer than they should be.
• Competency gaps. When competent and qualified individuals leave a company, it creates a knowledge gap that takes time to fill, leaving vacancies open.
• Restructuring processes within the company. The uncertainty caused by company restructuring can encourage employees to change employers. Since filling positions during restructuring is a lengthy process, the attrition rate will increase.
• Financial problems of the company. Layoffs are often considered a remedy for high operational expenses.
• Changes in business strategy. Introducing a new business model, implementing new technologies, changing roles, restructuring the company, or utilizing outsourcing means reducing many job positions or halting recruitment for some until new HR policies are established.

Understanding and addressing these reasons can help organizations develop effective employee retention strategies, including enhancing their engagement.

Managing attrition strategies to retain employees

There are several tools a company can use to prevent voluntary employee departures or reduce the attrition rate, including:

• Regular basic salary increases.
• Monitoring employee satisfaction and engagement using tools like eNPS surveys.
• Improving internal communication through regular 1:1 meetings.
• Implementing gamification and recognition systems.
• Enhancing employee training and development systems.
• Improving working conditions, such as increasing workplace ergonomics.
• Expanding and customizing the range of non-wage benefits.
• Monitoring the job market for employee motivation, such as researching competitor salary levels.
• Implementing well-being programs, ensuring flexible schedules, or other solutions promoting work-life balance.
• Adopting modern technologies and streamlining work processes.

For these tools to effectively reduce the attrition rate, the company must have leaders who understand the individual motivations and needs of their team. They are responsible for integrating the team, creating a positive atmosphere, and ensuring a high level of engagement and satisfaction among employees. Moreover, supporting leaders by:

• Providing them with appropriate soft skills and leadership development training.
• Designing transparent promotion and compensation paths.
• Creating a positive and flexible work environment.
• Ensuring open communication.
• Refining the recruitment process and talent acquisition.
• Addressing current competency gaps in the team.

Although developing a strategy for retaining employees in a company may take several months, it not only helps to reduce the attrition rate but, most importantly, enhances your company's competitiveness in the industry and job market.