T A L E N X

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People are the lifeblood of an organization. Companies need employees who are fit to do their work. But there’s a reality that every organization, big or small, has to face: movement within the workforce and teams is inevitable. Employees come, and employees go. They come into a job, learn various aspects and gain experience from it, and decide to leave if other opportunities arise. Such a thing does not necessarily imply that the company has some problematic patterns. But in other cases, a company may have inherent problems that cause its staff members to leave. That’s where attrition in HR may emerge as a noteworthy concern.

Employee attrition is a situation that occurs when there is a reduction in the number of staff members over time, owing to certain unavoidable reasons. Employees may resign from work due to retirement or other personal reasons. Some cases of attrition become unavoidable for an organization. For example, an employee may quit his or her job when he or she attains their retirement or is shifting base to another city.

However, there’s a certain threshold at which people leaving the workforce can pose a problem for the organization. Such shifts within teams can seriously affect the bottom line of the company as well as its workplace culture. That’s because the position that the employee vacates may not always be possible to be replaced immediately. For instance, attrition among employees belonging to minority groups could affect the diversity of the organization. Senior leaders of a company, when they leave their position, can create a huge gap in its leadership—something that can bring down an organization’s motivation and morale.

A typical case of employee attrition can be understood from the fact that employees of the company are leaving faster than hiring is taking place, which is sometimes beyond the control of the employers. Take, for instance, an organization that opens a new office that’s supposed to be the customer service hub and requires all customer service executives to work from this office. However, a few of them are unable to relocate, and hence they decide to leave the organization. This constitutes a typical case of attrition.

There are other causes of employee attrition that are discussed later in this article.

What does the attrition rate mean?

Now that you have an understanding of what is attrition in HR, it’s time to know the definition of the attrition rate. The attrition rate measures the number of people who have left the organization or department or office as compared to the average hiring that took place in a particular year. To simply put the meaning of the attrition rate, it is the rate at which employees leave the company.

The formula to compute a company’s attrition rate is as follows:

Attrition Rate = Number of Attritions/Average Number of Employees x 100

Here’s a step-by-step process to calculate a company’s attrition rate:

  1. Do a headcount of the number of employees that the company started with right at the starting of the year. We can take an arbitrary number as 1,000.
  2. Keep a tab on the number of employees who leave the organization throughout the year. For example, 200 people left their job because of different reasons, both voluntary and involuntary.
  3. Keep track of the new hiring that takes place throughout the year. Finally, conduct a headcount of employees at the end of the year. For example, 400 people were hired throughout the year, meaning the final headcount of people is 1,400.
  4. Next, you need to see the average number of staff members for that particular year. Given the numbers above, the average will be 1200 [(1000+1400)/2]
  5. Finally, you need to calculate the number of people who quit their job as a percentage rate of the average number of employees. This is (200/1200) x100, which equals to 16.66%. Therefore, the attrition rate of the company is 16.66%.

From the above steps, it becomes clear that the effect of employee attrition for a company cannot be balanced out by hiring more employees. As such, the calculation of the attrition rate is quite an important task for the organization to know where they stand in terms of human capital.

The difference between staff attrition in HR and staff turnover

Staff Attrition

Staff attrition is the reduction in the number of employees due to reasons like resignation, retirement, personal health issues, removal of a role or position, or any other natural reasons.

Staff Turnover

Staff turnover is the loss of employees, either voluntarily or involuntarily, with the objective of the organization to fill the vacancy in the position.

Types

  1. Voluntary attrition: This can take place when employees decide to leave their position voluntarily.
  2. Involuntary attrition: This can take place when an employee(s) displays behaviors that are against the company’s culture or the organization merges with or gets acquired by another organization.
  3. Retirement: This can take place when senior employees retire from their position.
  4. Demographic attrition: This can take place when members of a specific group leave their job in large numbers.
  5. Voluntary turnover: This can take place when employees decide to quit their positions if they get better job opportunities elsewhere, or when they feel there’s a lack of growth opportunities in their current role.
  6. Involuntary turnover: This can take place when an employee(s) gets fired or terminated from their position owing to misconduct, behavioral issues, or under-performance.

Pros

  1. Attrition can reduce costs in the face of financial turmoil.
  2. The departure of an employee is considered more cordial or amicable.
  3. Staff attrition indirectly helps an organization improve the workplace culture by weeding out people who tend to think negatively and work against the culture of the organization.
  4. An organization can boost the efficiency and performance of the team and the workforce at large when some employees leave the job. This can translate to lowered costs and more satisfied clients/customers.
  5. The organization can benefit from staff turnover if a poor-performing or troublesome employee decides to quit the job.
  6. Staff turnover may provide an opportunity before an organization to hire a person who is more suited to the job or position.
  7. An organization can get fresh perspectives from the new blood that may come in after existing, one-way-thinking staff leave their job.
  8. It may provide opportunities to lower the pay for some positions and revise the pay structure to achieve cost efficiencies.

Cons

  1. Staff attrition can lead to a considerable reduction in the size of the overall workforce of an organization.
  2. A reduction in the number of people can mean there will be an increase in the workload for people who stay back.
  3. Staff attrition can increase costs associated with paying existing employees, hiring new employees, as well as training them.
  4. Since providing sufficient training to new hires can become an issue with attrition, the organization might witness a decline in its overall performance.
  5. High staff attrition rates may paint a negative image of the organization.
  6. Increased staff turnover can increase the workload on existing employees—something that can bring down motivation, productivity, and efficiency of the overall workforce.
  7. Staff turnover can impede the efforts of an organization to build and maintain consistent, amicable workplace culture.
  8. It puts excess pressure on HR to conduct onboarding and training activities.
  9. High turnover rates may indicate some issues prevailing in the company, thereby negatively impacting its brand image in the market.

Common causes of attrition

After understanding the meaning of attrition in HR and the calculation of the attrition rate, it’s time to know some of the causes that lead to the situation. There are quite a few other reasons that lead to employee attrition. Let’s check them out here:

  1. Lack of work-life balance: There are times when an organization expects one person to do the job of two employees due to increasing economic pressure. Typical situations when this can happen are restructuring the organization or downsizing due to losses. When this happens, there’s a heavy toll that employees have to pay in terms of their health and personal life. They have to put in longer hours at work and sacrifice valuable time with their family and social circles. Today, the millennial generation is seen to face the brunt of increasing workloads and stress levels—something that pushes them to look for better job opportunities that help them strike a balance between their personal and professional lives.
  2. Workplace hostility: No employee would want to work under a dominating boss or manager, or a coworker that puts them in trouble always. A job that exposes them to indignities brings down their productivity—something that makes them quit their job outright. Every employee wants to feel belonged and appreciated by everyone at work, and any lack of these aspects forces them to leave the organization.
  3. Lack of career development and feedback: Today, employees, especially millennials, crave feedback from their seniors and managers. Plus, they look for constant career development opportunities to quest their hunger for knowledge and new skills. When an organization fails to meet these needs of employees, they get frustrated and hence, decide to quit their job.
  4. Job is below expectations: More often than not, initial job descriptions are different from what employees expected to do on the job. What’s promised to them during the job interview is different from what they discover on their first day at work. This is something that can cause employees to lose trust in the organization. When trust fades, they find no reason to be on the job.
  5. Lack of proper leadership: Leadership drives an organization towards growth and prosperity. Instability in this aspect can have a rippling effect across the organization and cause the entire dynamics to go haywire. If leaders of the organization fail to motivate employees and give them the opportunities they look for, then employees don’t see any point staying there. They would prefer to look out for a better job that also gives them higher pay.

Best practices to reduce employee attrition

Every organization needs to follow the tips below to keep their attrition rate as low as possible:

  1. Setting clear expectations: This starts right at the time of hiring an employee. Every new recruit deserves to know what is expected of them during their tenure in the company. HR managers should give a clear view of the company’s culture and clarify job roles in advance. They also need to use predictive talent management—something provided by TalenX—to make their hiring process more effective.
  2. Provide regular feedback: Instead of holding one-time, annual meetings, performance appraisals should become a regular practice. It’s only when employees get regular, real-time feedback that they will be able to improve their performance. Managers and seniors should keep a tab on employee satisfaction levels so that issues are addressed as and when they occur.
  3. Promote career growth: Besides ongoing feedback, it’s necessary for organizations to focus on upskilling activities. Regular training and development opportunities will help in filling critical skill gaps and expand employees’ knowledge base so that they can perform better at their jobs.
  4. Provide better pay packages: One of the main reasons why employees quit is low pay. As such, organizations should devise competitive pay packages compared to other companies so that employees are better motivated to stay in their jobs.
  5. Conduct exit interviews: Lastly, organizations should consider conducting an exit interview when employees leave the position. Doing so would reveal the loopholes in the company’s culture that has possibly made them quit the job, and thereby keep the attrition rate low.

Conclusion

Employee attrition isn’t a completely unavoidable problem for organizations. However, they can address it at the right time. Firstly, they need to compute the attrition rate so they can fully understand the issue and the causes behind it. They can then come up with a well-planned, data-driven process to reach out to new job candidates (using a solution like TalenX), engage them with different strategies, and retain them for a longer period of time.

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