When a staff member leaves, it’s sad. When a number of them leave, it’s a concern, not only for your company, but also your company’s reputation.
Why’s that? The rate at which employees leave an organization points to a deeper problem within the organization. What’s more, it means that change is imminent. You see, any time your business loses an employee, it costs you both time and money. You have to go through the recruitment process, which entails sourcing and shortlisting candidates, planning for interviews, hiring, and training new staff. Of course, that’s not a cheap process.
However, even with effective hiring practices, a great working environment, and good company culture, the new generation of employees are always looking for better-paying jobs elsewhere. Eventually, employees will quit their jobs to work somewhere else or they’ll retire. Depending on how your employees leave the company, it can be termed as either employee attrition or employee turnover.
In a business setting, the terms attrition and turnover are both used to measure an organization’s health. Yet, oftentimes they are confused and even used interchangeably. While staff attrition and staff turnover both occur when an employee leaves a company, these two terms refer to different types of employee churn.
Depending on your approach, these metrics can have a positive or negative impact on your company.
Let’s take a look at their definitions, their impact on businesses, and remediation strategies.
What Is Employee Attrition?
Staff or employee attrition describes a gradual but deliberate reduction in the number of employees through a natural event or process, such as retirement or resignation. Other natural events that may lead to staff attrition include:
- Elimination of a position
- Personal health
- The passing away of an employee
- An employee leaving the company to go back to school
An organization may not have direct control over staff attrition (like the case of retirement). In other cases, an organization has direct control over employee attrition in efforts to reduce costs.
Examples: David has been working at AMC Group for 25 years and plans to retire later this year. AMC Group does not plan to replace him. In fact, they are eliminating the position altogether.
Another company, Inovet, has experienced heavy financial losses and has decided to lay off a few employees to cut down on costs. Mary is among those being laid off.
In both cases, the circumstances that led to employee attrition were unavoidable. In the first instance, natural events (retirement) took effect. While in the second scenario, the company had no choice but to try to survive the financial distress.
Employee attrition can be categorized into four main types, namely:
- Voluntary attrition – when a staff member leaves the company.
- Involuntary attrition – when an employee is fired from the company.
- Internal attrition – when employees move internally.
- Demographic attrition – when a specific group of employees (defined by age, ethnicity, gender, etc.) leave the company.
When voluntary and demographic attrition occurs, it should be a concern for the company because it may suggest structural issues within the organization. It could also point to a lack of employee satisfaction. As an employer or HR manager, having an idea of why the employee is leaving is a good place to start when managing employee attrition.
The Pros and Cons of Staff Attrition
Attrition is about how a company can implement a gradual, low impact strategy to a business plan to reduce costs. So, what are the benefits of employee attrition?
- Reduces labor costs. For a company facing financial distress, employee attrition helps to reduce costs. For example, when an employee retires and the position is eliminated, the headcount costs are reduced. This means that future expenses that might have been directed towards filling that vacancy will be avoided.
- Cordial departure. Employee attrition refers to that situation when an employee leaves for natural reasons. That said, it’s more likely that they will leave on good terms. While this might seem like a minor factor, it has a positive impact on office morale. For one, employees won’t be left reflecting if the exit of the employee was fair or just – unlike when an employee is terminated.
While employee attrition has its advantages, it also comes with several disadvantages:
- When an employee leaves, there’s automatically a reduction in the size and strength of the workforce.
- The job duties of the former staff member may have to be transferred to the remaining employees, and this might lead to overworking, eventually causing employee burnout.
- Employee burnout may lead to a lack of morale and motivation, decreasing in performance and productivity.
- Organizations and businesses may lose valuable employee skills, and this may hurt the overall growth of the organization.
- There’s a potential that a company might lose a few clients when an employee they preferred working with unexpectedly leaves the company, for example, due to death.
- Eliminating a position may cut short the possibility of promotion, therefore jeopardizing the career path of certain employees who were working hard to fill that role in the future. As such, with no promotion opportunities in the near future, the employee might seek employment elsewhere where there’s a chance of promotion.
- When one employee leaves a company and becomes successful in their new venture, it may create a domino effect for the remaining staff.
Employee Attrition Rate
Employee attrition may be expected or unexpected. One way to keep tabs on this recruitment metric is to monitor the employee attrition rate. The attrition rate is a metric used to measure the number of employees lost over a specific period who were not replaced. Also known as the churn rate, the term is often used to determine an organization’s ability to retain its staff.
The attrition rate is presented as a percentage compared to the total workforce. Its calculation is simple:
Attrition rate = the number of employees who have left the company / the number of employees over a specified period of time.
Let’s say you started 2019 with 25 employees in your organization, and by the end of 2019, you had 38 employees. During the year, 10 employees left. To calculate the attrition rate:
Annual attrition rate = 10 / (25 + 38) / 2 = 10 / 31.5 = 31.7 percent.
How to Manage Employee Attrition
A high attrition rate is not healthy for a company. The most important aspect is to identify the drivers of attrition. To do this, you need to:
- Communicate openly. Being honest and explaining the circumstances why the decision was made will make employees respect you more. You don’t want employees to make up their own version of the story.
- Assure the remaining employees that they are an essential part of the business, and they shouldn’t feel insecure.
- Ensure that employees have a sense of purpose. When employees find genuine meaning and purpose in their roles, it lowers the rate of attrition since they are motivated to do their jobs, and feel fulfilled.
- Offer support and assistance to the employees being laid off. Here’s a good example. After TravelBird, a Dutch travel startup, declared bankruptcy, the HR and management decided to compile a list of former employees with a short description of their expertise and role, including contact details. They later shared the information across professional networks like LinkedIn.
What Is Employee Turnover?
Staff turnover occurs when an employee leaves a company, and the company intends to fill the vacancy. Employee turnover may be voluntary or involuntary:
- Voluntary employee turnover describes when an employee leaves the company for reasons like poor pay, lack of promotion, toxic work environment, or for a better job offer.
- Involuntary employee turnover, on the other hand, refers to a scenario where an employee leaves a company after being fired for poor performance or behavioral issues. The decision is laden with the intent to replace them.
The Pros and Cons of Employee Turnover
- If an underperforming or problematic employee decides to leave the company instead of being fired, it will be beneficial for the company.
- It gives an organization the chance to hire a more experienced and qualified employee.
- The process of replacing employees is extremely costly.
- Building and maintaining a consistent company culture becomes difficult.
- Instead of focusing on growth, your organization will continuously direct its efforts, time, and resources to employee training and onboarding.
- Reduces the size and strength of your workforce, consequently affecting your company’s performance and productivity.
- A high turnover rate tarnishes your company’s reputation, and it may become difficult to attract top talent.
- The duties of the former employee may be transferred to the remaining workers, and this may lead to employee burnout.
Employee Turnover Rate
Turnover rate is the percentage of employees leaving an organization within a specific period of time. To calculate the monthly turnover rate, you take the number of separations during the month and divide the figure by the average number of employees. Just like the attrition rate, the turnover rate is expressed as a percentage.
Let’s say you started 2019 with 30 employees, and by the end of the year you have 40 employees, but five left during that year. Your annual turnover rate would be calculated as:
Annual turnover rate = 5 / (30 + 40 /2) x 100 = 5 / 35 = 12.8 percent.
According to Work Institute, the departure of each employee costs approximately one-third of that worker’s annual earnings. About 67 percent of the money goes to soft costs, which include interview time, lost knowledge, and reduced productivity. The remaining 33 percent goes to hard costs, such as recruiting, screening of potential candidates, and temp workers.
How to Manage Employee Turnover
Whatever you do, you must ensure that the employee turnover rate is low. To achieve that, here are some employee retention strategies that can help keep them engaged:
- Start by hiring the right people for the job.
- Offer employees desirable benefits packages like medical insurance, vacation time, and opportunities to grow.
- Make performance reviews and appraisal a company culture. This helps you to identify if workers are on track. You can achieve this by using various tools and programs. Traqq, for instance, lets you track and monitor employee’s performance and activity levels. It then presents the data in a neat timesheet that helps you to identify areas of strength and weakness. With such data, you can take the necessary steps to address areas of concern.
Traqq is also a project management software where you can check on the progress of each task. It even shows you which websites employees are spending most of their time on.
- Don’t forget to reward employees for work well done. You can do this by publicly acknowledging their achievements or by giving them cash rewards.
- Clearly communicate the company goals, vision, and mission. Additionally, keep lines of communication open and make sure each employee knows his or her roles and responsibilities, so they know what’s expected of them.
As an employer or HR manager, you must understand that there will always be employees who leave the company, no matter your efforts or retention strategies. The vital thing to do is to identify trends and patterns and try to make the necessary adjustments in your company. At the end of the day, the last thing that HR and management want is a high employee attrition rate and turnover rate.