Mastering Employee Attrition: A Guide for Calculation, Analysis, and Strategy

Employee attrition, also known as turnover, is one of the critical workforce metrics HR professionals and leaders need to understand. With a growing and demanding set of employees, attrition has been on the rise. Higher rate of attrition impacts productivity, harms work culture, and hinders employee branding.

As the war for talent rages on, mastering attrition rate analysis and implementing retention strategies has become crucial. This helps in maintaining a healthy, engaged workforce that drives business success.

This comprehensive guide will clarify exactly what it means, and everything related to it. Let's dive in.

Attrition Rate Meaning

In simple terms, attrition rate refers to the rate at which employees voluntarily leave an organization over a set period. It is expressed as a percentage that compares the number of employees who left to the average number of total employees over that period.

Attrition and turnover may be used interchangeably at times. However, subtle differences exist between both. Turnover considers the total number of employees leaving voluntarily and involuntarily as well. On the other hand, attrition rate focuses on voluntary turnover.

But what are the key differences? Let us look at it.

Attrition vs. Turnover: Key Differences

As an HR professional you need to have a clear understanding between attrition and turnover. Let's clarify the key differences that signify both:

• Attrition only accounts for voluntary employee departures, while turnover considers both voluntary exits and involuntary exits.

• Factors causing attrition are often within the organization's control, such as work culture or career growth. Involuntary turnover may result from poor performance or broader economic factors.

• Managing attrition involves enhancing strategies to engage and retain top talent. Managing turnover requires broader workforce planning and financial considerations when job eliminations occur.

Having a clear understanding of how both differ will help you with a more strategic approach. In the long run organizations can mitigate the problems related to both turnover and attrition. This will enable leaders to retain the prized employees and work on developing the potential ones.

Calculating Attrition Rate

You now have a fair idea about the differences between attrition rate and turnover. The next step is to explore how you can calculate attrition. Tracking this metric over time gives you valuable insights that can inform strategic retention initiatives.

How to Calculate Attrition Rate

The standard formula to calculate monthly or yearly attrition rate is:

For example, if a 400 person company lost 20 employees who quit voluntarily over the past year, the annual attrition rate would be:

To track attrition month-over-month or make quarterly comparisons, simply adjust the formula to consider the average headcount and number of voluntary departures over that shorter timeframe.

It is best practice to remove certain employee groups like seasonal, temporary or contract workers when calculating attrition rate for more meaningful insights. The key is consistency in how it is measured over time.

To make things easier, we have added an attrition rate calculator so that you can keep check of your organization's attrition percentage

The attrition rate calculation will solely depend on the management and how they want to work on the organizational flaws to improve the bottom line. You can calculate the attrition rate-

• Monthly.

• Quarterly.

• Yearly.

1. Monthly

To calculate the attrition rate of any given month, you will first need to know the total number of employees of that particular month. After that, you will need to have the total number of employees recruited that month, and finally, you need to have the number of employees left on that particular month.

The percentage which you will get will be the attrition rate of that particular month.

Scenario 1-

• An organization has 100 employees for August 2020. During that month, 10 employees left voluntarily, and the company hired 20 new employees.

• Now, calculate the average number of employees of the company where they started with 100 employees. If 10 left and 20 were hired, then the new number will be 110.

• Then the average number of employees for that particular month will be (100+110/2)=105.

• In this step, apply the attrition rate formula since we have the number of employees that left the organization and the average number of employees. Upon placing the numbers in the formula, we will get the attrition rate.

  10/105 * 100=9.52

Hence, the organization has an attrition rate of 9.52% for August.

2. Quarterly

For the quarterly calculation of the attrition rate, you will use the same formula. However, instead of one-month data, organizations will be using the quarterly data to find out the attrition.

Let us take the third quarter of the calendar year, which consists of July, August, September.

Scenario 2-

• At the start of July, the number of employees was 150. Over this period, 20 employees left, and you hired 30. Therefore, the number of employees at the ending of the quarter will be 150-20+30= 160.

• The average number of employees for the third quarter will be (150+160)/2=155.

• Therefore, the attrition rate for the third quarter will be,

  20/155 * 100=12.90

Hence, the organization has an attrition rate of 12.90% for the third quarter of the calendar year.

3. Yearly

Yearly calculation of the attrition rate requires the same formula as you did for the monthly and quarterly attrition calculation. However, instead of using the monthly or quarterly data, you will be using the organization’s annual data.

Scenario 3-

• Suppose an organization started the year with 200 employees. Over the whole course of the year, 40 employees left the organization and 50 new hires.

• The number of employees at the end of the year will be 200-40+50=210.

• Average number of employees for the year will be (200+210)/2=205.

• Therefore, the attrition rate for the whole year will be,

  40/205 * 100=19.51

Hence, the organization has an attrition rate of 19.51% for the whole year.

Key Takeaways from the three scenarios discussed above-

• The attrition rate of all the examples discussed above is relatively high. The first scenario has the lowest attrition rate, the second scenario with a moderate attrition rate, and the third scenario having the highest attrition rate.

• Attrition rates are subjective, depending upon the performance levels of employees. If the leaving employees were below par performers, we could say that the attrition rate was positive. However, if the leaving employees were good performers, we can term it a negative attrition rate.

• With the percentage of attrition, the management can quickly figure out things that need to change internally to reduce the attrition rate.

• A higher attrition rate can significantly damage an organization’s branding, leading to revenue loss and key employees.

• Although each calculation’s time frame is different, however, the concept of attrition is the same and can be applied to improve the organization for a better future.

Types of Attrition

Before exploring the strategies to mitigate attrition, it is crucial to understand the various types. The causes and solutions differ significantly as different employees leave due to various reasons.

Categories of Attrition

Below are the four major categories of attrition that HR professionals need to know:

1. Internal Attrition: When employees leave one department or location of a company to join another. This does not affect overall headcount but does create openings, nonetheless.

2. Voluntary Attrition: The most common category, when employees freely choose to resign from the company. The reasons may vary but according to 74% of HR professionals inadequate compensation altogether due to any number of push or pull factors.

3. Involuntary Attrition: Encompasses company-initiated terminations and layoffs that lead to an employee's exit. As we established earlier, this is accounted for in turnover rate but not attrition rate.

4. Demographic Attrition: When specific demographic groups, such as Millennials or working parents, leave at particularly high rates. It is critical to understand this type of attrition with a strategic approach. It will help in tackling the issue and help in damage limitation.

Impact of High Attrition Rates

Understanding the impact of attrition rates can help you mitigate the issue. It will also help you garner fresh perspective about attrition and prepare you for the future. The focus here is to figure out any underlying problems within the organization or work culture and work on them. This will enhance your organization’s capabilities and increase retention rates. Problems that trigger abnormally high attrition may include:

• Poor hiring practices and onboarding processes

• Lack of opportunities for career development

• Minimal training and learning options

• Negative workplace culture and employee experience

• Limited internal mobility and growth paths

• Uncompetitive compensation and benefits

Why Tracking Attrition Rates Matter

The Strategic Importance of Attrition Metrics

Calculating, tracking, and benchmarking your organization's attrition metrics provides pivotal data to manage it. Here are some of the reasons it pays to have a finger on the pulse of resignation drivers within your workforce:

1. Identify capability and skill gaps needing investment: Are software engineers leaving at higher rates than average? If that is the case, then you need to ramp up training programs and upskill existing talent.

2. Discover which teams or managers have cultural issues: Do certain divisions or locations see higher regrettable attrition compared to others? Then the problem might exist with leadership, culture or support systems for those groups.

3. Understand regrettable vs unavoidable attrition: Some levels of attrition are healthy, some are harmful. Distinguish between the two to allocate retention budgets wisely to motivated top-performers.

4. Benchmark employer competitiveness externally: How does your attrition rate stack up against industry peers? Use benchmarks to calibrate compensation, benefits, and cultural strengths against talent competitors.

Besides identifying trouble spots, monitoring attrition rate changes over time. This can also reveal positive impacts from HR initiatives targeted at retention and advancement. The ability to correlate introducing new learning programs or policies around internal mobility demonstrates direct ROI on those investments.

Beyond Numbers: What Attrition Rates Reveal About Your Organization

Attrition numbers are more than just metrics - they're a window into the soul of your workplace. When those percentages spike, it's a blazing neon sign that something isn't right under the surface. Here's what those figures could be telling you:

1) A Distance from Leadership

High attrition indicates a breakdown in trust between employees and the company's leaders. People depart when they lose trust in the leadership's vision, competence, and commitment to transparency. Exit interviews reflecting emotions of being underappreciated and out of the loop highlight the gap. There is a discord between those at the top and those doing the work daily.

2) Absence of Belonging

Attrition analysis uncovers teams or groups departing at an alarming rate. Keeping a close eye on them is crucial. It exposes a lack of belonging and collaboration across the workplace. People thrive in environments allowing them to connect with others. On the other hand, isloation and silos force talent out of the workplace.

3) A Chance To Level Up...Or Not

Ambitious and hungry employees pave their way out when they don’t see paths to expand their skills. The same can be said if the responsibilities are not well defined to them. As humans, we are curious creatures. We will never grow if we never face challenges while we succumb to disillusion. The employees need challenges to test themselves. Clear learning opportunities are oxygen for the career-driven spirit. And if that is absent then the leaders need to re-evaluate this area and come with fresh perspectives.

Read more: Why The Habit Of Continuous Learning Is Important

4) Running on Fumes

Let's be real - when the resignation pile gets too high, it means people have hit a breaking point. This signifies that the employees are burning out due to unsustainable workloads. It is also an indication that there is a lack of work-life balance which takes a massive mental and physical toll. This hints that the work culture is not employee centric and needs to be changed in priority.

5) When Talk Isn't Walking

Low attrition paired with positive employee sentiment means the organization is living up to its cultural promise. People genuinely feel valued, invested in, and inspired by those around them. Their actual experience aligns with the hype about supporting the whole human. While the ones that leave find it difficult to align themselves. This can be subjective as it may be a win-win situation for both parties involved.

Identifying the Drivers: What Influences Attrition Rates

Reasons for voluntary turnover vary across different organizations, industries and even different generations of employees. There are several common themes that fuels attrition if not properly managed. These include:

- Compensation & Benefits Satisfaction: Do employees feel their pay packages and medical/other benefits are fair, competitive and meet their needs? If not, then employees will look for better benefits and leave the organization.

- Growth & Development Opportunities: Does the organization actively invest in developing employees’ skills, offer formal training programs, and provide clear progression framework outlining career paths? If there is an absence of development, then chances are higher that employees will exit the organization.

Recommended Resource: The Ultimate Guide To Employee Development In 2024

- Leadership & Culture: Do employees feel genuinely inspired by, recognized and valued by their direct managers and senior leaders for their unique skills and contributions? Is the culture overly political or competitive?

- Burnout & Stress Levels: Is excessive workload expectation and an intense, always "on" workplace culture leading to unsustainable stress levels and work-life imbalance? If yes, then it can escalate poor employee well-being. This in return will drive the employees to look for a work culture that cares for their well-being.

Getting to the heart of what matters most to their specific employee population allows HR to identify the most impactful interventions to reduce regrettable turnover. This requires analyzing both quantitative turnover metrics and sentiment data from exit interviews and anonymous engagement surveys. This offers qualitative insights into why employees choose to stay or leave.

Best Practices for Reducing Attrition and Enhancing Retention

HR leaders have an extensive toolbox of talent initiatives to pull from to address attrition drivers. Thoughtfully selected interventions should provide maximum value for employees based on analyzed pain points while aligning to business priorities. Examples of powerful solutions include:

• Compensation Benchmarking & Adjustments: Conduct salary and benefits benchmarking analyzes to objectively assess and correct pay gaps for critical roles. Top performers expect to be compensated competitively so ensure compensation reflects their market value.

• Formal Training Programs: Invest in expanding skills development and learning opportunities. It can be done through on-demand online courses, instructor-led workshops, external conferences and more. Employees that feel stagnant leave so setting learning goals and budgets empowers talent.

• Mentorships & Succession Planning: Pair emerging leaders with executive mentors and implement programs like job shadowing to develop next generation managers. Document clear paths for advancement so ambitious team members can visualize growing within the organization.

• Leadership Development & Coaching: Strengthen team leader capability with people management toolkits on giving constructive feedback, holding career conversations, developing team charters guiding principles. Even strong individual contributors may struggle supporting others without help.

• Flexible Work Options: Support work-life harmony and family care needs by offering flex time and condensed schedules. Also provide remote working options and generous family leave whenever there is a need. Such flexibility allows balancing personal and professional priorities.

• Wellness Benefits & Stress Management: Invest in comprehensive wellbeing benefits like employee assistance programs, mental health resources, office perks and much more. Burnout recovery is critical in mitigating attrition. This will enable you to focus more on the employees and cater to their needs.

Best Practices for Managing Employee Exits

When talented employees depart, thoughtful offboarding processes not only smooth transitions but uphold the employer brand:

• Exit Interviews: Uncover why talent is leaving through constructive conversations exploring resignation drivers and experience gaps. Third party administered interviews encourage candid insights which are vital.

• Knowledge Transfer Documentation: Enable departing staff to capture job-critical information and know-how to ensure continuity for team members. This preserves institutional knowledge and helps the existing employees to carry on with the work.

• Positive Framing of Departures: Respectfully acknowledge departing employees’ contributions and frame it as an opportunity for growth on both sides. Position changes calmly to avoid detrimental morale impacts on remaining staff.

• Alumni Engagement: Keep departed employees updated through company newsletters and LinkedIn connections. They become talent brand ambassadors with time and may even boomerang back!

Embracing Attrition as an Opportunity

While reducing regrettable attrition remains key, accepting some regular refreshment of teams with new skills, fresh perspectives and rising stars supports continual evolution. Budgeting strategically for some level of attrition rather than fighting it at all costs enables redirecting funds towards elevating retained, high potential employees too. Leaders must pivot to view attrition not purely as a negative challenge but an ongoing opportunity - one that with proper mastery ultimately elevates organizational agility, innovation and performance.

Mrinmoy Rabha is a content writer and digital marketer at Vantage Circle. He is an avid follower of football and passionate about singing. For any related queries, contact editor@vantagecircle.com