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No matter what industry you are in, it’s normal for employees to come and go.
Some employees leave their job because they may have found a better job opportunity. Others leave because they’re retiring, they’ve been let go, or even due to illness.
Although they’re often used interchangeably, employee turnover is different from employee attrition.
But what is employee attrition? What does this mean for your business? And what can you do about it?
Here’s an in-depth look at employee attrition and how you can manage it within your organization.
What is employee attrition?
Employee attrition is the gradual reduction in employee numbers. Employee attrition happens when the size of your workforce diminishes over time. This means that employees are leaving faster than they are hired.
Employee attrition happens when employees retire, resign, or simply aren’t replaced.
Although employee attrition can be company-wide, it may also be confined to specific parts of a business. This is often the case when employees are replaced by automation or the adoption of new technologies.
Employee attrition can happen for several reasons. These include unhappiness about employee benefits or the pay structure, a lack of employee development opportunities, and even poor conditions in the workplace.
In a world where the skill sets required are constantly changing, some positions also become obsolete over time. As employees leave and a new future of work emerges, not every role is filled in the same cookie-cutter way.
With this, a new world of work means a new look at leadership.
In some cases, this is driven by a desire to modernize. In others, it’s due to a lack of skilled younger talent in certain industries and geographies.
Employee attrition also refers to the downsizing of an organization’s workforce. This means that attrition can be voluntary or involuntary.
Employee attrition can be problematic as it often reduces talent within the company and the workforce in general.
But employee attrition isn’t all bad.
It can be positive because it allows the company to identify and address problematic issues for its employees. For example, a high attrition rate could be from employees leaving due to a poor workplace culture. Only by investigating the reasons for this employee attrition can management make changes to improve the organization’s work culture for other employees.
While companies will usually try to avoid employee attrition, it can sometimes help cut down costs associated with labor. It can also attract new employees with fresh talent to organizations.
Types of employee attrition
There are three main types of employee attrition:
1. Involuntary attrition
Involuntary attrition happens when the company decides to part ways with the employee. Rather than the employee deciding to leave, it is the company’s decision to let go of the employee.
This can be due to:
- Position elimination
The most common example of involuntary attrition is when the company eliminates a specific position. This decision to remove a position could be to reduce staffing costs and stay financially afloat.
Even though this decision is made from a financial point of view, those in charge of decision-making must be mindful of the future. Instead of laying off employees, focusing on talent development through cross-training may be a better solution.
2. Voluntary attrition
Voluntary attrition happens when an employee decides to leave the company. This can be for many reasons.
Common reasons for voluntary attrition include:
- Accepting a new job offer
- Making a career change
- Moving across the country to be with family and loved ones
But the reasons can also be more regrettable, such as when an employee resigns from their job for ill-health reasons. Or even resignation to get out of a toxic work environment.
3. Retirement attrition
Retirement attrition happens when employees reach their stage in life for retirement.
If only a small percentage of employees retire from your company, this will not have a big effect. However, if a significant chunk of your workforce retires simultaneously, this can cause a high attrition rate.
What causes employee attrition?
For many, leaving a job is due to personal reasons. However, understanding tendencies and “leaving patterns” can be crucial for a company to understand. This is often the first step in preventing employee attrition in the future.
Let’s look at six common reasons for employee attrition:
1. Poor job satisfaction and pay
Job satisfaction and pay often go hand-in-hand. While employee satisfaction isn’t only about how much an employee is paid, few employees will be happy at their job without a competitive salary.
For many people, their wages have not kept up with inflation, their expectations, or both. Pay isn’t only the amount of money an employee gets to take home at the end of every month. It’s also measured by things like bonuses, annual increases, and other financial incentives. These all contribute to financial security, which is an important part of financial wellness.
From an employer’s point of view, it’s important to keep in mind the high cost of replacing an employee. The cost of replacing an individual employee can range from 1/2 to two times the employee's annual salary.
2. Not enough career opportunities
But the opposite is also true. When companies don’t invest in employees’ career paths, they may leave in search of greener pastures.
Because in-house career opportunities aren't always possible, you can offer sabbaticals or reskilling opportunities instead.
3. Poor workplace culture
Workplace culture has a resounding effect on employee attrition.
Every company has its own set of rules (both written and unwritten), attitudes, and core values that make up its unique company culture. If the culture doesn’t resonate with an employee’s workplace values, they are more likely to leave.
This is why a company must set its cultural tone very early on.
4. Lack of employee motivation
Having motivated employees reduces absenteeism and increases employee retention. It can also improve relations between management and employees.
5. Poor work-life balance
When employees feel as though they have a positive work-life balance, they’ll enjoy greater job satisfaction. As a result, they are more likely to stay at their company.
Having a balance between work life and home life makes people happy and promotes mental well-being and mental fitness. Companies need to make this balance a central part of the human resource strategy.
6. Not fitting in and feeling a sense of belonging
Research shows that fostering a sense of belonging within the workplace can lead to a 50% lower risk of turnover.
Employee attrition vs. employee turnover
Although similar, employee attrition and employee turnover are not the same.
The biggest difference between employee attrition and employee turnover is that turnover takes into account all terminations. This includes positions that are refilled.
On the other hand, employee attrition includes all long-term vacancies and position eliminations.
For this reason, it’s possible to have high employee turnover rates and still have a growing company. But if your attrition rates are consistently high, your company is likely shrinking in size.
How to calculate employee attrition rate
Calculating a company’s employee attrition rate is fairly easy. Below is a practical example:
- To start, find the average number of employees. We’ll use 95 people for the purpose of our example.
- Next, let’s work on an average by month.
- Now, consider the number of employees who left unfilled positions over the course of the particular month. For our example, we will use 8. Now divide 8 by 95 to reach the average headcount: 0.0842.
- Next, multiply this average by 100 = 8.42%.
It’s important to consider this percentage within the context of your own organization. Take into consideration how this rate has developed when compared year-on-year or month-to-month.
You can also consider attrition rates by specific departments. Even though a company may have a low overall attrition rate, one specific department could be losing employees while another keeps on growing.
How to control employee attrition
Even the biggest and best companies in the world experience some degree of employee attrition. It’s a natural evolution that will always be present. It’s estimated that, on average, a company will lose 18% of its workforce annually.
This doesn’t bode well for businesses, especially in light of the war for talent that’s starting to emerge. Many employees have recognized their worth and are prepared to jump ship for better opportunities. They also won’t settle for working conditions that no longer benefit them.
For businesses, there’s another side to attrition. The phasing out of a job role doesn’t always have to mean the loss of an employee. Valued, loyal talent with institutional knowledge might welcome new training opportunities.
The key is to look down the pipeline well in advance and inform employees of potential opportunities.
Schneider Electric is a great example of a company that looked inward and created its own talent marketplace for employees. They use their company as a talent network and focus on retaining staff and reskilling them to fill new roles.
The argument for reducing employee attrition and turnover is multifaceted, but the cost is a major factor. When an employee leaves, the cost implication can be enormous.
Below are some of the best ways to control employee attrition:
1. Ensure employee recognition
Employees want to know they’re appreciated and that their hard work is seen and recognized. Meaningful recognition boosts employee morale and drives employee engagement. Engaged employees are less likely to look for alternative job opportunities.
2. Offer training and development programs
Promoting professional growth is important, and employees who feel the company has invested in them are less likely to leave. It also means that if their jobs become obsolete, the Schneider Electric model of looking inward and upskilling existing talent is easily implemented.
3. Focus on employee well-being
4. Ask for and give feedback
Employees that feel heard also feel appreciated. Actively asking for feedback and supplying it (in a positive, constructive way) boosts employee satisfaction.
5. Contribute to career growth and planning
Investing in employees’ futures and facilitating growth promotes loyalty and reduces turnover. Creating a career plan that includes the company highlights an employee's future if they remain on board.
6. Ensure proper employee benefits
Employees want more than just a paycheck. They want benefits and perks that add real value to their lives. The most sought-after benefits include:
- Health insurance
- Paid time off
- Disability and life insurance
- Flexible and remote working options
7. Create flexible work models to keep valued talent engaged in some capacity
Remote work has changed how we view working hours, and flexibility is the new buzzword.
Creating a flexible working model can also reduce attrition if you apply some creativity. For example, you can keep older workers on part-time as mentors or trainers. Or you can welcome working mothers back with more creative options to on-ramp and off-ramp.
8. Conduct thorough exit surveys
Conducting thorough exit interviews provides greater insight into why an employee is leaving and what didn’t work. It’s the ultimate way of learning from mistakes and bringing insights to leaders to rectify the issues so that they don’t reoccur.
9. Create and engage an alumni network
An alumni network creates an extended workforce of contractors and potential return employees. A thriving alumni network is a great advertisement for your business. Plus, they’re more likely to refer others to your company as new hires.
Reduce your employee attrition rate
Reducing your employee attrition rate isn’t always easy, but it is certainly possible.
The trick is to know your employees. Be aware of their personal aspirations and dreams and run your organization with a human touch. An appreciated and rewarded employee is a happy one — and is much less likely to leave.
Get in touch with BetterUp to learn more about how to reduce employee attrition and lower staff turnover. We can help you create an environment where employees thrive — and where they want to remain long-term.