Change happens, whether we like it or not. An organisation’s staff one year is seldom the same as it was the year prior. Some employees will be fired, while others may just choose to move on. Because of this, attrition (the loss of staff members) is an inevitable reality for all businesses to deal with.
If the rate at which your employee headcount is reducing is too large, it can be detrimental to company productivity. If you don’t know how to determine your business’ attrition rate, then this article is for you. We’ll teach you how to calculate it and show you why keeping a healthy attrition rate matters.
What is Attrition Rate, and Why Does it Matter?
Attrition rate is a metric used to measure the pace at which employees are lost over a set period of time. It’s also sometimes known as employee turnover rate or churn rate. Attrition accounts for employees who leave either voluntarily (i.e. resignation, retirement, or promotion) or involuntarily (i.e. termination). Human resources employees often use the employee attrition rate to forecast the number of expected job vacancies within the organisation.
Companies often ignore staff churn because they view it as a mere coincidence. However, an unusually high one is usually indicative of an underlying organisational issue. Some common issues that often lead to high attrition include:
- Inadequate benefits or pay rate
- Subpar management
- Insufficient recruitment or training strategies
- Oversized workloads
- Poor work culture
- Lack of advancement opportunities
When a company discovers that staff churn is trending in the wrong direction, its managers will need to make substantial systematic changes within the organisation.
Staff turnover isn’t always a bad thing. Letting go of underperforming employees can lead to productivity increases and boost employee morale. A healthy attrition rate will also vary depending on the industry the company is in; a high employee turnover for one company may be a low turnover for another.
How to Calculate Attrition Rate
The formula for calculating your attrition rate is simple:
(# of employee separations / average # of employees over a given period of time) x 100
In order to calculate the average number of employees over a given period or time, you can use this formula:
(beginning # of employees + end # of employees) /2
For example, let’s say your company employed 100 people to begin the year and ended the year with 120 employees. Let’s say that 5 of your employees left, either voluntarily or involuntarily, over the course of the year. Your rate would be calculated as follows:
Step 1: Determine your average number of employees
(100 + 120) / 2 = 110
Step 2: Divide the total number of employee separations by your average number of employees
( 5 / 110) x 100 = 4.55% annual attrition rate
Analyzing Your Attrition
It’s important to analyse your attrition rates through different lenses. First, you will want to compare your employee turnover to that of other companies within your industry or occupational group.
For example, according to DailyPay, the US staffing industry had an employee turnover rate of 352% in 2017, whereas finance and insurance jobs only had an employee turnover rate of 1.7%. Similarly, according to XpertHR, HR staff in the UK in 2017 experienced a 12% average turnover rate, whereas the engineering occupational group’s was only 4.9%.
If your churn rate is substantially higher than that of another company’s within your industry, your company may have an issue.
Secondly, you should analyze your annual attrition in-depth and break it down on a departmental or team basis. A yearly decrease in employee turnover is a strong indicator that your company, department or team has made productive modifications to address any causes of staff turnover.
Lastly, it’s also important that you monitor attrition rates on a monthly or quarterly basis.
Here’s an example: your annual attrition rate is 4%, which is on par with the rest of the successful companies in your industry. Upon further examination, you see that your quarterly turnover rates were:
- Q1: 1%
- Q2: 3%
- Q3: 5%
- Q4: 7%
This indicates that, while your overall turnover rate for the year was sufficient, it’s trending steeply in the wrong direction.
Employee attrition is an inevitable aspect of an organisation’s lifecycle. While some staff turnover can sometimes have a positive effect on a company, it is important to monitor it frequently in order to identify trends over time.
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