What is Employee Attrition Rate and How to Calculate it

Employee retention and employee engagement are useful HR metrics because they offer a clear picture of a workforce’s health. If retention and engagement are high, it means employees have been staying with you for longer.

When those factors are low, and you cannot figure out why, you should go peek at other less enthusiastic metrics like the employee attrition rate. Attrition is not the same as turnover, and it’s definitely not the same as job satisfaction, retention or engagement, but it’s just a clear metric to understand your workforce’s health as those figures are.

We'll break down the employee attrition meaning and explain why it is a valuable metric. We will then look into how to calculate attrition, how high attrition rates can impact your business, as well as tools and strategies to reduce attrition.

What is the Attrition Rate?

Employee attrition measures the percentage of employees leaving a company within a specific timeframe, typically a year. It reflects the natural attrition of your workforce due to departures, for personal or professional reasons, like resignations or retirements, without considering replacements.

💡 Employee attrition differs slightly from employee turnover rate. Employee turnover accounts for all departures, including those where positions are refilled by new employees. Employee attrition focuses solely on those leaving positions that remain unfilled.

Why is it Important to Measure the Attrition Rate?

Measuring employee attrition rate isn't just about counting heads. As we suggested, it's a strategic tool for understanding the health of your workforce.

Here’s why tracking your business’ attrition rate is so important:

Early warning system for retention issues

A high employee attrition rate can signal underlying problems within your organization, such as low morale, lack of career development opportunities, or inadequate compensation. By tracking attrition, you can identify these issues before they lead to a mass outflow of talent.

Impact on business performance

Losing experienced employees disrupts your operations and can lead to institutional knowledge loss. This can undermine your ability to achieve your company goals.

Cost-effectiveness

When your workforce diminishes, replacing employees leaving is expensive. Studies estimate it can cost anywhere between half to twice an employee's annual salary to find and onboard a suitable new hire that works as a replacement. 

Benchmarking and retention strategy development

Tracking your employee attrition allows you to compare your organization's performance with industry standards. With this data, you can then design hiring and retention strategies that have a lasting effect.

What Aspects Can Influence Employee Attrition Rate?

Attrition rate is a measure of how many employees leave a company, and it's a good idea to break down the factors that affect this important data point. Understanding the causes of employee attrition allows you to develop effective employee retention strategies and, therefore, retain talent and improve your business’ productivity and financial security.

 Here are some aspects that can significantly impact your attrition rate:

1. Compensation and benefits
2. Career growth and development
3. Company culture and workplace environment
4. Work-life balance
5. Performance management
6. Recruitment practices
7. Onboarding

If you’re saying: “That’s the whole lifecycle right there,” then you got the point. Your entire employee lifecycle can impact attrition. If the “competitive salary” you promised lags behind and is not on target with what the workforce demands, your attrition rate will rise as well. If the onboarding was underwhelming, attrition will likely get worse in the short term. That’s why it’s important to easily observe the full employee lifecycle: Each step is too impactful to isolate it and treat it separately.

How to Calculate Attrition Rate?

To calculate your employee attrition, you must first determine the average number of departures within a specific timeframe. Then, divide it by the average number of employees during that period, and finally multiply the result by 100 to obtain the percentage.

Attrition Rate (%) = (Number of Departures / Average Number of Employees) x 100

Example of an attrition rate case

Imagine a company started a year with 20 employees and ended with 18. During that year, 2 employees left.

• Average employees: (20 + 18) / 2 = 19
• Attrition rate: (2 Departures / 19 Employees) x 100 = 10.53%

Or, in layperson terms, “a little over 10% of the workforce left during this period.”

How Can High Attrition Rate Impact Employee Turnover?

Employee turnover is a natural part of any organization. However, excessively high attrition rates can be a significant red flag for prospective employees and negatively impact your business.

What is a High Attrition Rate?

There's no universal benchmark for a high employee attrition. It can vary depending on factors like industry, company size, and geographical location. However, a general rule of thumb suggests that anything above 20% in a given year requires investigation. It's also important to compare your organization's rate to similar companies within your industry for a more accurate perspective.

💡Check the Bureau of Labor Statistics to obtain reliable information about industry-specific attrition benchmarks.

The Consequences of High Attrition

While some employee turnover is inevitable, consistently high attrition rates can lead to a cascade of negative consequences for other employees in your business:

• Increased costs: A company might spend 33% of an annual salary to replace each employee who leaves. That’s on top of the new employee’s salary!
• Loss of knowledge and expertise: A new employee could take up to a year to catch up with the rhythm, and meanwhile technical debt could stack up.
• Damaged employer brand: Being perceived as a company that can’t keep employees content can discourage top talent from joining your ranks.
• Decreased morale: When a well-respected colleague leaves, the workforce usually starts asking around, trying to find out what went wrong.

Is High Attrition Always a Negative Sign for Existing Employees?

It's important to consider the context behind high employee attrition rates.  For example, if your company recently underwent restructuring and eliminated certain positions, a temporary increase in attrition might be expected. In this case, attrition is not a sign, but just a consequence. However, if the high rate is due to voluntary attrition, caused by factors within your control, such as poor work culture or lack of growth opportunities, it becomes a cause for concern.

Tools and Strategies to Reduce Employee Attrition

Dealing with a high employee attrition? Here are some tools and strategies for mitigating or preventing employee attrition:

Focus on Employee Retention

• Targeted talent retention: Identify your high-performing employees and develop personalized retention strategies for these key personnel, such as a recognition program. Colleague-to-colleague review cycles are always well remembered.
• Investing in development: Provide access to training programs, mentorship opportunities, and skill-building resources.
• Cultivating a positive culture: Encourage collaboration, recognize achievements, provide flexible work hours, and promote a work environment where employees feel valued and heard.
• Internal mobility: Offer specific career paths and opportunities for internal mobility. Put a name to the next step in the corporate ladder!
• Compensations and benefits: Conduct regular salary check-ups to verify that your compensation packages—including your perks!—are competitive based on your industry and the employee’s geographic location. Many online aggregating sites usually miss the mark when it comes to defining a location’s cost, so get real with it.

Analytics-Driven Relevant Discussions

• Stay interviews: Conduct stay and exit interviews with current employees to gain a deeper understanding of their motivations and concerns. Is it that employees leave due to poor work life balance? Do they exit because of a more appealing job opportunity?
• Targeted investigations: Investigate the reasons behind involuntary attrition to uncover potential problems within your business.
• Addressing demographic-specific attrition: If specific demographic groups are experiencing high attrition rates, explore deeper to understand employees' personal reasons.

Communication and Coordination

• Manager-employee one-on-ones: Regular one-on-one meetings between managers and employees provide opportunities for open communication, feedback exchange, and career development discussions.
• Company-wide communication, including benefits: Frequent all-hands meetings or company updates can inform employees about broader company goals or benefits. Many employees report they aren’t well-informed about company benefits.
• Manager collaboration: Facilitating communication and cooperation between managers allows for the sharing of views on team dynamics and employee satisfaction.

Reducing Employee Attrition with HR Software

If you’ve realized that tackling attrition means targeting the whole recruitment lifecycle, then you’ll suspect that adopting a software solution can be a great way to act upon attrition causes from the get-go. As such, your ideal software should help you hire, onboard, and check analytics in a single platform—a single hub to follow through the entire lifecycle of new hires.

TalentHR is a comprehensive all-in-one platform that allows HR professionals to manage people and simplify tasks like time-off management, benefits management, hiring, and onboarding. The platform also allows running performance reviews, from managers to individual employees, using transparent online forms. If you want to check why your attrition is so high and then act upon it, getting measurable data points across every step of an employee’s lifecycle is the way to go.

Register now for free.

To learn more about all-in-one people management solutions for business owners and HR teams, visit TalentHR.