Struggling with employee attrition? Searching for ways to keep the team motivated and stay back? Read on!
It is rare for an employee to spend their entire careers in the same company. The employee may move on to new opportunities or be fired from the job. Employee attrition is when the size of the team shrinks over a period. Attritions are unavoidable, like when an employee relocating or retiring.
But beyond a certain threshold, employee attrition can affect productivity and your bottom line. At this point, personnel attrition becomes a matter of concern. In this blog, we elaborate on different types of attrition, the difference between attrition and turnover, the causes of attrition, ways to prevent attrition, and when attrition can be beneficial.
The Cambridge dictionary defines attrition as a reduction in the number of people who work for an organization that occurs by not replacing people who leave. In this section, we elaboration on what is employee attrition? And what it means for an HR professional.
What is attrition?
Let us start with what is attrition? Attrition is the decrease in staff size that occurs voluntarily or involuntarily. Employees leave for both personal and professional reasons. Reasons for attrition can be due to voluntary resignations, layoffs, not returning after a leave of absence, illness, or death.
Employee attrition occurs when someone leaves the organization and is not replaced for a long time. Many large organizations operate under the assumption that attrition is inevitable and is an unavoidable cost of doing business. As a result, they do not calculate attrition rate and attribute high staff turnover to the challenging environment.
Definition of attrition in the knowledge economy
Companies all over the world find it challenging to retain knowledge workers. When employees leave a company for better career opportunities, it leads to substantial financial loss and a loss of productivity. The definition of attrition in the knowledge economy is the reduction in the number of employees through resignation, retirement, or death.
What does attrition mean for an HR professional?
The HR department is involved in workforce planning. For the HR department, the meaning of attrition is the reduction in the workforce without plans to fill in the vacancy. If your organization is unprepared for resignations or retirements, it can prove costly, leading to loss of productivity or loss of institutional knowledge.
Businesses can reduce workforce attrition by becoming supportive employers. If you appear to be supportive of your employees, they will be inclined to share their plans. Make contingency plans for when an employee resigns or retires.
While speaking to an employee about their retirement plans, you have to tactful, or you may appear to be discriminatory. Companies identify high-performing employees and groom them to take on additional responsibilities.
Define attrition rate
But how do you define the attrition rate? We use attrition rate as a metric to measure employees or customers lost over a time that has not been replaced. Attrition rate or churn rate, are terms used by human resources to determine the ability to retain employees. A high attrition rate can indicate organizational issues.
Examine the attrition rate of your business to ensure you are not losing more employees than you want. The formula for the attrition rate
Employee attrition rate = (Number of employees who left and position was left unfilled in a period) divided by (the average number of employees in the period) X 100
What is staff turnover?
Staff turnover is a concern in most organizations. If you run a business, you will have to deal with employee turnover at some point in time. According to a survey done by Gallup’s Workforce Panel, 51% of employees are looking for jobs. There is a cost associated with the company when an employee leaves. Employers look for ways to retain their staff to keep employee turnover rates low.
Employee turnover defined
Employee turnover defined can be defined as the number of employees who leave an organization during a specified period, usually a year. Most company’s measure employee turnover for the business as a whole, but turnover can also apply to a particular department.
You measure the employee turnover rates when you want to examine why your business has high turnover or find the approximate cost-of-hire for budgeting purposes. If your company has a high turnover, then employees work for your firm for a short duration. High turnover is harmful, especially when highly skilled employees leave and you need to depend more on entry-level staff.
Attrition vs Turnover
Attrition and turnover both result in employees leaving a firm and are used interchangeably. We emphasize that both attrition and turnover costs your company money, time, and effort. If we compare attrition vs. turnover, we realize they are very different. Employee attrition refers to the time of an employee within the organization.
Attrition can occur due to resignation, relocation, sabbatical to complete education, health problems, or death. Employee turnover refers to an employee leaving an organization for reasons like poor hiring decisions, pay scale, hostile work environment, lack of learning or growth opportunities, finding a better job, etc. A high job turnover rate reflects poorly on your company.
The five types of attrition
A survey involving HR heads showed that 87% of the despondences are concerned about employee attrition rates. To improve retention rates in their organizations, HR executives needed to understand the rationale behind the attrition. There are five types of attrition are:-
1. Voluntary attrition
Voluntary attrition is when an employee chooses to leave an organization. It is the most common type of attrition. The employee decides to leave for professional or personal reasons. Voluntary attritions are more common when the economy is growing. Employees decide to resign from a company if they feel overworked or underappreciated. Other reasons for leaving can be job-hopping, experiment with their careers. Young employees look for job fulfillment and resign when they cannot find it.
2. Involuntary attrition
Involuntary attrition is a decision made by the company. The employer decides to end the relationship with the employee. Businesses make decisions on involuntary attrition after great thought. There can be several factors that may force you to take decision such as,
- Mergers and acquisitions
- Structural reforms
- Reduction in workforce
- Elimination of job position
The elimination of job positions is the most common type of involuntary attrition. The company proactively decided to eliminate a job position. In other cases, the business chooses to fill the vacancy.
Also Read: Employee Relations | A comprehensive guide
3. Staff attrition through retirement
At the end of an employee’s professional life, they retire and leave the organization. Most organizations account for some employees retiring every year. Retirements are not statistically included in staff attrition. However, if a sizeable number of employees retire together, it can cause attrition.
There could be other reasons that are not age-related that can lead to staff attrition. Senior staff may retire for reasons like branching out as consultants. In the UK, 26% of employees retired because they had substantial savings.
4. Internal attrition
Internal attrition occurs either due to the employee or the business. Employees quit their jobs in one department to join another department within the company. The management should be concerned if attrition rates in a particular department are high.
Possible reasons could be poor leadership, a hostile work environment, or failure to meet targets. The HR department in your firm should launch an investigation. Internal attrition could be part of the company’s game plan, wherein talented employees are placed in a more profitable position.
5. Demographic attrition
Demographic attrition is a concern for businesses that are keen to build an inclusive organization. Demographic attrition occurs when a single group (women, ethnic group, differently-abled employees, veterans, or older employees) are leaving the company in sizeable numbers.
Ideally, you should investigate cases of demographic attrition immediately. Attrition attributed to demographics can affect the office environment. The management needs to work towards improving workplace culture.
What is forced attrition?
Forced attrition refers to the slow depletion of your company strength usually due to external factors, beyond the control of the management. It is a term associated with attrition warfare, where smaller forces reduce the strength of superior forces through series of smaller combats. The combats are initiated by the smaller forces and they gradually weaken the stronger force.
What is natural attrition?
Natural attrition is the natural reduction of the workforce because of employees leaving on their own. Employees leave when they retire, relocate, or pursue other opportunities. Natural attrition is also called voluntary turnover and is inevitable across all companies and industries. Companies in the US lose 23% of their workforce a year due to natural attrition.
Natural attrition has its pros and cons. Reduced workforce means reduced overheads due to salary. However, when a senior executive leaves, it forces other employees to take up their job responsibilities. Companies try to retain these employees, providing opportunities to advance their careers, fresh responsibility, and feedback.
What is positive attrition?
We view job attrition negatively because of the costs and challenges involved in hiring new talent. All attrition is not bad. Positive attrition is when the staff turnover benefits the organization. The employee could be a poor performer or submit error-prone work, have a bad attitude, or delivers problematic customer service.
When the employee quits, their supervisor can replace the employee with someone more suitable. The cost of hiring a new employee is offset by a more productive employee who is a better fit for your company.
Also Read: Employee management | A complete guide
Key reasons causing attrition in business
Employees today are informed and empowered. The employee-employer dynamics have changed, companies struggle to retain their performances. Attrition in business has emerged as a chief concern for business. Attrition costs US businesses more than $ 1 trillion every year.
1. Toxic work environment causes attrition in HR
The effects of a toxic environment have cost US companies $233 million in the last five years. A toxic workplace can cause a loss in productivity and impact relationships at multiple levels. Toxicity can impact relationships between colleagues, client relationships, and result in loss of business. Beyond professional relationships, toxicity can spill over to your personal life. If not tackled, it can increase attrition; you may lose some of your best employees.
2. Poor management increases attrition in business
Employees look to their management for direction, some guidance, and defense when required. Today employees want some autonomy in their roles irrespective if they work remotely or on-site. Employees want to avoid being micromanaged or overlooked. Employees look for transparency and regular feedback. Poor management practices increase the chances of attrition in business.
3. Lack of opportunity leads to higher employee attrition rate
Top performers are keen to move forward in their careers, take on exciting opportunities, and learn new skills. High-performing employees are driven by more than salaries, they are looking for a solid career path and with a clear path forward towards their career. Employee attrition rates are higher if employees feel there are no positive growth opportunities or blocked from moving into appropriate roles.
4. Lack of recognition causes higher employee attrition rates
Managers are often too busy or distracted to give employees distracted. They may feel intimidated by high-performance and take credit themselves. Employees who are overlooked or not given credit where deserved feel demotivated, frustrated, or resentful. Driven employees are keen to contribute positively and are keen for feedback about their work. Lack of recognition and visibility causes higher employee attrition rates.
5. Lack of employee enablement results in a higher employee attrition rate
Your team needs the appropriate environment, tools, and resources to work effectively. Employees may feel engaged with their company but may feel they have all the tools to succeed. Lack of enablement can make employees feel frustrated and leading to a higher employees attrition rate.
Attrition management – Top 6 tips
Employee attrition can be either voluntary or involuntary. Attrition can occur due to natural means like retirement or resignation, termination of the contract, or when the company decides to do away with the position.
Attrition rates can be tangible (cost of potential employee) and intangible (temporary loss of productivity and loss of institutional knowledge). Attrition management can prevent your employees from leaving. Here are the top 5 attrition management tips,
1. Communicate your vision to prevent attrition at work
If you are unable to articulate your business ideas or vision, employees may think you do not have a clear picture of what your business stands for and where it is going. To prevent attrition at work, share your plans with your employees and share your passion about what drives the business. It will help you earn their commitment and dedication.
2. Job attrition will improve if you optimize recruitment
Improve your job attrition rates to optimize your recruitment process by making a recruitment checklist. Start by making a detailed job responsibility and what value addition the post brings to your business. An objective-oriented job profile will focus on what knowledge and experience you expect for the post.
Ask the candidate to fill in an employment application form that they self-certify. The form may help you identify gaps in the resume. Positions like finances may require you to perform a background check. Improve business attrition management by utilizing the interview process. Base your questions to evaluate their skill sets, work experience.
3. Improve employee engagement for low attrition
When you have a talented team you need to find ways to improve and expand their skill sets. Interacting with your employees regularly will result in low attrition. Lack of engagement can result in boredom. A good boss should challenge their staff and push them to achieve the impossible and out of their comfort zone.
4. Improve workforce attrition by improving work conditions
Improving workforce attrition by improving working conditions, offer your employees work benefit. Large organizations in the US have a comprehensive benefits program that often extends to families of the employee. It may be difficult to compete with the benefits offered by major IT companies in the US, but you can offer flexible work schedules to promote work-life balance.
5. Improve attrition employee by working on benefits and perks
A poor salary is the most common reason why people look for new jobs. The job needs to meet the financial needs of your employee. The salary package offered to your employees should be at par with prevalent with current market range.
It can help lower attrition employee rates. Many organizations add to the salary by including benefits. Some options available are paid time off, stock options, or education assistance. Give your employees an annual statement of compensation they receive.
Some popular perks offered include remote working privileges, flexible timings, and assistance programs for your employee. Some companies offer perks daycare services for their staff’s children, transport pickup, travel discounts, etc.
6. Improve attrition rates by creating a pleasant workspace
Employees spend a large part of their day in their workplace. Every employee wants to spend their day in a place that is productive, happy, and healthy. As per a report published by Gensler’s Workspace Index, ideally, your office should have spaces for collaboration, learning, socializing, and for more focused work or activities. Improve your attrition rate by creating a place where your staff can work productively.
Benefits of attrition in HR
Employers are always looking for ways to reduce overhead costs. When employees leave an organization, the management has to contend with the costs of recruiting and training new manpower. But there may be benefits of attrition in HR,
- Decreases of labor costs – Employers have the flexibility to put a freeze on hiring to prevent layoff. Layoffs occur when there is a change in business plans or volume. Layoff reduces employee morale and makes it difficult to hire fresh candidates once business resumes. When voluntary attrition occurs you have the flexibility to decrease costs while making hiring decisions if required.
- Shifting of resources – Employers can reallocate resources and not fill the present vacancy. Instead, they have the option to change workflow and assign the work to other employees.
- New dynamics – Employee attrition offers an opportunity to implement new ideas. It can give a new lease of life and offer new job opportunities. New employees often have a fresh perspective.
- Higher performance – Positive attrition can result in low performers leaving the organization. Employers now have the flexibility of hiring fresh recruits.
- Culture change – Changing the company culture can be difficult without replacing the entire team. Natural employee attrition allows employers to hire recruits without firing or layoff.
Use unremot to manage company attrition
High company attrition can cause many organizational issues. Due to the present pandemic, remote employees have been isolated and attrition rates have risen. unremot virtual water cooler can help remote employees interact and form a human connection. The virtual water cooler is a virtual room that mimics the water cooler in your company.
Employees can communicate via instant message or emails and form a connection. Remote employees are generally accustomed to working alone. Our virtual water coolers become the perfect forum to form a bond with their colleagues. It helps to improve employee engagement and productivity. Interacting with colleagues in an informal setting can spark new ideas.