Employee turnover has emerged as a growing worry for leadership teams worldwide, with initial data indicating that no sector has been immune to this issue. According to the US Bureau of Labor Statistics, 30% of new employees quit their jobs after just six months, and 75% of hires do not plan to stay at their current positions for more than five years.
While it’s customary for people to move on, the challenges associated with employee attrition such as escalating recruitment expenses and declining profits, have thrust this problem into the spotlight for companies valuing talent retention.
In this blog post, we’ve compiled a comprehensive overview of employee attrition, encompassing its definition, diverse types, methods to calculate your own attrition rate, and more.
Dive in!
Understanding Employee Attrition
Opposed to employee turnover and churn, processes where employees leaving the organization voluntarily or involuntarily, are replaced by new hires, attrition is the gradual reduction in the number of workers.
It happens due to natural reasons, such as retirement, resignation, or death, or various factors, like the lack of career growth, inadequate compensation, ineffective management, or toxic work culture.
Employee Attrition Types
Despite common belief, not all types of attrition carry negative connotations. Yet, differentiating between them enables you to evaluate their effects and implement proactive strategies to reduce any possible long-lasting consequences.
- Voluntary attrition is when employees choose to leave the organization on their own accord.
Examples:
- Career change attrition. Employees decide to leave their current job to pursue a different career path or industry.
- Attrition due to compensation and benefits. Employees feel that they are not adequately compensated for their work or that the benefits offered by the organization are not competitive, so, they seek employment elsewhere.
2. Involuntary attrition, in turn, happens when employees are asked to leave the organization due to reasons such as poor performance, disciplinary issues, restructuring, downsizing, or layoffs.
Examples:
- Functional attrition. Employees leave the organization due to changes in job roles, responsibilities, or organizational structure. This can occur when a department is reorganized, leading to redundancies or changes in job functions that may not align with an employee’s skills or interests.
- Mandatory attrition. Organizations implement policies or practices that require a certain percentage of employees to leave the company within a specified timeframe. This can be a strategic decision to reduce costs, improve efficiency, or reshape the workforce.
3. Retirement attrition occurs when employees leave the organization upon reaching retirement age or becoming eligible for retirement benefits. This type of attrition is planned and expected, and organizations often have strategies in place to manage knowledge transfer and succession planning.
4. Internal employee attrition happens when employees are transitioning from one department to another, leaving their current positions. This type of attrition can actually be beneficial for a company, as it redirects talent towards more profitable areas and ensures a better match between employees and their roles.
5. Demographic-based attrition is the situation when employees from particular demographic groups—such as women, ethnic minorities, individuals with disabilities, veterans, or older professionals—depart in large numbers. It poses a significant challenge for forward-thinking companies striving to create an inclusive workplace.
Factors Affecting Voluntary Attrition
What makes talent leave your company? Actually, the most critical attrition reasons may be reduced to four: lifestyle changes, professional motives, toxic work environment, and poor employee-job fit.
Let’s consider them one by one.
1. Lifestyle Changes. When we undergo personal life changes, such as going into a relationship, moving to a new city, or pursuing a new hobby, our work priorities and preferences may shift. This often leads to reevaluating our current job situation and potentially results in seeking a job that better aligns with their new lifestyle needs.
For example, an employee who has recently started a family may find balancing work and personal life challenging. If the company doesn’t offer flexible work hours or parental leave, the employee may feel compelled to leave for a more family-friendly environment.
2. Professional Motives. We all have our reasons for pursuing certain career paths or job opportunities. These motives include career advancement, skill development, financial rewards, and personal fulfillment.
When these motives are not being met in a current job, employees may feel dissatisfied and motivated to seek new opportunities elsewhere.
Thus, an ambitious employee seeking career growth and development will soon become disengaged if they feel their current job doesn’t offer these opportunities.
3. Toxic Work Environment. Such an environment is characterized by behaviors and attitudes that negatively impact employees’ well-being and performance. These can include bullying, harassment, discrimination, excessive workload, lack of support from management, and poor communication.
Employees in a toxic work environment may experience high stress levels, burnout, and decreased job satisfaction, leading them to consider leaving their current job.
4. Poor Employee-Job Fit. There can be a mismatch between an individual’s skills, interests, values, and job role requirements or the company culture.
When employees feel that their strengths are not being utilized or do not align with the values and goals of the organization, they may struggle to perform effectively and feel disconnected from their work. This can ultimately lead to decreased job satisfaction and a desire to find a better-fitting role elsewhere.
In each scenario above, employee attrition results from personal circumstances, professional aspirations, workplace culture, and job satisfaction.
You can mitigate the issue by offering support for their workers experiencing lifestyle changes, providing opportunities for career development, fostering a positive work environment, and ensuring that employees are well-matched to their roles. Want to now how? Go on reading!
Calculating Employee Attrition Rate
Before you jump to the tips and tricks on reducing your staff churn, we’ll help you gain some insights into your workforce dynamics.
To understand whether the attrition in your organization is healthy, calculate its rate by the following formula:
Here’s how to make the calculations step by step:
1. Decide on the period you want to calculate the attrition rate (e.g., monthly, quarterly, annually).
2. Count the total number of employees who left the company during that time.
3. Calculate the average number of employees working in the company during the same period. This can be done by adding the number of employees at the beginning and end of the period and dividing by 2.
4. Once you have these numbers, plug them into the above formula to calculate the attrition rate.
5. Multiply the result by 100% to get the attrition rate as a percentage.
Example: Suppose a software development company maintains an average workforce of 2000 employees, with 60 employees having departed in the previous month.
We recommend calculating attrition rates based on departments, positions, and other factors to differentiate between regrettable, unregretted, or retirement attrition, identify its root causes, and implement appropriate measures accordingly.
You can also use the attrition rate industry stats below for reference:
- Artificial Intelligence – 17.71%
- Financial Services – 17.14%
- Health Care – 16.29%
- Data and Analytics – 16.24%
- Sales and Marketing – 13.42%
- Gaming – 13.26%
- Education – 12.64%
- Transportation – 12.36%
- Media and Entertainment – 11.58%
- Commerce and Shopping – 11.28%
- Information Technology – 10.39%
- Messaging and Telecommunications – 10.12%
5 Strategies to Retain Talent
So, if you find out that the attrition level in your organization is significantly above the industry average, move fast to review your employee retention strategy.
Become a good leader
Effective leadership and management play a key role in employee retention. Leaders should provide guidance, support, and mentorship to their teams and lead by example in terms of company values and culture.
Boost engagement
Employee engagement initiatives such as team-building activities, social events, and wellness programs can help create a positive work environment and strengthen colleague relationships.
Align your compensation and rewards with the market
Offering competitive salaries, bonuses, and benefits packages can attract and retain top talent. Employees are more likely to stay if they feel fairly compensated for their work.
Communicate openly
Fostering a culture of open communication where employees feel comfortable sharing their feedback, concerns, and ideas can help build trust and improve employee satisfaction. Regular feedback sessions and transparent communication from leadership are essential.
Before We Go
Recognizing the reasons behind your company’s employee turnover and understanding why employees are leaving is crucial.
Implementing strategies to manage attrition will help you develop long-term workforce planning measures and safeguard your organization against involuntary staff reductions.
