Attrition Rate

What is Attrition Rate?

Attrition rate means the measure of how many employees are lost by the organization over a period of time. It is typically expressed as a percentage and can be calculated by dividing the number of employees lost by the total number at the period’s beginning. A high attrition rate can indicate issues with job satisfaction, management, or other underlying problems. This concerns the organization as it affects employee stability and decreases productivity.

What are the Different Types of Employee Attrition Rates?

Understanding the different types of employee attrition can help companies identify the underlying problems behind it and take steps to address them.

So, the different types of attrition are as follows:

1. Voluntary Attrition

When an employee leaves an organization on their own accord, it’s known as voluntary attrition. For example, an employee resigns to pursue higher studies.

2. Involuntary Attrition

When an employee is laid off or terminated due to poor performance or other reasons, it’s known as involuntary attrition. For example, an employee is laid off due to company restructuring.

3. Functional Attrition

When an employee’s job role loses its value due to automation or other structural changes in the organization, it’s called functional attrition. For example, an employee in a manufacturing firm loses their job due to automation.

4. Dysfunctional Attrition

When a firm loses their valuable employees owing to poor management or other organizational issues, it’s called dysfunctional attrition. For example, a company is losing their top talent due to toxic work culture.

5. Avoidable Attrition

When employees leave the organization due to conditions or factors that could have been addressed by the company, it’s called avoidable attrition. For example, an employee leaves due to lack of upskilling opportunities in the organization.

6. Unavoidable Attrition

When employees leave the organization due to conditions or factors that are beyond the company’s control, it’s called unavoidable attrition. For example, an employee leaves due to family issues.

Why is Calculating Attrition Rate Important?

Calculating the attrition rate is an essential task for any business that wants to maintain a stable and engaged workforce. Here are some of the reasons why it is important to track and manage attrition:

1. Retaining top performers:

Top performers are highly valuable to any organization and losing them can be detrimental to business performance. Calculating the attrition rate can help companies identify the type of employees they are losing, whether they are the top performers. Companies can retain their top talent by creating a positive work environment, offering competitive compensation, and providing growth and developmental opportunities.

2. Reducing costly turnover:

High attrition rate can lead to increased costs associated with recruitment, training, and lost productivity. By calculating and monitoring the attrition rate, companies can identify areas where the attrition is high and take steps to reduce it. This can include steps like improving employee engagement, addressing management issues, and providing additional training and support for employees.

3. Ensuring better business performance:

High attrition rates can lead to a lack of continuity, decreased productivity, and lower business performance. By managing attrition and retaining top talent, companies can ensure a stable and engaged workforce, leading to better business performance and success.

4. Reducing retention challenges:

High attrition rates can lead to retention challenges, making it difficult for companies to attract and retain talent. Calculating it helps companies to improve their reputation as a great place to work and attract the top talent in the market. This can lead to increased competitiveness, better business performance, and a more engaged and productive workforce.

How to Calculate Attrition Rate?

Calculating the attrition rate is an important task for every business as it helps them understand and manage employee turnover.

Here’s how is attrition calculated:

To calculate the attrition rate, you need to know the number of employees who have left the organization over a given period of time and the total number of employees at the beginning of that period.

Attrition Rate formula:

Attrition Rate= (Number of employees who left during the period / Average number of employees during the period) x 100

For example, if Raam Industries has 500 employees at the beginning of the year and 50 employees leave during the year, the attrition rate would be:

Attrition rate = [50 / {(500+500)/2}] x 100 = 10%

This means that 10% of Raam Industries left the organization during this period.

How to calculate attrition rate monthly?

To know the monthly attrition rate, find out the number of employees that left the organization during the month and the total number of employees at the beginning of the month. The formula is:

Monthly Attrition Rate = (Number of employees who left during the month / Average number of employees during the month) x 100

For example, if Rana Industries has 200 employees at the beginning of the month and 5 employees left during the month, the monthly attrition rate would be:

Monthly attrition rate = [5 / {(200+200)/2}] x 100 = 2.5%

This means 2.5% of employees left during the month.

But calculating the attrition rate is just the first step in managing employee turnover. To truly understand and address the issue, companies need to delve deeper into the reasons behind the high attrition rate.

Key steps to take after calculating the attrition rate:

1. Identify who is leaving and why:

In this step, companies can analyze all available data on employee departures, like job level, tenure, department, and performance history. By identifying patterns and trends in the data, companies can understand the root cause of the attrition and take targeted actions to address the underlying problems.

2. Conduct a cost and benefit analysis of attrition:

The cost of employee attrition can be significant, ranging from direct costs such as recruitment and training expenses to indirect costs like lost productivity and reduced morale. Companies need to conduct a cost and benefit analysis to determine the true impact of attrition on the organization. By weighing the costs of employee turnover against the benefits of employee retention, companies can make better and more informed decisions.

3. Develop and implement retention strategies:

The last step is to implement targeted retention strategies like offering competitive compensation and benefits packages, providing opportunities for career development, etc. By focusing on retaining top talent, companies can reduce costly turnover and improve business performance.

Companies with High Attrition Rate

To effectively manage employee turnover, companies need to track and analyze their attrition rate regularly. In this context, here’s a list of attrition rate of some of the top companies of the IT industry:

TCS

The attrition rate of TCS stood at 21.3% in the December 2022 quarter.

Infosys

The attrition rate of Infosys stood at 24.3% in the December 2022 quarter.

Wipro

The attrition rate of Wipro stood at 23.0% in the December 2022 quarter.

Accenture

The attrition rate of Accenture stood at 13% in the December 2022 quarter.

HCL

The attrition rate of HCL stood at 21.7% in the December 2022 quarter.

What causes High Attrition Rate?

High attrition or employee turnover can be caused by a variety of factors, a few of them are discussed below:

1. Poor Management and Leadership

Poor management and leadership practices can lead to employee dissatisfaction and disengagement, which can lead to high turnover rates. This includes factors such as unclear expectations, lack of support or recognition, micromanagement, and favoritism.

2. Low Employee Morale and Engagement

When employees are not satisfied with their work or feel disengaged from the organization, they are more likely to seek opportunities elsewhere. This is usually caused by factors like lack of growth opportunities, poor work-life balance, and toxic work cultures.

3. Inadequate Compensation and Benefits

If employees feel that they are not being fairly compensated for their work or are not receiving competitive benefits packages, they may seek alternative employment opportunities. This happens due to low salaries, limited bonus or promotion opportunities, and inadequate health or retirement benefits.

4. Limited opportunities for Growth and Development

Employees are less likely to stay in the organization when they feel their skills and talents are being underutilized and look for other opportunities. This includes factors like lack of training and development programs, limited scope for promotion or career growth, and a lack of recognition for achievements.

5. External Factors

External factors such as market trends, economic conditions, and industry changes can also contribute to high attrition rates. For instance, in a highly competitive job market, employees may be more likely to seek out higher-paying job opportunities, even if they are satisfied with their current role.

How to Reduce High Attrition Rate?

Reducing high attrition rates requires a multifaceted approach that effectively addresses the underlying causes of attrition, below are some of the strategies that organizations can implement:

1. Recruitment

The process of attracting and selecting qualified candidates can impact attrition rates. For this the companies should provide realistic job descriptions so they can attract the right fit candidates. In addition, the recruitment methods should be tailored to the target audience and job requirements.

2. Selection

The selection process involves evaluating candidates to ensure they have the necessary skills and abilities to perform the job. Companies should use reliable and valid selection methods to ensure they hire the right candidates. This can include structured interviews, behavioral assessments, and work samples.

3. Socialization

The socialization process helps new employees adjust to the company culture and job expectations. Companies should provide a clear onboarding process to ensure employees feel supported and informed. This can include orientation sessions, job shadowing, and mentorship programs.

4. Training and Development

Providing employees with opportunities for growth and development can increase job satisfaction and retention. So, companies should invest in training and development programs to ensure employees have the right set of skills and knowledge to perform the job effectively.

5. Compensation and Rewards

Offering competitive compensation and rewards can attract and retain top talent. Companies should ensure that their compensation and rewards packages are aligned with industry standards and reflect the value of the employee’s contribution.

6. Supervision

Effective supervision and management can impact employee job satisfaction and turnover rates. Companies should provide clear expectations and feedback to employees and promote a positive work environment.

7. Employee Engagement

Engaged employees are more likely to stay with an organization. Companies should implement initiatives to promote employee engagement, such as recognition programs, communication channels, and feedback mechanisms.

Can you Predict Attrition Rate?

The voluntary turnover model by SHRM (Society for Human Resource Management) helps in identifying different factors that contribute to job dissatisfaction and in turn assists in predicting the likelihood of an employee leaving the organization.

To predict the attrition rate, the following steps are taken:

1. Identify the factors that contribute to Job Dissatisfaction:

The first step is done through employee surveys or interviews, where employees are asked about their job satisfaction, work environment, compensation, and benefits.

2. Measure the impact of each factor:

Once the factors contributing to job dissatisfaction are identified, the impact of each of these factors is measured. This is usually done through statistical analysis, where the relationship between job satisfaction, work environment, compensation, and benefits.

3. Determine the risk level of each employee:

Based on the impact of each factor, the risk level of each employee can be determined. The employees who are dissatisfied with multiple factors are at a higher risk of leaving the organization.

4. Develop retention strategies

Once the risk level of each employee has been determined, retention strategies are developed to retain the high-risk employees. These strategies can consist of improving job satisfaction, providing training and development opportunities, and increasing compensation and benefits.

5. Monitor the attrition rate

The attrition rate needs to be monitored at a constant interval to ensure that the strategies are effective. If the high attrition rate persists, the retention strategies must be revisited and adjusted accordingly.

Frequently Asked Questions (FAQs)

Q1. What is attrition rate in HR?

Attrition rate in HR refers to the rate at which employees leave an organization over a specified period of time. It is usually expressed in terms of a percentage and is used to measure the effectiveness of an organization’s retention strategies.

Q2. Is high attrition bad for business?

Yes, high attrition can be bad for business as it can lead to increased recruitment and training costs, decreased productivity, decreased morale among employees and loss of intellectual capital.

Q3. What is attrition vs turnover?

Attrition and turnover are often used interchangeably, but they usually have different meanings. Attrition refers to the natural and expected reduction in the workforce due to factors such as retirement, resignation, or death. Turnover, on the other hand, refers to the voluntary departure of employees from an organization.

Q4. What is a healthy attrition rate for a company?

A healthy attrition rate of a company depends on various factors like industry standards, company size, etc. Generally, an attrition rate of 10-15% is considered as healthy as it allows for the turnover of poor performers while retaining the top talent.

Q5. What is high attrition rate?

High attrition refers to a situation in which a company experiences a higher than usual number of employees leaving the organization within a specific period of time. This usually has a negative impact on the business performance and company’s reputation.

Q6. What is low attrition rate?

A low attrition rate refers to a situation where a company has a lower percentage of employees leaving the organization within a specific period. This is considered positive for a business as it helps to reduce recruitment and training costs and promotes a positive brand image.

Q7. How to calculate attrition rate?

The annual attrition rate formula is calculated by dividing the number of employees who left during the year by the average number of employees during the same period, then multiplying the result by 100. This formula helps organizations to frame their retention strategies.

Annual Attrition Rate = (Number of Employees who Left / Average Number of Employees during the Period) x 100