What is employee attrition rate and how to calculate

What is the employee attrition rate?

 Attrition rate can be simply defined as the rate of employee turnover. This rate helps the owner to get an idea about how the company retain the human resource. When there is a high attrition rate, it clarifies that the employees are frequently leaving and vice versa. Higher rate leads a company to bear more cost and workload.

So, most employers expect a low rate. Because, when there is a low rate, they don’t have to bear the cost of new recruitment, training etc. Attrition rate can be calculated yearly, quarterly or monthly. In this article, we are going to discuss the importance of employee attrition rate and how to calculate it.

 Attrition rate vs Turnover rate

Both happen when an employee leaves the company voluntarily or involuntarily. But the difference between these two is, in attrition rate, the company does not seek to fill that empty position. It means the company completely eliminate the vacant position.

When it comes to the turnover rate, the company hire new people to fill the empty position. But practically both rates lead to hiring new people to the organization. Usually, the attrition rate can be seen in large companies or IT related companies. Those two types don’t seek to fill the empty spaces because the technology can cover it, or they can share the workload among others.

Importance of employee attrition rate

As I mentioned before the attrition rate helps an employer to get a clear insight into the human resource management in the company. If there is a high rate, the employer has to concern about the problem which caused.

However, the consequences of higher rate are high cost. When the employees are leaving the organization more frequently, the company has to recruit again to fill those spaces. There the company has to bear recruiting costs which include planning cost, selection costs, hiring costs, induction costs, training costs etc. Additional recruitment means additional cost.

Addition to that, higher rate leads to discourage or reduce the motivation of remaining employees. When this rate gets high, the remaining employees start thinking about the safety of their jobs. This also leads to damage to the image of the company. Due to those reasons, this rate has become a vital insight into a company.

Sometimes high attrition rate gives positive impacts like the reduction of staff costs. But it usually gives negative impacts rather than positive once.

How to calculate the attrition rate

Annual attrition rate

Suppose there were 100 employees at the beginning of the year. During the year 30 employees have left the organization and organization have recruited 40 new employees. So how we can calculate the attrition rate for the end of the year.

Annual attrition rate

Quarterly attrition rate

Here also we have to use the same equation. But you have to concern about the data of the particular quarter. Otherwise, your answer will be totally wrong. Here is an example.

Suppose there were 150 employees at the beginning of April. During the quarter of April to June, 40 employees have left the organization and organization have recruited 26 new employees. Here is how we calculate the attrition rate for the particular quarter.

Quarterly attrition rate

Monthly attrition rate

To calculate the rate for a particular month you must have the exact number of the employees there were in the organization at the beginning of the month, employees who left the organization during the month and number of new recruitments. Here is an example.

Suppose there were 100 employees at the beginning of April. During April 20 employees have left the organization, and 10 employees have recruited. Here is how we calculate the attrition rate for April.

Monthly attrition rate

Types of attrition rate

Attrition can happen in four main ways.

Internal

Internal attrition happens when an employee accepts a different position in the same organization. This may occur due to promotions, job rotations or other factors. Here the employee doesn’t leave the organization, but his/her previous position gets empty.

External

When an employee leaves the company to work for another company, this happens. Here the organization lose an employee. Due to the personal reasons, career decisions or faults of the company, an employee may decide to work for another company.

Voluntary

When an employee leaves the company because of their own reasons, this happens. That employee may resign the job due to personal reasons, career decisions etc.

Involuntary

This happens when an organization ends the employment due to financial reasons, performance reasons etc. Otherwise, the company may decide to eliminate a position. Whatever the way they use, the employee doesn’t volunteer. This is a common situation in many organization who try to control costs.

Reasons for the high attrition rate

High stress

Stress and job performance has a negative relationship, and the stress and the attrition rate has a positive relationship. That simply means, when the stress of the job is high, the employees tend to leave the organization or the position. It becomes a reason to increase the rate.

Poor training

Poor training leads to an increase in the rate of attrition. It can create doubts in the employees’ minds about a particular job. Sometimes poor training becomes the reason for workplace accidents and occupational deceases.

Resignation

Due to the personal, organization and career decisions, an employee might decide to resign from a job. It causes to increase the rate of attrition. This is a common situation in many organizations.

Unfair salary and wages

When the employees don’t receive a fair salary or wages for their effort, they tend to leave the organization to find a better one. It leads to an increase in the rate.

Termination

This is also a common situation in any organization. Due to the bad acts, low performance or other reasons, an organization might terminate an employee which leads to increase attrition rate.

Promotions and career advancement

No one likes to stay in the same position until the retirement age. So human resource excepts promotions or other career advancements. When an employee gets promoted, or the employee decides to leave the organization to find a better position in another organization, the rate of attrition gets high.

Recruitment problems

When recruiting an employee, the organization shout recruits the right person at the right time in the right quantity. When the organization failed to do that, they are recruiting the employees who don’t fit the particular jobs. It leads to an increase in the turnover of the company.

How to reduce the attrition rate

Maintaining a proper reward system.

To reduce the rate of attrition, the organization should concern about employee satisfaction. The best way to do it via a proper reward system, which includes monetary and non-monetary benefits. The organization should align a performance measurement system with the reward management and evaluate the results.

Hire for a long time

In the employment contract, the organization can include a statement about the compulsory employment time. With that employee losing their chance to leave the organization whenever they can.

Offer a fair salary and wages.

Equity in salaries is compulsory. The best way to do this is via a survey. The organization can research about the salary and wages that other organizations pay for a particular employee. Then the organization can offer those amount and reduce the rate of leaving. Also, the organization must ensure that they are concerned about the levels of employees. (Horizontal equity and vertical equity)

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