What is Attrition in business?
Attrition refers to the number of job quits or departures of employees from employment in an organization, irrespective of any reason (voluntary resignation, termination, absconding, death, or retirement).
The attrition rate is also known as the employee turnover rate and is a key metric of human resource management to measure the number of employees lost at a specific period of time which hints about the organizational health.
FAQs
1. What is the importance of Employee attrition?
An attrition rate can be positive or negative depending on its degree of intensity and business health. A high attrition rate can cause loss of talent, increase spending on recruitment, cost implications, and can lead to instability.
However, there are a few good importance of employee attrition as well. Here are a few pointers indicating it:
➔ Cost Saving
In certain situations, attrition rate can lead to cost savings by reducing the expenses spent on inefficient or overburdened employees.
For example- If a company loses a few employees whose performances were not up to mark or those who were consistent in performing low, then that becomes a resource-saving opportunity for the company.
In addition, attrition can help reduce labor costs without resorting to layoffs or termination at times of crisis, overstaffed management issues, or uncertain market drifts.
➔ Eliminating Poor Fits
Sometimes, few employees’ efficiency doesn’t match the expected set of goals or targets, which ultimately hampers organizational productivity and development. It becomes an advantage for the organisation, when such employees leave the organization.
Attrition can naturally filter out the poor performers, leaving the workforce with efficient and best individuals whose efficiency aligns with the organization’s ethics, culture, long long-term as well as short-term goals.
➔ Attracting Fresh Talents
The attrition rate can be considered as a boon because the leaving of employees creates vacancies within the organization, which as a result preset opportunities for the existing employees to upgrade to higher positions by upskilling.
Furthermore, the opportunities available attract fresh talents to get jobs. It also opens up windows of new ideas, skills, enthusiasm, and possibilities which enhances innovation, creativity, and growth in an organization.
➔ Change Management
The vital importance of the attrition rate is it indicates the organizational health by highlighting the number of employees who have dropped their jobs and also the rate at which employees are leaving the organization.
It also prompts the changes to be made in the work culture from time to time to gel up with ongoing circumstances as well as build a cohesive and stronger workforce.
➔ Creating Advancements Opportunities
When employees leave an organization, vacancies for attracting efficient employees open up who would enhance the overall development and growth of the company.
Advancement opportunities for existing staff also gain pace by providing opportunities to upgrade their skills and get promotions that are beneficial for their career advancements and progressions.
➔ Reduce Bureaucracy & Bumbledom
Employee attrition is a scope of reduction in bureaucracy, and bumbledom. It is a formal human tendency to be involved in diplomacy after a longing for static employment in an organization and initiate office politics which affects the health of the work environment and interrupts the process of productivity, efficiency, and growth.
More than the average number of employees who are not in the mainframe or are minor officials usually behave officious and pompous hence becoming bumbledom and shifting their job focus to unproductive processes, gossip, lambasting, etc., which leads to organizational degradation.
2. How to calculate the attrition rate?
Before getting into the calculation of attrition rate, let us first understand what it means.
So, as we know attrition is the number or count of employees who have departed from the organization in a specific period of time, similarly, the attrition rate is the rate at which employees leave an organization.
It is calculated by evaluating the number of employees left during a specific period and is not replaced, divided by the average number of employees during the same period multiplied by 100.
(No.of employees who left the job in a specific period/ Avg no.of employees in the same period) × 100
Now that we have an insight into the attrition rate technique, let us understand a few parameters that require careful consideration to evaluate the attrition rate efficiently:
➔ Determine the time period
The first step of evaluation is to determine the time period at which you want to calculate the attrition rate. It can be quarterly, monthly, annually, etc.
Determining the time period also depends on the organizational needs and necessity as per the market situations.
➔ Count the number of employees who have taken an exit
Careful computation of the total number of employees who have left their jobs and are not replaced needs to be segregated from the ones replaced and are taken for calculation.
Minor deviations in this can adversely affect the proximity of the attrition rate and produce false reports.
➔ Calculate the average total number of employees
Next, the total average number of employees who were present at the beginning of the period (determined prior) is to be considered, which is evaluated by:
(Number of Employees at the Start of the Period + Number of Employees at the End of the Period) / 2
➔ Evaluate implementing the formula
Last, but not least, evaluate the total formula with a pre-framed and determined parameter that has been set prior to evaluation to avoid complexities and confusion.
A high rate of attrition can adversely affect the company’s health, hence stimulating a gradual degradation in the company’s image in the cut-throat competitive market. So, it is required to be controlled tactfully with strategic implications.
3. What is an example of an attrition rate?
Let’s say you want to calculate the attrition rate for the first quarter of the year. At the start of the quarter, your organization had 100 employees, and at the end of the quarter, you had 120 employees. During that quarter, 15 employees left the organization, out of which 10 employees’ positions were not replaced.
Average Number of Employees = (100 + 120) / 2 = 110
Attrition Rate = (10 / 110) × 100= ≈ 9.09%
So, here, the total attrition is 9.09 percent during the first quarter.
4. How Does Employee Attrition Differ From Customer Attrition?
| Employee Attrition | Customer Attrition |
| It is referred to as the rate at which employees leave the company over a specific period | It is referred to as the rate at which customers stop doing business with a company over a specific period |
| Employee turnover | Customer churn, or customer turnover |
| Employees can voluntarily leave the company by resigning or involuntarily can be terminated by the company. So, it can be both voluntary and involuntary. | This is voluntary as customers cease using the product or services of a company, discontinue purchases, and cancel subscriptions at their own will. |
| Resignation for career progression, dissatisfaction in a job, termination from employment due to inefficiency or market drifts, personal issues, health issues, etc. | Dissatisfaction with the product or services offered, alternative product at a reasonable cost, competitors’ market dominance, changing requirements of customers, earning drifts, economic factors, etc. |
5. Employee Attrition vs. Employee Turnover
| Employee Attrition | Employee Turnover |
| It refers to the rate at which employees leave the company irrespective of reason that is voluntary or involuntary. | It is a subset of employee attrition that focuses on the voluntary leaving of employees and side-lines the involuntary ones. |
| It is a broader concept as it considers the entire reasons for the occurrence of employee exit (both voluntary & and involuntary leaving) | It is a narrower concept as it only considers the voluntary leaving of employees and ignores involuntary reasons such as termination, layoffs, etc. |
| Reasons for occurrence can be termination due to inefficiency, layoffs, company closures, career progression, health reasons, personal issues, etc. | Reasons for occurrence can be employee dissatisfaction, poor management, the Company’s inefficiency in retaining talents, job market conditions, etc. |
| Total no. of employees left in a specific period (voluntarily & involuntarily / Avg no. of employees in that specific period x 100 | Total no. of employees left in a specific period (voluntarily)/ Avg no. of employees in that specific period x 100 |
6. Attrition vs. Layoffs
| Attrition | Layoffs |
| It is a process of reduction in the workforce over time as employees depart from the organization voluntarily at their own will. | Layoff is a process of deliberate reduction in the workforce due to economic drifts, market changes, company acquired by other organizations, etc. |
| A natural process that occurs over time | Active and deliberate processes that are done to reduce workforce |
| Career advancement of employees, retirement, personal reasons of employees, etc. | Termination due to cost-cutting, economic crisis, company’s liquidation, etc. |
| Employees are not accompanied by any special package. | Employees are accompanied by severance packages or assistance to find new employment |
