The term “attrition rate” refers to the number of workers that an organization loses over time. It can be computed by dividing the number of lost employees by the total number at the start of the period. It is usually reported as a percentage. A high attrition rate may be a sign of management concerns, work dissatisfaction, or other underlying difficulties. The organization is concerned about this since it impacts staff stability and lowers productivity.
What Kinds of Employee Attrition Rates Are There?
Knowing the various forms of employee attrition can assist businesses in determining the root causes of the issue and implementing solutions.
Thus, the following are the various forms of attrition:
- Attrition that is voluntary
Voluntary attrition is the term used to describe when an employee departs an organization voluntarily. For instance, a worker quits to pursue more education.
- Unintentional Attrition
Involuntary attrition occurs when an employee is let go or laid off for a variety of reasons, including poor performance. For instance, a firm restructuring results in the layoff of an employee.
- Attrition in Function
Functional attrition occurs when an employee’s job role becomes less valuable as a result of automation or other organizational structural changes. For instance, automation causes a worker at a manufacturing company to lose their employment.
- Ineffective Attrition
Dysfunctional attrition occurs when a company loses valuable people due to bad management or other organizational problems. For instance, a poisonous workplace culture is causing a company to lose its best employees.
- Preventable Attrition
Avoidable attrition occurs when workers depart the company for reasons or circumstances that the business might have handled. For instance, a worker quits because there aren’t enough prospects for them to advance their skills within the company.
- An inevitable attrition rate
Unavoidable attrition occurs when workers depart the company for reasons or circumstances that are out of its control. For instance, a worker quits because of family matters.
Why Is Attrition Rate Calculation Important?
Any company that wishes to keep a steady and motivated workforce must calculate the attrition rate. The following are some justifications for the significance of monitoring and controlling attrition:
- Keeping top performers on board:
Losing top performers can have a negative impact on corporate success because they are extremely valuable to any organization. Businesses can determine the kind of workers they are losing, including high performers, by calculating the attrition rate. By fostering a nice work atmosphere, paying competitively, and offering opportunities for growth and development, companies can keep their best employees.
- Cutting down on expensive turnover:
A high attrition rate might result in higher training and recruitment expenses as well as decreased productivity. Businesses can determine where attrition is high and take action to lower it by estimating and tracking the attrition rate. This can involve actions like raising employee engagement, resolving management concerns, and giving staff members more assistance and training.
- Improving the performance of the business:
Reduced productivity, a lack of consistency, and poorer corporate success can result from high attrition rates. Businesses can guarantee a steady and motivated staff, which improves business performance and success, by controlling attrition and keeping top personnel.
- Reducing difficulties with retention:
Companies may find it challenging to recruit and retain people as a result of high attrition rates. By calculating it, businesses may enhance their standing as excellent workplaces and draw in the best personnel available. Increased competitiveness, improved company performance, and a more motivated and effective workforce are all possible outcomes of this.
How is the Attrition Rate Calculated?
Since it aids in understanding and managing staff turnover, calculating the attrition rate is a crucial responsibility for every firm.
This is how attrition is computed:
The number of employees who have left the company throughout a specific time period and the total number of employees at the start of that period are necessary to determine the attrition rate.
Formula for Attrition Rate:
The attrition rate is equal to (the number of departing employees divided by the average number of employees during the period) x 100.
For instance, the attrition rate would be as follows if Raam Industries had 500 workers at the start of the year and 50 of them left during that time:
[50 / {(500 500)/2}] x 100 = 10% is the attrition rate.
This indicates that during this time, 10% of Raam Industries departed the company.
How is the monthly attrition rate calculated?
Determine the number of employees who left the company throughout the month and the total number of employees at the start of the month to determine the monthly attrition rate. The equation is:
(Number of employees who left during the month / Average number of employees during the month) times 100 is the monthly attrition rate.
For instance, if Rana Industries started the month with 200 workers and five of them quit, 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:
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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.
