Understanding Employee Attrition in the Workplace

Employee attrition is a silent killer of businesses, large and small. If you're a business owner or human resources manager, you've likely felt the sting of losing valuable team members. When attrition rates soar, it's like trying to row a boat with half the crew missing — you may find yourself struggling to stay afloat and reach your destination. Let's explore types of attrition, how to calculate attrition rate, some potential causes, consequences, and, most importantly, strategies you can implement to keep your team intact and thriving.

What Is Employee Attrition?

Employee attrition, also known as staffing attrition, is the gradual reduction of a company's workforce where employees resign, retire, or leave for other reasons and are not replaced. In other words, employee attrition refers to employees leaving an organization and the organization becoming smaller over time.

It directly impacts HR analytics like workforce planning, productivity, and a company's bottom line, making the issue a potential headache for businesses of all sizes.

Types of Employee Attrition

Voluntary Attrition

Voluntary attrition is when your employees leave on their own terms rather than being laid off or fired. Common reasons employees might leave include taking a new job, relocating to a different city, going back to school, retiring, or dealing with a long-term illness.

Involuntary Attrition

Involuntary attrition is when employees leave a company but not by choice. In this situation, the organization decides to part ways due to layoffs, mergers, downsizing, or terminations.

Internal Attrition

Changing roles, departments, or locations within an organization is internal attrition. It gives employees opportunities for career advancement but can still impact team dynamics. For example, as employees shift to new positions, their previous team can lose knowledge, skills, and experience, requiring more time and resources to adapt and learn.

Demographic-Specific Attrition

Demographic-specific attrition occurs when employees from a particular age group, gender, ethnicity, or other demographic segment leave a company at a higher rate than other groups.

Attrition vs. Turnover

Although employee attrition vs. turnover are closely related, they aren't the same. Attrition is like a slow leak, gradually reducing your workforce, while turnover is more like a revolving door, with employees coming and going.

According to the SHRM Benchmarking: Human Capital Report, 2022, the average turnover rate for a small company is 26%. Medium-size companies have an average turnover of 34%. You can have a high turnover rate and maintain a stable (or growing) business. However, analyzing employee turnover vs. attrition can help you identify different strategies for improving your company's performance.

Attrition vs. Retention

Attrition and retention measure the same issue from different perspectives. While retention focuses on the percentage of employees who stay with a company, attrition refers to the rate at which employees leave over time. They're essentially two sides of the same coin—when a company has high attrition, it has low retention, and vice versa.

Understanding attrition vs. retention may help address the root causes of employee departures, such as low pay or lack of advancement. Some of the best ways to retain employees include competitive compensation, career growth opportunities, a positive work culture, and regular feedback to create an environment where employees feel valued, engaged, and motivated to stay.

What Is Attrition Rate?

The attrition rate is the percentage of employees who leave a company during a specific period, typically a year. It's a crucial metric that provides insight into a company's workforce's overall health and stability.

By monitoring the attrition rate and comparing it to industry benchmarks, you can identify what constitutes a reasonable attrition rate and uncover potential organizational issues that may be contributing to higher-than-average employee turnover.

How To Calculate Attrition Rate

Basic Attrition Rate Formula

Calculating your company's attrition rate is straightforward. You'll need to know the number of employees who left during a specific period (usually a year) and the average number of employees your company had during that same timeframe.

Here's how to calculate basic attrition rate:

Attrition rate = (Number of employees who left) / (Average number of employees) x 100

Calculating the attrition rate using this formula gives you a percentage representing the rate at which your workforce is shrinking.

Examples of Attrition Rate Calculations

Suppose a company had started the year with 80 employees and had 74 employees at the end of the year. During the year, 6 employees left the organization.

Here's how to plug those numbers into an attrition rate calculation:

1. Calculate the average number of employees: (80 + 74) / 2 = 77
2. Plug that number into the attrition rate calculation: (6 / 77) x 100 = 7.79%

However, company size can influence the attrition rate. Let's consider a larger company that started the year with 600 employees and had 570 employees at the end of the year. For this example, let's assume 30 employees left during the year.

To calculate the attrition rate:

1. Calculate the average number of employees: (600 + 570) / 2 = 585
2. Plug that number into the attrition rate calculation: (30 / 585) x 100 = 5.13%

Even though more people left the larger organization, the attrition rate is lower. A lower rate likely means a lower impact, while a higher attrition rate typically indicates a more significant impact on the size of the company’s workforce.

Factors Influencing Attrition Rate

Employee Engagement and Satisfaction

Engaged employees who find meaning and purpose in their work, feel valued, and have growth opportunities are more likely to stay with the organization, reducing the overall employee attrition rate.

Explaining the big-picture impact of an employee's work provides context and meaning, which can improve employee engagement and satisfaction. Other ideas that may improve engagement are to recognize employee contributions, invest in training and development, and create policies for work-life balance.

Compensation and Benefits

Low pay is the number one reason employees leave a company, according to the Pew Research Center.¹ Fair compensation and a benefits package can go a long way toward keeping employees satisfied and committed to their roles.

Regular benchmarking of pay and benefits against industry standards can guide your compensation management protocols. Remember to look at health insurance, retirement plans, paid time off, and other perks in addition to wages to help lower your employee attrition rate.

Work Environment and Culture

A positive, inclusive workplace where you value, respect, and support your employees is critical to culture management. It fosters a sense of belonging and loyalty, reducing the likelihood of employee attrition.

To minimize employee attrition rates, prioritize open communication, collaboration, and employee well-being. Celebrating diversity, promoting equity, and welcoming different perspectives can unify your team. Consider team-building activities and recognition programs to build on a positive company culture and keep attrition rates in check.

Career Development Opportunities

By investing in your employees' growth and development, you'll keep them on board, unlock their full potential, and watch your business thrive. One option is implementing career pathing programs to help your staff visualize their future within your organization. When you prioritize training, mentorship, and skill-building, employees may realize they can work towards their career goals without jumping ship.

Impact of High Attrition Rate on Businesses

Productivity and Morale

A revolving door of employees can damage productivity and morale. As employees leave, chaos can ensue, leaving your team scrambling to pick up the pieces. Your staff can experience more stress, burnout, and decreased efficiency.

It's a vicious cycle because low morale contributes to even higher attrition rates. To break this pattern, look for ways to prioritize employee productivity and engagement to rebuild a positive work culture.

Company Reputation

The consequences of employee attrition can extend far beyond the walls of your organization. A high attrition rate can cause potential job candidates to question the stability of the work environment, the quality of management, and employees' job satisfaction.

Your company's reputation can make or break its ability to attract high-quality candidates, particularly from the Gen Z pool of applicants who prioritize company culture and work-life balance.

Strategies to Reduce Attrition Rate

Improving Employee Engagement

One effective way to combat high attrition rates could be boosting employee engagement. Engaged employees who connect with their work and the company's mission are more likely to stick around. You might consider adding regular feedback sessions, recognition programs, and team-building activities.

For example, a monthly "employee spotlight" can highlight individual achievements, fostering a sense of value and belonging. Offering volunteer time off can also engage employees. By allowing employees to impact their communities positively, you can build your reputation as a socially responsible employer and reduce employee attrition.

Offering Competitive Compensation

Regularly reviewing and adjusting employee pay to align with industry standards can show employees that their contributions are valued and help prevent them from seeking better opportunities elsewhere. Conduct compensation audits and ask for employee feedback to ensure you're meeting your workforce's needs and expectations, to help lower employee attrition rates.

Enhancing Work Environment

A positive and inclusive workplace is essential for reducing high attrition rates. Here's why: People are more likely to remain with the company long-term when they feel comfortable, respected, and supported in their work environment.

Enhancing your work environment depends on your industry and your employee's values. But a few universal tools to improve the employee experience include holding regular "town hall" style meetings, putting together employee resource groups, or leading wellness challenges.

Providing Career Development Opportunities

To support career development, you can assemble mentorship programs where seasoned employees guide and advise their less experienced colleagues. Regular training sessions and workshops can also help employees acquire new skills and knowledge, preparing them for future roles within the company, which may lead to a reduction of attrition rates.

Measuring and Analyzing Attrition Rate

Regular monitoring of your company's attrition rate can help you identify trends, anticipate potential issues, and take steps to address them before they escalate. To help you keep a close eye on your rate of attrition, consider leveraging HR software with built-in analytics and reporting features. This way, you can automatically calculate your employee attrition rate, view HR analytics to help you spot patterns, and create reports for easy sharing with stakeholders.

Using HR Analytics

HR analytics are a powerful tool for understanding attrition rates within your organization. You can use them to dive deep into your workforce data to uncover hidden patterns, identify risk factors, and use that information to develop strategies to reduce employee attrition.

A few of the best metrics to track include employee engagement scores, job satisfaction ratings, and performance metrics. By examining these factors, you can use workforce analytics to drive HR decisions, helping you stay ahead of attrition trends and create a more stable, productive workforce.

Employee Feedback Mechanisms

One of the most effective ways to address attrition-related issues is to ask for (and act on) employee feedback. You could create an employee engagement survey to get candid opinions from your staff on everything from job satisfaction to perceptions of management and company culture. Exit interviews are another valuable source of insight, allowing you to learn from departing employees and understand their reasons for leaving.

Employee Attrition in a Nutshell

Whether they're retiring, resigning, or moving on to a new opportunity, staffing attrition can muddle your company's productivity, morale, and bottom line. Understanding the meaning of employee attrition, monitoring attrition rates, and having a few strategies to fall back on can help you keep your workforce in shape.

Focus on boosting engagement, offering top-notch compensation and perks, creating a stand-up company culture, and giving your team room to grow and develop. And remember to keep up on regular check-ins and surveys to help you spot potential problems before they escalate.

Paychex's HR analytics software can help you better understand your human capital, build a strong workforce, and avoid losing your top talent, regardless of your company's size or budgetary constraints.

¹ Pew Research Center, Washington, D.C. (March 9,2022)