Employees leaving their jobs is not uncommon in the world of work. In fact, the United States is currently undergoing Great Resignation which shows no sign of slowing down. Just in February, the U.S saw 4.4 million Americans quitting their jobs with an average of more than 3.98 million workers quitting each month since last year. That’s more than the whole population of Wales!
Nonetheless, resignation should not come as a surprise. You've seen colleagues leave their jobs at any company you've worked for, or perhaps you yourself have resigned from certain jobs. According to the Pew Research Center, the top three reasons why U.S. workers left a job in 2021 were low pay, no advancement opportunities, and feeling disrespected at work. What were your reasons?
While Profile Resourcing, a UK-based recruitment company said the top 10 reasons employees leave their jobs are:
Although it’s completely normal for companies to have employees leave them for a variety of reasons each year, what happens if the situation becomes out of control? For example, when a large number of employees leave at the same time, as is the case in the United States, it's nearly impossible to fill all of the vacancies.
A high rate of employees leaving may also cost the company could cost the company in terms of decreased productivity, lost sales, and increased recruitment costs. On the other hand, some businesses may decide not to hire new workers to reduce their workforce and expenses. This brings us to one of the most contentious issues in the workplace: Company attrition.
If we look at the meaning of 'attrition' on The Britannica Dictionary, it’s defined as “a reduction in the number of employees or participants that occurs when people leave because they resign, retire, etc., and are not replaced.”
This term is frequently confused with turnover, which refers to "the rate at which employees leave a company and are replaced by new employees." While both of these terms relate to employees leaving a company, they’re not the same.
The key to determining whether employees leaving is due to attrition or turnover can be based to the company's decision afterwards. If the company decides not to fill the position, this is considered attrition. When a company decides to replace employees who have left, this is referred to as turnover.
It’s crucial for companies to understand the distinctions between attrition and turnover to keep their business finance intact. Particularly when it can be costly to replace certain designations.
Knowing the different types of attrition can help businesses understand why they're losing employees, the implications for the company, and the steps that need to be taken. Employee attrition can occur as a result of:
|Attrition due to retirement
|When an employee retires
|When an employee decides to resign
|When an employee is dismissed (i.e., fired)
|When an employee moves within the company
|When a certain group (age, gender, or ethnicity) quit
Attrition allows companies to gain insight into why employees leave and develop retention strategies based on real obtained data, namely the attrition rate. This rate, also known as 'churn rate', calculates the number of employees who leave a company in a given period, typically in percentage form (%).
A thorough understanding of the attrition rate is vital for companies as it assists them in identifying any issues that need to be addressed within the workplace. If attrition is high, it may indicate that companies are not providing adequate benefits, or the best work environment to retain top-performing employees.
At the same time, companies can also use attrition to their advantage. It could be an opportunity for them to reduce labour costs by implementing a hiring freeze in which no new employees are hired to replace those who retire or resign. Companies will be able to save money if they need to.
The calculation is fairly simple. The rate's duration is determined by whether companies want to measure attrition on an annual, quarterly, monthly, or daily basis.
The following is the step-by-step for calculating a company’s attrition rate (%):
The formula looks like this:
For a calculation example, let's take a look at the two scenarios below.
Step 1: 500
Step 2: 500 – 50 = 450
Step 3: 450 + 30 = 480
Step 4: (500 + 480) ÷ 2 = 490 - The average number of employees for Q4
Step 5: (50 ÷ 490) = 0.102
Step 6: 0.102 x 100 = 10.2%
The attrition rate for Q4 is 10.2%
Step 1: 1,350
Step 2: 1,350 – 235 = 1,115
Step 3: 1,115 + 310 = 1,425
Step 4: (1,350 + 1,425) ÷ 2 = 1,387.5 - The average number of employees for H2
Step 5: (235 ÷ 1,387.5) = 0.169
Step 6: 0.169 x 100 = 16.9%
The attrition rate for H2 is 16.9%
NOTE: There’s no defining what is a “good” attrition rate. Although companies should aim for an attrition rate of 10% or less in general, what constitutes a good or bad rate depends on the nature of the business and industry.
Most people believe that attrition is a bad thing for a company because it’s associated with employees leaving their jobs. The truth is that attrition can be beneficial or detrimental. Companies will need to examine not only the actual attrition rate, but also the factors that contribute to it. Only then can businesses determine whether there's a positive or negative impact on their operations; it could very well be both!
The main advantage has always been cost savings. This is especially true for companies that have employees who've been with the company the longest, and are already at the top of the pay scale. When such senior employees leave, the company can choose not to fill the position, resulting in salary budget savings.
The company may also decide to hire after employees leave to bring in new talent who can contribute new ideas to the company. If the employees who left were stagnant in their growth and no longer productive, hiring new workers could mean bringing in fresh people who are more eager to work.
Similar to losing employees who no longer contribute to the company, the attrition process could be used by a company to get rid of negative people. They could be the ones who are constantly committing disciplinary violations or simply can’t fit into the organisation's culture.
Some of the most common ways that attrition can be detrimental to a company include losing key employees, increasing costs to hire and train new employees, and squandering investment in internal and external training. All of these factors can have serious financial consequences for a company.
Furthermore, businesses may be losing an old employee who knows the company inside and out. When new people arrive, it's likely that things won't be the same, which could have an impact on specific tasks or ongoing projects. This is also true when companies are confronted with the situation of employees quitting on short notice or going MIA.
Companies should also be aware of their brand image, as a high attrition rate can lead to a negative perception among the general public, existing staff, and potential employees. This is risky because it has the potential to negatively impact and reduce business sales and service.
|1) Cost savings
2) Improving talent pool
3) Enhanced performance
4) Minimising negative influence
5) Remove poor job and culture fit
|1) Increased business costs
2) Reduced productivity or performance
3) Losing valued employees
4) Sudden resignations or MIAs
5) Facing a negative perception
Employee turnover, or the number of people who have left the company, accounts for the company's attrition. Remember the attrition rate formula described earlier? If you recall, the formula requires the number of people who left during the specified time period (i.e., employee turnover).
Essentially, companies will be able to determine their attrition rate by knowing what their employee turnover is.
When it comes to dealing with and managing employees, businesses face numerous challenges and must consider many factors, like in the case of dealing with employees who are leaving their jobs. The majority of companies would prefer to retain their employees so they don't have to spend money on hiring and training new ones.
That’s why most employers would strive for a low attrition rate. By obtaining that low rate, they demonstrate that they’re able to retain employees who are satisfied with their job and environment and will not leave the company. Here are 5 easy ways to improve and lower attrition rates: