Attrition refers to a gradual reduction in the workforce because employees choose to leave for natural reasons. It's the rate of employee loss per year from retirement and other reasons.
Depending on how you look at it, attrition can have positive and negative ramifications for a company. If a job can be done without substitutes, it does cut company costs. But if employees are leaving in droves, leaving a deficit of talent, attrition can end up costing a company. Companies have to factor their attrition rates into their department budgets and account for any losses in productivity and the costs that come with recruiting, hiring, onboarding and training new employees, as well as the costs that come with paying out leaving employees.
"A common attrition rate definition refers to employee or staff turnover, but in a broader sense, attrition rate is a calculation of the number of individuals or items that vacate or move out of a larger, collective group over a specified time frame," according to NG Data. "Attrition rate is also commonly referred to as churn rate. A term often used by human resources professionals to determine a company’s ability to retain employees, attrition rate is increasingly used in the marketing world as a figure that points to the company’s ability to retain customers or to project the number of new sales necessary to maintain the status quo, accounting for customer churn or customer attrition."
In short, the attrition rate is the rate at which a company loses employees — a company can have high or low attrition. High vs. low attrition matters, because having a high rate can require damage control.
The attrition rate is determined by dividing the number of employees who left their jobs during a specific period (such as the year, quarter or month) by the average number of employees during the same period. If a company has 1,000 workers at the beginning of the year, and ends up with 980 at the end (losing 20 employees), the attrition rate for the year is two percent.
A high attrition rate can be damaging for a company and, ultimately, lower the morale of the personnel still with the company. For example, if employees are leaving because of a lack of room for development or growth, either with regards to their positions or their salaries, other employees might start to pick up on that — and that can lead to a snowball effect that increases the employee attrition rate.
"The decrease in the workforce causes remaining employees to work on the slack left behind — mostly performing the task they are not completely trained to perform or are not the best suited, which in turn leaves the staff feeling unappreciated, underpaid and overworked which causes more attrition," according to EDUCBA. "Such conditions could quickly go out of control and turn into the mass exit of employees, disabling the ability of the company to perform at a high level."
Regulatory agencies including the Equal Employment Opportunity Commission and the Occupational Safety and Health Administration, for examples, will often check in to know what's going on if too many employees are leaving. They'll look to ensure that a company is adhering to employment laws and honoring employees' rights. If they sense maltreatment of employees, the company may face penalties and lawsuits.
Employee attrition is improving. According to a study by the Society of Human Resource Management in 2013, the average voluntary turnover in all industry declined nine percent from 13 percent in 2010.
The cost of attrition can be high, so controlling it and maintaining this positive trend is important.
Companies can implement strategies to try to control attrition to an extent. Human resources teams can analyze why employees are leaving, and then work to offer benefits packages or incentives to keep those employees who are on the fence. These steps include hiring tactics and strategies to prevent existing employees from leaving, such as the following.
If employees had access to benefits and financial assistance that could help entice them to stay, rather than leave to find it elsewhere, they might leave less often. Likewise, if they had access to mentors who advocated for their growth within the company, they might be more inclined to stay with one company and move up than to move up by hopping companies.
"Preventing people from abandoning a job all starts with the hiring process," according to Small Business Chron. "Write detailed job descriptions before recruiting or interviewing a candidate for a position. This will help ensure you know what you’re looking for in an employee and make you more likely to hire the best person for the job."
That said, even with a company's best intentions and efforts, attrition is inevitable to some extent. It's wise for companies to conduct exit interviews to learn why their employees are leaving and identify any patterns so that they can make appropriate changes.