Why HR Should Calculate Employee Turnover & Attrition Rates

Employee turnover and attrition rates are crucial metrics for any organization. Understanding these metrics can help HR managers identify trends, develop effective retention strategies, and improve employee engagement and retention.

One fact is constant. Employees will leave. It is an unavoidable reality of doing business and shouldn't be alarming. However, it becomes a concern when the rate climbs higher than industry averages, especially since Work Institute research indicates that losing an employee typically costs approximately 33% of that employee's base pay. For the average US employee, that's about $15,000. 

We will discuss the significance of calculating employee turnover and attrition rates for HR and explain how these metrics can impact the company.

What does attrition mean for employees?

Attrition can have various implications for employees, and the effects may differ depending on the circumstances. For example, suppose an employee leaves a company due to retirement or voluntary resignation. This creates opportunities for other employees to take on new roles and responsibilities or fill vacancies within the organization. 

On the other hand, if attrition is due to involuntary reasons, such as layoffs or downsizing, it can create feelings of job insecurity and stress among remaining employees. 

What are examples of employee attrition?

Here are five examples of employee attrition in different business scenarios:

1. Retirement: After many years of dedicated service, an employee reaches retirement age and decides to retire, gradually reducing the overall workforce over time.
2. Resignation:  When an employee voluntarily resigns from the company for personal reasons such as relocation or pursuing a different career path,.
3. Business downsizing: In response to financial challenges, market changes, or other reasons, a company may downsize, leading to some employees being let go and the company not replacing them.
4. Mergers and acquisitions: When companies merge or acquire one another, some employees may be let go due to redundancy or restructuring, leading to a natural reduction in the workforce.
5. Career development: An employee seeks career advancement and leaves the company to pursue better opportunities elsewhere, leading to a natural reduction in the workforce

Is attrition the same as turnover?

Attrition and turnover are two ways employees leave a company, but they mean different things. 

Attrition refers to the natural and gradual reduction in a company's workforce over time due to factors like retirement, business downsizing, employee health issues, resignation, or death.

On the other hand, turnover refers to the rate at which employees leave a company and are replaced by new hires. Turnover can be voluntary (when employees leave on their own accord) or involuntary (when employees are terminated or laid off). Reasons for turnover include burnout, not getting recognized, toxic company culture, poor relationships with management, and lack of opportunities to learn and grow. 

While both terms relate to employees leaving the organization, attrition is more passive, while turnover is more active.

Attrition rate vs Turnover rate: 

What is the difference between turnover and attrition rates?
To calculate the employee turnover rate, divide the total number of employee departures by the average employee count and then multiply this figure by 100. The formula for calculating the turnover rate is as follows: 

Turnover rate = (total employee departures / average number of employees) x 100.

For instance, if a company has an average of 300 employees and 20 have left, the employee turnover rate can be calculated as follows:

Turnover rate = (20 / 300) x 100 = 0.06 x 100 = 6%.

Attrition Rate vs. Turnover Rate Formula

The employee attrition formula is the same as the employee turnover formula. But, instead of just using departed but replaced employees, you include the number of employees who left due to attrition.

This can include retirees who haven't been replaced or employees the company laid off.

Keeping the attrition and turnover rates low can help ensure that a company retains its best talent and minimizes the costs associated with replacing employees. 

Your ideal turnover rate depends on several factors, including industry, positions, and business models. For example, according to LinkedIn research, HR has ironically had some of the highest turnovers (14.6%) over the past three years.

Small and midsized companies (SMBs) have a turnover rate of 12.0%, which is much higher than the overall average rate of 10.6%.

Businesses should aim for a turnover and attrition rate of 10% or less.

Is attrition the same as termination?

Termination is when an employee's job ends, either because they quit on their own or because their employer fires them. Terminations can be voluntary or involuntary, depending on who ends the employment.

When an employer terminates someone's position in the company, it's usually because the employee did something wrong, like not doing their job well or violating company policies. It usually involves tension and bad blood, unlike attrition.

Why should HR calculate employee attrition and turnover rate?

Reducing employee turnover is challenging. However, it has a significant payoff.

Attrition and turnover often happen when employees find better opportunities elsewhere. This could mean better pay, more flexible hours, a better work-life balance, or a shorter commute. A high turnover rate can indicate many problems, such as poor onboarding, disengaged employees, and bad management.

There are several reasons why HR should calculate the employee attrition rate.

1. Insights into company culture: Calculating the employee attrition rate can provide insights into the company's culture, management practices, and employee engagement. A high attrition rate may indicate problems with these areas, which HR can address to improve retention and company performance.

2. Retaining top talent: Employee departures can lead to a loss of accumulated knowledge and client relationships, making it difficult for remaining colleagues to fill the gap. Organizations must prioritize employee retention and comprehensive succession planning to ensure productivity is maintained even when employees leave. 
3. Impact on productivity: When employees leave, their departure can impact their teammates' workload, potentially leading to an already overburdened team having to take on even more work. This can reduce morale, increase stress, and even lead to employee burnout, ultimately affecting the company's overall business performance.

On the other hand, companies with high retention rates often have more engaged and satisfied employees. By keeping top talent and reducing employee attrition or turnover, organizations can create a positive work environment and help ensure the business's ongoing success.

1. Maintaining a positive employer brand: Employee turnover can impact team dynamics and harm a company's employer brand and value proposition. Recruiters may need help attracting new talent to a company with a history of high turnover.

In fact, a Glassdoor report shows that 86% of employees and job seekers consider company reviews and ratings before applying for a job. As such, organizations must focus on retention and create a positive work environment to maintain a good reputation and attract the best talent.

How to control employee attrition and turnover

Hiring new employees can be costly, time-consuming, and more complex than it used to be. But there are other things that could go wrong with a high turnover or attrition rate. As we mentioned earlier, productivity, employee engagement, morale, and business relations suffer too.

To avoid these challenges, employers should take steps to minimize employee turnover. Here are some ways to do that:

• Acknowledge your team: Recognize employees for their hard work, dedication, and achievements. Recognition can come in monetary rewards, promotions, or simply acknowledging a job well done.
• Provide employee training initiatives: Offer employees training and development programs to help them improve their skills and advance their careers. These programs can also boost employee engagement and retention.
• Prioritize Employee Well-Being: Take steps to improve employee well-being by supporting work-life balance, mental health, and physical health. Happy employees are productive and less likely to leave their jobs.
• Encourage employee feedback: Regularly ask employees about their jobs, company culture, and work environment. Use that feedback to improve working conditions and employee satisfaction. Additionally, share feedback with employees to help them understand what they're doing well and where to improve.
• Encourage professional growth: Promote career growth and development by allowing employees to take on new responsibilities, advance their skills, and take on leadership roles. Help your employees identify clear career paths and provide the necessary training, support, and resources to achieve their goals. This helps keep your employees engaged and motivated, reducing the likelihood of turnover.
• Offer perks and benefits: Ensure employees can access a comprehensive benefits package, including healthcare, retirement plans, and other perks. This can help to improve employee morale and retention rates.
• Be flexible: Create flexible work models, such as remote working, flexible hours, and job-sharing, to accommodate the needs of different employees. This can help to retain valuable talent that may have otherwise left the company.

Control Turnover and Attrition Rates with Assembly

Calculating attrition and turnover rates provides HR teams with critical insights into why employees are leaving and how your organization can retain them. However, tracking these metrics alone is insufficient — proactive measures are necessary to prevent high turnover rates and foster a positive work environment.

This is where Assembly comes in. By combining employee engagement programs, surveys, recognition initiatives, and communication tools, Assembly helps organizations retain top talent and minimize turnover. With over 4,000 companies using Assembly to achieve their talent retention goals, the platform offers a valuable advantage. 

To learn how Assembly can help you reduce attrition and increase retention, book a demo today.