How to Use Attrition Rate to Retain Talent and Maximize Success

Employees leave for many reasons – from career changes to relocations and retirements. It’s all part of the natural evolution of a company. However, a high employee attrition rate is a sign that you may be losing talent unnecessarily. Catching this kind of problem early is nothing short of essential because a strong, productive workforce is key to success in the business world.

Here’s how you can use attrition rate to tell ‘healthy’ attrition from ‘unhealthy’ attrition so you can diagnose and resolve problems that send your top talent packing.

What Is Attrition Rate?

Attrition rate is the pace at which employees leave an organization.

This includes employees who resign or retire (i.e. voluntary attrition) and those who are made redundant or have their contracts terminated for other reasons (i.e. involuntary attrition).

Attrition rate is used by HR professionals to assess their hiring and retention efforts and understand organizational dynamics.

Attrition Rate Vs. Turnover Rate

Attrition and turnover are often used interchangeably. Both terms refer to the rate at which employees leave a company.

However, attrition is sometimes defined as referring only to departing employees whom the company decides not to replace (or can’t replace). It may be that the organization dissolves the role or merges it with another role. By this definition, attrition leaves the company with fewer employees overall.

Turnover, meanwhile, is sometimes defined as referring only to departing employees who will be replaced. It measures how quickly leavers are replaced by new hires. By this definition, turnover does not reduce the total number of employees but rather is a measure of change.

How to Calculate Attrition Rate

To calculate attrition rate, take the number of employees who have left the company in a given period and divide it by the average number of employees over the same period. Attrition rate is usually expressed as a percentage so multiply by 100% to get your final answer.

The attrition rate formula can be represented as follows.

You can calculate the average number of employees by adding the number of employees at the start of the period with the number of employees at the end of the period and dividing by two.

Attrition rate is usually calculated annually to identify long-term trends but it can be used at shorter time intervals too.

Why Attrition Rate Is Important

It is normal to have some employee attrition but a high attrition rate (especially unexpected or unplanned attrition) can cause serious problems for your organization. Here’s how.

Impact on Performance

When you lose an employee, it can have a negative impact on the remaining team members who have to pick up the slack or support and train a replacement. A flood of departures can impact employee morale and leave remaining employees with a heavy workload.

Loss of Institutional Knowledge

According to a survey, almost half of employee knowledge is unique to the individual. When employees leave, they take that knowledge with them, leaving colleagues and successors to acquire that knowledge again. This impacts productivity.

Financial Cost

If you choose to replace departing employees, there is a significant cost. Recruiter fees, training, and onboarding all cost money. One report says the average cost of hiring an employee is $4,683 while hiring an executive can cost over $35k. Another estimate puts the cost at 3-4x the employee’s salary.

Reputation Damage

If employees are leaving your company in large numbers, this can signal to customers, partners, investors, and talent that there is something wrong with your organization. This can make it harder to hire new people or it can even cause you to lose customers.

By contrast, a low attrition rate can boost your company’s reputation. Tech company Location Labs, for example, has had plenty of great PR because of its 95% employee retention rate.

It's true, folks. Thank you 2 the sharp & talented @camillericketts for lending our rockstar COO, @kivieg, your ear. https://t.co/KvLDOztmYf

— Location Labs (@LocationLabs) February 20, 2016

Poor Employee Wellbeing

If problems in the workplace are causing attrition, they’re probably impacting remaining employees too. Identifying the causes of a high attrition rate can help you improve workplace well-being – and boost productivity at the same time.

What Are The Different Types of Attrition?

Employee attrition can be divided into five categories.

1. Voluntary attrition is when employees choose to leave a role. This may be to change career, focus on childcare, relocate, or any number of other personal reasons. It may also be because of a negative employee experience such as a horrible manager, excessive workload, or discrimination.
2. Involuntary attrition is when a company terminates or does not renew an employee’s contract. This category includes redundancies and dismissals. Planned redundancies can be good for a company but a high volume of dismissals suggests inappropriate candidates are being hired.
3. Retirement attrition can be voluntary or involuntary (i.e. triggered by mandatory retirement policies). Retirement attrition is healthy and unavoidable but if many employees are choosing to retire early, it can signify a problem. Policies like phased retirement can minimize the loss of institutional knowledge that comes with retirement attrition.
4. Internal attrition is when an employee moves or is promoted within the company. It is useful to track internal attrition rate to understand internal organizational dynamics, anticipate staff movements, and identify department-specific issues that impact employee retention.
5. Demographic-specific attrition. A high turnover of employees from a particular demographic (e.g. race, gender, or age) could signify that your organization is not offering equal opportunities to everyone or meeting those individuals’ needs. Problems range from blatant discrimination to generational differences and accessibility issues.

How High is Too High?

A high attrition rate is generally not desirable because it means you are losing a lot of talent. But how high is too high?

In most cases, an annual attrition rate of 20% or more is too high and 10% or less is ideal.

However, the benchmark is constantly changing. For example, one study found that employee turnover rates increased by almost 9% between 2019 and 2023.

It’s best to compare your company’s attrition rate to recent attrition rates at similar companies to assess whether you’re losing too many employees. Here are some factors to consider.

1. Industry

According to the Bureau of Labor Statistics data below, the average monthly attrition rate varies by industry. The data indicates that hospitality businesses can anticipate a higher churn rate than insurance companies, for example.

2. Location

Employee attrition rates also vary by location. In 2021, for example, accounting clerks in Germany had an average employee turnover of 8.1% while accounting clerks in Spain had an average turnover of 4.6%.

3. Company Size

If a two-person operation loses just one person, the attrition rate will be 50%. Clearly, this can’t be compared to a 50% attrition rate at a multinational corporation. It’s useful to compare your company to companies with a similar average number of employees.

Here are the average attrition rates for businesses of different sizes.

4. Job Role

Attrition rates also vary by job role. If you are examining attrition rates for a certain subset of employees, these benchmarks are useful.

Can High Attrition Be a Good Thing?

It’s worth noting that planned high attrition can be good for a company. A major restructuring or change of strategy might involve redundancies or a hiring freeze. If successful, this approach can reduce costs and improve overall productivity.

Can Low Attrition Be a Problem?

Although low employee attrition is usually desirable, it is possible for a business’s attrition rate to be too low.

If an employee is a bad fit for a role, it’s often better that they leave. Companies need new people to bring in fresh ideas and energy from time to time, and junior employees need the opportunity for career progression and promotion to more senior roles, which is sometimes only possible when long-time employees depart.

In other words, employee turnover and attrition can help prevent stagnation and complacency.

How To Diagnose The Cause of High Attrition

If you determine that your company’s attrition rate is higher than you would like it to be, you’ll need to determine the cause (or causes) if it isn’t immediately obvious. Here are the four steps you can take to understand what’s happening.

Step 1: Track The Data

Keep a record of all employee departures, including information such as:

• tenure
• team
• department
• job role
• manager/s
• level of seniority
• salary
• contract type e.g. part-time, remote, freelancer
• demographic information e.g. sex, race, age

This will help you identify any commonalities among the departing cohort.

Tip: Make sure that you collect and store employee data ethically and in line with laws in your jurisdiction. This includes only collecting the data you need, notifying employees about the data you are collecting, and keeping data safe from third-party breaches.

Step 2: Look For Trends

If your employee attrition rate is particularly high for:

• New employees (i.e. those in their first six months): you likely have a problem with your hiring, training, or onboarding processes.
• Employees in one department: you need to investigate the culture, managers, and workload in those teams.
• Women: perhaps your maternity leave policies are insufficient or there’s a lack of female representation in senior management.
• A specific job role: competitors may be offering better compensation or more rewarding work.

Step 3: Conduct Exit Interviews

The exit interview is one of the most important employee retention tools available to human resources professionals – especially if you’re experiencing a high attrition rate. It is also one of the few times when an employee is likely to be fully transparent about whether they’ve been happy at work.

The purpose of an exit interview is to gather information about the employee’s experience at your company – not to persuade them to stay.

Make it company policy to conduct an exit interview with every departing employee on their final day or a few days later, when they’ve got some mental distance from the job.

Encourage interviewees to give honest feedback by setting a casual, friendly tone. The interview can be conducted by an HR professional or a manager, but not the employee’s direct supervisor. It’s useful to provide the questions in advance so the interviewee can give them some thought.

Useful questions for exit interviews include:

• Why did you decide to leave?
• What did you enjoy about the job?
• Did you feel supported by your direct supervisor?
• Did you feel there were opportunities for you to grow and develop?
• What do we need to improve as an organization?

Step 4: Assess Employee Satisfaction

Use anonymous surveys, interviews, or informal conversations to find out how current employees rate the organization in terms of company culture, growth opportunities, work-life balance, and compensation.

One tool that is useful for measuring employee satisfaction is the eNPS (Employer Net Promoter Score). The eNPS is a one-question survey that simply asks:

On a scale of 0-10, how likely are you to recommend [company name] as a place to work? 

Respondents are divided into three categories based on their scores.

• 9-10 – Promoters i.e. happy, motivated employees
• 7-8 – Passives i.e. employees who are content but not passionate about the business
• 0-6 – Detractors i.e. dissatisfied employees

The results may be simplistic, but the eNPS can be a powerful tool.

Common Causes of a High Attrition Rate

There are lots of possible causes of a high attrition rate. Here are some of the most common reasons.

1. Uncompetitive compensation. According to EY, 35% of job leavers say their main objective is higher pay. Increasing salaries and benefits is a straightforward way to increase retention.
2. Limited growth opportunities. EY also found that 25% of leavers are seeking career growth. If your company doesn’t offer room for learning career skills and advancement, staff may look elsewhere.
3. Poor work-life balance. Post-pandemic, a lot of workers expect the option of hybrid and flexible work arrangements. Portugal has even made it illegal for bosses to text their staff after hours. An excessive workload or poor work-life balance is another factor that increases your attrition rate.
4. Bad management. If you’ve never quit a job because of a horrible boss, chances are you know someone who has. Interpersonal mismatches are inevitable but unfair, incompetent, or inappropriate management is a serious problem that needs to be tackled. Managers also need to take care to recognize employees for their contributions and make them feel valued.
5. Toxic company culture. Some companies only promote employees who work nights and weekends. Others encourage staff to lie to their customers or fail to discipline inappropriate behavior. Toxic cultures come in all shapes and sizes but they’re all terrible for retention.

Risk Factors for High Attrition

Tracking attrition rate is the best way to monitor employee attrition, but there are some early warning signs you can look out for to pre-empt a wave of departures.

High levels of absenteeism and poor employee engagement are hints that employees are dissatisfied. Similarly, difficulty recruiting indicates that something about your organization is unappealing.

Demographics are another key indicator. If a high proportion of your workforce is approaching retirement age at the same time, for example, you can anticipate a wave of retirements.

It’s a good idea to keep an eye on social and industry trends. The so-called Great Resignation that occurred during the pandemic, for example, had a big impact on employee turnover. Similarly, employees are less likely to quit during a recession because it may be more difficult to find a new job.

How to Bring Down Your Attrition Rate

When it comes to reducing your employee attrition rate, it’s easy to become focused on promotions and competitive pay. While both factors have a big impact on attrition rates, there are lots of other ways to improve employee satisfaction and increase retention. Here are ten common retention strategies.

1. Pay more. Higher pay always sweetens the deal but if competitors are offering higher salaries, it can be essential. Talk to senior management if you think employees are underpaid.
2. Hire more people. If your exit surveys indicate that employees feel overworked and burnt out, consider making tactical hires to reduce workloads.
3. Review hiring processes. Perhaps you’re hiring the wrong people. Revisit your approach to find the perfect fit for every role.
4. Improve your onboarding process. New hires can find the work environment overwhelming. Make sure their transition is as smooth and effective as possible to set them up for success.
5. Create space for complaints. Make it easy for employees to raise problems so you can tackle them immediately. Sometimes, all someone needs is a space to vent frustrations and be heard.
6. Focus on the employee experience. This could mean introducing a budget for employee wellbeing, offering better lunches at work, redesigning the office, or sending out birthday cards.
7. Restructure teams. Sometimes you can improve workloads, tackle frustrations, and change workplace culture by shifting the structure of a team or department.
8. Introduce/improve employee development programs. Opportunities like courses, conferences, secondments, and collaborative projects can increase employee engagement by creating space for personal and professional growth.
9. Introduce better tools. From machinery to AI software and even office chairs, there are plenty of tools that reduce time spent on dull admin, improve productivity, and boost satisfaction.
10. Give a warm off-boarding experience. Employees who leave with a positive perception of the company will share that impression with others (potentially on sites like Glassdoor). This can help attract new talent and it leaves the door open for departing employees to return in the future.

Top tip: It’s difficult to make changes that reduce attrition for the whole staff body. Hone in on the things that will improve retention for your most valued employees.

Other Useful Metrics for Workforce Management

Here a 5 other metrics that can be used alongside attrition rate to track organizational health.

1. Headcount

Headcount is the number of people employed by a company at a given time.

2. Retention Rate

Retention rate is the opposite of attrition rate. It is the percentage of employees who remain at a company over a specific period.

The formula is: Headcount at end of a period/Headcount at start of the period x 100

A retention rate of 85-90% is generally considered healthy.

3. Diversity Ratios

Diversity ratios give the ratio of one demographic group relative to the rest of the organization e.g. a male to female ratio. These metrics can be used to ensure workplace equality.

4. Internal Mobility Rate

Internal mobility rate is the percentage of employees who move within the organization as a result of transfers or promotions.

The formula is: Total number of internal movements/Total number of employees x 100

An internal mobility rate close to the turnover rate means most open roles are filled by internal talent. This suggests the organization offers a positive employee experience and good skills development.

5. Average Tenure

Tenure is the duration of a person’s employment.

Average tenure is calculated by adding together the tenure of all current employees and dividing by the number of employees.

Most employees change jobs every 4-5 years. Employers should aim to match the average tenure for the industry or job role.

Don’t Lose Your Best Employees

In the modern world, employees don’t stay with one company for decades. That’s probably a good thing for both workers and employers. However, tracking your employee attrition rate helps you understand why workers leave so you can make improvements that boost productivity and keep top talent happy.