October 29, 2023

Attrition rates: The hidden factor you're not considering and how to reduce it

Imogen Barber

Unfortunately, employee attrition has been trending in recent years. First, it was the “great resignation”, as people sought new work opportunities at record rates after the pandemic. Then, economic uncertainty struck, leading to budget cuts for many businesses and, in the case of major tech companies, massive layoffs - some of which involved letting go of 6% to 26% of their workforces. 

In an effort to stem the loss of internal expertise, reduce attrition rates, and boost retention, people teams have found a renewed focus on nurturing their current employees. That involves engaging team members, showing them their contribution matters, and giving them opportunities to grow. 

Meanwhile, understanding your attrition rate will help identify underlying issues and develop the right strategies to futureproof your company against further resignations. In this article, you’ll find tips for understanding, calculating, and improving attrition rates across your organization.

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🧠 Understanding your employee attrition rate 

51% of global employees are either actively looking for new job opportunities or will start looking in the near future. This trend could have a massive impact on productivity and morale. 

Your employee attrition rate shows how often people leave a company without replacements. It's not the same as an employee turnover rate or churn rate, which are only used to measure the amount of people who left and got replaced.

High attrition has a direct impact on your business operations. Tracking this metric can help you spot trends that will make it easier to tackle. 

Before we dive into calculating this, there are several other terms and definitions that it can be helpful to get your head around: 

  • Voluntary attrition: A type of attrition that focuses only on voluntary departures - essentially your standard attrition rate minus layoffs. When a high rate of employees choose to leave their roles, it could mean there are issues with your company's culture, growth opportunities, compensation packages, or overall satisfaction.
  • Involuntary attrition: If your company isn't intentionally downsizing or restructuring, a large number of dismissals could signify poor onboarding, training, hiring procedures, or performance management. If you’ve recently been through a round of redundancies, this metric will be high - but probably won’t give you any insights you don’t already know. 

Demographic-specific attrition: This can be a helpful way of understanding the trends behind attrition. If you notice high attrition rates within certain demographics, there could be a diversity and inclusion problem within the company. Keeping track of the seniority or roles of leavers can also give you insights into potential structural or career progression issues.

✅ Why it's crucial for businesses to understand attrition

High attrition can have a big impact on your company's finances and productivity levels, for several key reasons:

  • Loss of institutional knowledge: When an experienced employee leaves, they take with them all their invaluable “on-the-job” learning.
  • Training can be expensive: Even if employees aren’t being replaced, there’s a good chance other people in the team will have to take on their responsibilities - even if that requires reskilling.
  • Reputational damage: Both voluntary and involuntary attrition can compromise your employee value proposition and paint a poor picture of the overall company culture.
  • Cultural impact: Attrition can have a huge impact on the company culture, though this can often be difficult to quantify. If too many people leave, this can paint a picture of the company as a less desirable place to work, reducing productivity, growth, and ultimately leading to more attrition. 

💡Watch the webinar: How to retain your best talent in times of uncertainty

📉Calculating attrition rates: A step-by-step guide

Calculating the attrition rate for a given period is pretty simple if you have good data to hand. To do that, first, choose a time period. Find out how many employees departed the company without replacements (known as ‘separations') and divide it by the number of employees that worked for the company over the same period. 

Here’s what that looks like as a formula: 

Attrition rate = number of separations / average number of employees that worked during a period x 100

How to calculate attrition rate: A quick example

To look at this in practice, let’s pretend you’re the Chief of People Experience at a software development company. You want to compare employee attrition rates for the past two years to understand why people are leaving. 

Let’s assume at the start of the year, the company had 230 employees and 246 at the end of the year. The average, therefore, would be 238. 

Average number of employees: 230 + 246 / 2 = 238

Across the year, you’ve also had nine people leaving - with only three of those being replaced. Therefore, you’ve lost six employees. 

To get your attrition rate, therefore, you now divide six by the average number of employees (238). Then, multiply the result by 100.

Annual attrition rate: (6 / 238) x 100 = 2.52%

From there, you can calculate the attrition rate for previous years to compare trends. If the number has increased over recent years, there’s a good chance you need to focus on employee engagement.

5 strategies to reduce attrition rates in 2023

In 2023, 80% of workers felt hopeful about their future careers... but not with their current employer. This means your organization could face increasing employee turnover in the future, even if you have decent retention figures at the moment. 

Either way, you're bound to have employee retention all over your targets for upcoming quarters. So, here are a few strategies for people team leaders to increase employee satisfaction and get a more manageable attrition rate. 

📈 1. Use advanced metrics to understand why people are leaving

52% of high-performing HR teams continuously use data to shape their initiatives and identify where change is needed, according to Lattice. It’s important, therefore, to keep track of several metrics such as:

  • Voluntary attrition: Conduct exit interviews to determine the reasons behind resignations. These tell you exactly why people are choosing to leave the organization and can help you gain insights to improve the employee experience.
  • Seasonal attrition: If you notice seasonal trends in attrition, you might be able to anticipate and plan for departures. For example, some companies see a spike in attrition after people receive their yearly bonuses.
  • Tenure analysis: If new starters leave more frequently than long-term employees, there might be an issue with onboarding processes, communication, hiring practices, or management.
  • Promotion rates: If promotion rates are low and attrition rates are high, it’s worth investigating employee sentiments around growth opportunities at the company.

In your analysis, it’s always worth considering attrition rates alongside other employee engagement metrics like job satisfaction and eNPS to get a more holistic view of potential causes.

➡️ 2. Give leaders the skills to nurture employees

Leaders are fundamental when it comes to shaping an employee’s experience of their role. When a manager listens and communicates clearly, explains the reasoning behind their actions, and makes feedback actionable, the team will see a definite uptick in engagement.

Supporting managers to do this work effectively is vital for all people teams. When Gallup gave managers training, they felt 200% more engaged and their teams’ engagement also increased by 8-18%. 

It’s clear that by upskilling managers, engagement rises. Under the guidance of a supportive manager, employees feel psychologically safe and more able to contribute to the company's success. 

🎓 3. Encourage collaborative learning pathways

One of the most important ways to reduce attrition is to focus on learning and development. Employees thrive when they feel they’re contributing to the company’s success. That’s why innovative people teams are giving individuals more visibility and more ownership over employee development opportunities. 

People teams know that top-down learning is a thing of the past and doesn’t give employees the freedom to curate learning pathways that actually resonate with their goals.

The best approach here is to create a structured approach to performance reviews that encourages managers and employees to collaboratively identify the right learning pathway for them. That means employees are empowered to take ownership of their learning while being supported by their manager.

💡Find out how people leaders can embrace performance enablement through learning: What are you losing to the wrong L&D solution?

🤝 4. Improve company culture and belonging

According to Lattice, diversity, equity, inclusion, and belonging (DEIB) became once again a top-four priority for HR leaders

The problem is, most organizations' interest in DEIB tends to wax and wane. And, while a lot of leaders say it’s a top priority, it seems there’s a lack of clarity on how to actually make workplaces more equitable and inclusive.

One solution that has seen growing success is employee resource groups (ERGs). The idea is that employees from historically underrepresented groups can come together in a psychologically safe space to share support and resources with each other, and gather feedback for their leaders. 

👍 5. Develop a compelling employee value proposition

Next, it’s helpful to get a deep understanding of your employee value proposition (EVP). What makes your company an attractive employer? Is it your competitive salaries? The fact that you offer flexible working hours? Opportunities for progression, autonomy, and personal development? Or your company’s welcoming culture? 

There’s no one right answer here, but it’s important to start by understanding what you’re already doing well - and then work backward from there. 

It can be easy to think that salary is the only differentiating factor when employees take up a new role. And sure, that’s always going to be important. But even if you can’t offer the industry’s most competitive salaries, there are plenty of other things you can offer. 

One of the best ways to understand your EVP is perhaps the simplest: ask your employees. After all, they all decided to join the company once and (at least so far) have decided to stay. Understanding the reasons they’ve done so is a great place to start. 

Then, compare these insights with those from your exit interviews to create a detailed picture of what’s working well and what areas are ripe for improvement.

Reduce attrition rates with innovative L&D

Understanding your company’s attrition rates is the first step to hiring and retaining top talent. Comparing that to factors like promotion rate or tenure could reveal crucial trends or underlying issues within your organization. 

Right now, the most effective thing people leaders can do to reduce attrition is to focus on current employees. Listening to their feedback will help you identify areas for improvement and understand what your people really need from the organization. Leaders can also work collaboratively with direct reports to create learning pathways based on their career goals and tie their L&D priorities to career and performance objectives.

With Learnerbly, for example, employees have access to their own personal budget, a wide range of multi-modal resources, and on-demand learning. All this empowers them to take ownership of their learning journey to meet their role requirements and progression goals.  

Learnerbly customers achieve an average of 95%+ employee activation and 40-60% engagement with Learnerbly. Book a demo.

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