- What is Employee Attrition?
- What is Employee Turnover?
- Employee Attrition VS Employee Turnover: How Do They Differ?
- How Employee Attrition Impacts a Business
- How Do Companies Calculate Employee Attrition Rate and Turnover Rate?
In the business world, some setbacks are unavoidable. But the best thing that we can do as business-focused people is just to do our best to maintain and regulate our companies’ Return of Investment or ROI in check. One of the most common ways in which this is done is via attrition of employees.
Attrition is one of the business terms that might be intimidating, but it can be easily understood. To make it more simple, attrition is the process where the workforce starts to dwindle within a company. And for a certain period of time, some employees resign or retire, and the company decides not to replace them.
The term attrition may also mean that the company is slowly losing its regular set of customers, otherwise known as the customer base. The most common reason for this is that regular customers are starting to age or are slowly moving on from their products and services.
Another term you will come across is hiring freeze, which pertains to the less deteriorating method of cutting down on a company or an organization’s workforce. It may also include a reduction in the salary of the employees instead of laying them off.
This is the more conservative approach because instead of letting go of some employees, the company decides to keep them all. Still, the consequence is that their payroll will be a lot smaller as compared to their usual wage.
What is Employee Attrition?
To begin, we can view Employee Attrition is something that occurs within a company where there is a significant decrease in the number of staff. The reason for losing these employees is usually due to natural reasons such as resignation, retirement, health issues, the company’s decision to terminate an employee or liquidize a department, and sometimes even death.
Having problems within the company is costly, and it may result in an even bigger problem: lack of funds for the bi-monthly salary of your employees. As a result, the company might resort to a staff attrition, which means employees who resign or retire will not be replaced by newly-hired staff.
Staff attrition has a lot of aspects to it, and here are some of its advantages.
First of all, employee attrition will help the company or organization in reducing the excess costs and expenses. Especially financial distress presents itself as a problem. By maintaining the number of employees to be paid, the company is saving some money because instead of using the finances for the staff’s payroll, it is now allotted for other more important areas in the group.
Another advantage that employee attrition has is that it is a more cordial or amicable departure of staff from an organization or a company that they served for a long period of time. It is a lighter approach of letting go of staff as opposed to the lay-off of employees.
As for the disadvantage, obviously, the number of employees will lessen, so the workforce’s strength and size will be reduced. This often results in retained employees being overworked because they have to work harder to fill in the employees’ shoes who retired or resigned.
What is Employee Turnover?
Employee turnover is another huge concern within the business world – no matter how small or how big a business is. This is usually characterized by the loss of staff within the workplace as time goes by.
This occurs because of many different reasons, Turnover is when employee resignation, retirement, lay-offs, transferring of locations, terminations, and even deaths. Staff turnover also has advantages, and it is important to explore them.
First of all, your new employees will provide your business with newer ideas. They have a fresh perspective that will surely help your team in being more productive and cost-efficient. Another advantage of employee turnover is that the staff within your workforce will not feel too complacent about their position in your company.
They will start working even harder because they know that they can easily be replaced by someone else whenever they find the need to do so. This will also increase your team’s productivity rate because they will have better employee morale as a team.
But just like life, there is a balance here, so there are also some disadvantages. Dismissal can take a toll on your employees because being terminated from work is heartbreaking. It affects a person’s mental health and the financial stability of his or her family.
The rehiring process can also be stressful because you will have to retrain the new employee, which costs some money and time. It is essential that you hire the correct and most appropriate person because if you do not, you will have to undergo the hiring process again, therefore wasting your time and the company’s finances.
Employee Attrition VS Employee Turnover: How Do They Differ?
You might think that it is exactly just like Employee Attrition, but no. Because employee turnover means that once someone within the workforce is lost, another newly-hired employee will take his or her place.
Unlike employee attrition, employee turnover makes sure that all positions will be refilled once someone from the workforce stops participating; hence, the term turnover; because new ones easily replace the employees.
Example of employee attrition:
For the past 25 years, Ruth has been with the CB Corporation. She is now retiring from her work, and the company insists on nor finding someone who will replace her job for her. Because of this, Ruth’s position in the company will not be filled by a newly-hired employee.
Example of employee turnover:
Jackson has been working for a call center agent for the past 5 months for Concentric, and he decided to transfer to a different customer service company. Concentric will then find a new customer service representative who will fill in Jackson’s position as a call center agent.
How Employee Attrition Impacts a Business
Employee Attrition can be seen as a business’ way of giving homage to their valued employees. But what are the effects of staff attrition in a business?
There are many effects that attrition has on a company, but the most negative of all is that it leaves the employees who stayed in the company with added weight on their shoulders. Often, they will feel overworked because they have to adjust their workload all of the time whenever one of their colleagues has been let-go of.
Once the employees feel overwhelmed by the excessive load they have to accomplish, their output will automatically downgrade, resulting in a lower quality of work. Overall, the company will suffer if excessive staff attrition occurs.
Another thing that can damage the company’s strength is that employee attrition might significantly affect the workforce’s team dynamic. Once a team starts working with each other for a long period of time, they develop a routine that they stick to. They make each other’s workload a little bit lighter, so the loss of one teammate can significantly affect their work ethics.
Honestly, companies need to balance both staff attrition and staff turnover because an excessive amount of either one of these methods will result in chaos. Yes, it is important to save on expenses, but employment continuity is extremely vital in running a business.
How Do Companies Calculate Employee Attrition Rate and Turnover Rate?
More often than not, businesses do their best in calculating the employee attrition and turnover rate because they need to predict their impact on a lot of things. Some of the factors that employee attrition and turnover rate affect are the business’ productivity rate, the quality of their customer service, and the morale of the employees working for the company.
The attrition rate in employees is calculated quite easily. Follow these steps for a successful calculation:
- Figure out the number of staff who departed from the group
- Multiply the number of staff who left by the total number of staff within the business
- Once you’re done, multiply it by 100
So basically, the formula looks like:
Attrition rate (%) = (number of departed staff / total number of employees) x 100
As for the turnover rate in employees, it is calculated using the following steps:
- Divide the sum total of the departed employees by the average total of employees that your business has in one year
- Multiply it by 100
So basically, the formula looks like:
Turnover rate (%) = (number of departed staff / average total of employees in one year) x 100
Both of these formulas will give you the annual rating.
Ultimately, all companies have to be careful in deciding whether to push through with employee attrition or employee turnover. Although both business methods work well, it is important to find a balance between the two. They can be extremely effective if balanced well because they work well together.
It is also important to remember that a company or a business can easily hit rock-bottom because of the two methods’ unprofessional usage.
Attrition and Turnover Reference
- Mainkar, G. 2018. Understanding the Impact of Attrition on Organization. hs.blog.harbinger-systems.com
- Subramony, M. and Holtom, B. 2012. How Employee Attrition Hurts the Bottom Line. www.strategy-business.com
- Dik, B. 2018. Staff Attrition vs. Staff Turnover: What’s the Difference? www.jobzology.com
- Roder, N. 2019. What Is Employee Turnover (And Why It Matters). www.zenefits.com
- Kenton, W. 2019. Attrition. www.investopedia.com
What is Attrition in the Organization?
Employee Attrition is something that occurs within a company where there is a significant decrease in the number of staff. The reason for losing these employees is usually due to natural reasons such as resignation, retirement, health issues, the company’s decision to terminate an employee or liquidize a department, and sometimes even death.
What is Turnover in an organization?
Turnover is when employee resignation, retirement, lay-offs, transferring of locations, terminations, and even deaths. Staff turnover also has advantages, and it is important to explore them
How to calculate Employee Attrition Rate %?
Employee Attrition rate (%) = (number of departed staff / total number of employees) x 100
How to Calculate Employee Turnover Rate %?
Employee Turnover rate (%) = (number of departed staff / average total of employees in one year) x 100