What do you think of when you see the terms “employee turnover” and “employee attrition?” For many of us, these phrases call to mind workplace dysfunction, job losses or even confusion, because turnover and attrition are closely related ideas.
But not only can turnover and attrition have potential upsides, they can also provide insights about what your organization does well and where it can improve.
Let’s look more closely at attrition and turnover to get some clarity on these important concepts.
What is employee attrition?
Attrition is just the reduction of something. In business, employee attrition is a reduction of headcount for any reason, so it can be it can be any type of departure. It can be a voluntary departure like a retirement or a job change, or an involuntary departure, like a layoff or a death.
You can measure attrition by comparing your employee total at the beginning of a year, quarter or month to the total at the end of that period. For example, if you started the quarter with 100 people and ended it with 85, that quarter’s attrition rate is 15 percent.
What is employee turnover?
Turnover, on the other hand, describes the departure and replacement of an employee. Turnover rate is typically expressed in a percentage per year, quarter or month.
To calculate your turnover rate, you first need to compile a few numbers. Begin by obtaining answers to the following questions about the time frame in question:
- What was the average number of employees?
- How many total employees left their jobs?
- How many employees were replaced?
In our example above, we’ll say 20 employees left. You replaced 5 of them, which left you with the 85 employees at the end of the quarter.
To find the average number of employees in the reporting period, you simply add the total number of employees on the first day of the reporting period with the total number of employees on the last day of the reporting period, then divide by 2.
In the case of our example, the formula looks like this:
(100 + 85) / 2
Thus, the average number of employees for this quarter is 92.5.
Now that you’ve calculated the average number of employees in the period, you can divide the number of employees who left (20) by the average number of employees over the reporting period (92.5) then multiply the result by 100.
Again, for our example, the formula looks like this:
(20 / 92.5) X 100
So, the turnover rate in this example is 21.62 percent in the reporting period.
Is turnover good or bad?
Turnover is neither good nor bad. It’s simply a metric by which you can identify the movement of employees into and out of your company. You can also look at this number on a departmental or location basis.
To understand whether the reason for turnover is having a positive or negative impact, it’s important to look at not only why people leave your organization, but also which people are leaving.
For example, a company with six managers might look at the turnover rate for each and find that only one has low turnover. It’s tempting to assume that the low-turnover manager is doing things right, and that the other managers should follow their example.
But what if that manager’s team is disengaged and low performing, while the other managers excel at winnowing out people who aren’t the right fit for the company’s goals? Talking to the managers and the leadership to whom they report is critical in your decision-making process – and can help you avoid mistakes based on turnover numbers alone.
On the other hand, if turnover is high among your top performers while your disengaged employees stick around, that’s a sign that something’s pushing your best people away and driving up your hiring costs. Your career development opportunities, employee engagement strategy or something else may need improvement to reduce that turnover.
Is attrition better or worse than turnover?
Like turnover, attrition is simply a metric to indicate the amount by which headcount is reduced in a particular time frame. Whether that reduction is helpful or harmful to your company depends on the context. It’s critical to understand that context before making any decisions.
Attrition can sometimes help you manage costs, for example. If you need to cut costs by reducing headcount and you don’t want to lay off employees, attrition may be your best friend. By simply not replacing some or all of the people who leave voluntarily, you may be able to achieve your cost cutting goal without taking a perceived negative action within the employee base.
However, if your business is seeing a wave of retirement-related attrition and you’re struggling to hire new people, attrition can be a red flag that you’re about to face a staffing crunch.
Create a plan to manage attrition wisely
When a company’s attrition rate rises due to retirements, employees who are overloaded with caregiving at home or another cause leading to voluntary departures, the organization can be caught unaware. That can create problems with internal knowledge of processes, customer relationships and productivity.
How can you avoid, or at least be better prepared for this scenario?
1. Communicate with your employees.
Employees leave for all kinds of reasons that have nothing to do with your company. For example, an employee who’s about to graduate from college may need to move for graduate school or to move into their chosen industry. A military spouse may be about to relocate with their family to a new duty station. And senior talent may be looking forward to retiring.
To know these things, it’s helpful to have the kind of a relationships with your employees that engenders their frank and upfront communication about their plans. In a culture that fosters communication, it’s easier to casually check in with your people, talk about their goals and get a sense of who might be leaving and when.
2. Build systems to share employee knowledge.
Before your people leave, you’ll want to find a way for them to pass on their institutional knowledge so that you won’t lose that information when they leave. This is especially important in industries with a relatively high turnover rate that don’t have the luxury of time for a long onboarding process.
For example, cable television installers and construction firms can build strong knowledge bases to share with new employees, shorten the learning curve and prevent dips in productivity and customer satisfaction. By building an employee knowledge base, you can capture insights from your people as they work, so you’re not hustling to gather information while people are planning their departure.
If possible, have employees work with their replacements or cross-train other people in your organization so important knowledge isn’t stuck in individual silos. If you’re not able to pair a departing employee with their replacement, cross-trained employees may be able to mentor them as part of your formal onboarding process.
3. Manage your talent pipeline.
If your recruiting team has a pipeline of candidates that they can call on when you know a departure is coming up, the onboarding process can be more efficient. When you can quickly bring in a new person to ask questions and shadow the person they’re replacing, the new person can start off stronger in the role.
The flipside of attrition and turnover: employee retention
As you look at your attrition rate, think about how you can use it to understand your retention rate. Information about attrition and turnover can help you reach your retention goals.
For example, what if your company foresees a need for more workers with a particular set of skills? If you reduce attrition among your current employees in that group by giving them more reasons to stay, you can also improve your organization’s appeal to potential hires with those skills.
Looking for ideas to keep your team engaged? Download our free magazine, the Insperity guide to employee retention.