Understanding Attrition and Its Implications for Business

Written by Coursera • Updated on

Discover the core drivers behind employee attrition, including key strategies for fostering a positive work environment that promotes employee loyalty.

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Employee count is subject to perpetual change due to new hires, early retirements, or dismissals. However, tracking attrition rates over time can aid in identifying trends, anticipating potential problems, and enhancing employee satisfaction while reducing recruitment and training costs.

In this article, we explore the concept of attrition, underscore its significance, and discuss effective strategies for managing employee turnover rates.

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What is attrition?

Attrition in the workplace refers to employees leaving an organization. It’s important to note that personnel, regardless of expertise and experience, may leave jobs for various reasons, whether voluntary or involuntary. For example, between December 2019 and May 2022, the rate of voluntary job resignations among employees in the United States was 25 percent higher than before the pandemic, as reported by Statista [1].

While no universally accepted standard exists for what constitutes a good or bad attrition rate, experts tend to agree a rate around 10 percent is healthy, and quantifying attrition can help your workforce planning endeavors as a business owner. Additionally, measuring attrition can help you anticipate potential talent gaps.

Did you know?

Federal government employees under the age of 30 experienced an 8.5 percent attrition rate in 2021. This was more than double the average attrition rate of their older counterparts aged 40 to 49, according to the Partnership for Public Service. The nonpartisan nonprofit organization analyzed turnover trends in the federal government for fiscal year 2021 [2].

How to calculate your employee attrition rate.

You can calculate the attrition rate for your business on a monthly, quarterly, or yearly basis using the following formula:

Attrition rate = (Number of employees departed during set time frame) / (Average number of workers employed during set time frame)

Note: To calculate the average, add the number of employees at the beginning of the period to the number of employees at the period’s end. Next, divide this total by two.

Here’s an example...

Let’s say your organization had 200 employees at the beginning of 2023. During the second quarter of the same year, 25 employees left the company. Using the formula mentioned above, this translates to an attrition rate of 13.3 percent for the specified quarter:

Average number of employees = [200 + (200 - 25)] / 2 = 187.5

Attrition rate = (25 / 187.5) × 100 = 13.33 percent

The attrition rate would be zero if there were no employee departures or new hires during the given period. 

Types of attrition.

Not all employee exits are the same. The following list highlights five types of attrition that can occur in business settings: internal, external, involuntary, voluntary, and demographic-specific.

  • Internal: Internal attrition denotes shifts within a company. For instance, an employee might depart from the finance department to join the accounts department if a position becomes available, or their manager could promote them to a higher-level role.

  • Involuntary: As an employer, you may encounter involuntary attrition when you terminate an employee. For example, if your company faces budget cuts, you may need to reduce your workforce by eliminating specific roles within the business.

  • Voluntary: Personal or professional reasons can result in voluntary attrition. For instance, relocation to a different city or country can prompt an employee to resign. 

  • Retirement: Each year, retirements occur as employees age and reach their full retirement age leading to attrition.

  • Demographic-specific: This type of attrition is characterized by the departure of particular groups, such as women, ethnic minorities, individuals with disabilities, and veterans, due to disparities in work opportunities.

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Factors contributing to high attrition rates.

Besides economic fluctuations, such as recession, several factors may lead to high attrition rates. Below are a few notable reasons: 

1. Work-life imbalance

When work demands are excessive and not balanced with personal life, your employees may experience heightened stress, decreased productivity, and burnout, prompting them to seek better job prospects elsewhere.

2. Insufficient compensation

A salary that fails to meet employees’ financial requirements or expectations can drive attrition, as employees may actively explore alternative job opportunities that offer better pay.

3. Too little feedback or recognition

Feeling unnoticed or ignored can negatively impact job satisfaction, causing employees to feel disconnected from their work and the organization.

4. Subpar management 

A negative work environment resulting from indifferent or unapproachable managers can lead to low employee morale and reduced engagement. Consequently, employees become dissatisfied with their jobs and opt to leave the organization, contributing to attrition.

5. Individual impetus

Changes in an employee’s personal life can motivate them to explore new job horizons. For example, factors such as spousal job opportunities or the desire to enter emerging industries can drive these shifts.

6. Lack of opportunities 

Unchallenging work coupled with a scarcity of learning opportunities may prompt employees to depart from their roles.

Did you know?

Since 2021, the number of Americans voluntarily quitting their jobs has substantially increased, a trend labeled the “Great Resignation” by the US Bureau of Labor Statistics [3].

5 ways to lower your firm’s attrition rate.

Although attrition is unavoidable, you can take some measures to mitigate unintended exits. Here’s a brief checklist you may follow:

1. Conduct surveys

Anonymous surveys can help you gauge employees’ sentiments about their experience within your organization. Valuable insights obtained from these surveys can enhance the existing work culture and address any potential challenges before they escalate further.

2. Prioritize internal promotions

When a managerial or regulatory position becomes vacant, consider offering it to current employees before seeking external candidates. Acknowledging the leadership potential of your existing workforce and providing internal promotions can significantly boost their morale and commitment, resulting in improved employee retention.

3. Regulate exit interviews

While some active workers may be willing to discuss their perceived issues, you will likely receive more comprehensive and candid feedback through exit interviews, which can be conducted on the last day of employment.

4. Allocate resources for upskilling

Make continuous learning and growth a priority to maintain a thriving workforce. This entails offering varied training, skill-building, and personal development opportunities to empower employees to grow within their roles and as individuals.

5. Implement flexible working

Introducing a flexible working model can help reduce attrition. For example, one approach is to retain senior employees part-time, engaging them as instructors or trainers.

Getting started with Coursera.

Develop skills to boost employee morale with the Emotional Intelligence: Cultivating Immensely Human Interactions course on Coursera. The University of Michigan offers this course on intrapersonal and interpersonal skills through theory, assessments, and animated vignettes. Notably, prior experience is not a prerequisite for enrolling in this course. You can complete the course within three weeks, with an average commitment of six hours per week, totaling approximately 20 hours.

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Written by Coursera • Updated on

This content has been made available for informational purposes only. Learners are advised to conduct additional research to ensure that courses and other credentials pursued meet their personal, professional, and financial goals.