What is Attrition Rate?
Within the context of human resources and workforce planning, attrition rate is a reduction in the workforce caused by retirement or resignation, without plans to fill or replace that vacant job position. Outside the HR context, the term attrition refers to a reduction in strength or a weakening – which is likely the reason why the term has a negative connotation, even when there can be positive outcomes resulting from a reduction in staff.
Unless your company is adequately prepared for employees who are planning to resign or retire, attrition can be costly. Your company may experience a loss in productivity, particularly when the departing employee is the only one, or one of very few employees, familiar with that position. In addition to diminished productivity, you stand to lose institutional knowledge.
Employees who have been with the company for years understand how the company operates, and are familiar with the mission and the company's ethics and principles. They are likely to be involved in training new employees, precisely because they are extremely knowledgeable about company practices, policies and objectives.
What is the importance of Attrition Rate?
There are costs associated with losing employees, but the tangible costs for workforce planning exist in every area of HR. What you may be more concerned about are the intangible costs of attrition, and even those are manageable. When you approach workforce planning with creativity and attention to workers' intrinsic needs, you can sustain high morale, job satisfaction and engagement among your employees. If you treat attrition as a negative, it will be.
On the other hand, planning for attrition and successfully managing the cost of attrition happens through open communication, succession planning, employee development and making it clear how much you value employees who have contributed to the company but who are now moving on.
How do you calculate the attrition rate?
Calculate the monthly attrition rate
To calculate the attrition rate for any given month, you need to know the total number of employees at the beginning of the month. Then, you need to know the number of new employees added that month. Finally, determine the number of employees who left. The number of employees who left is the number of attritions.
- Plug the numbers into the following formula: Attrition Rate = Number of Attritions/Average Number of Employees *100.
- For example, suppose a telecommunications company had 150 employees as of April 1, 2015. During that month, 20 employees voluntarily left the company. Also, the company hired 25 new employees.
- First, calculate the average number of employees. The beginning number was 150. If 20 people left and 25 people were hired, then the ending number was 155. The average number of employees for that month can be calculated with the equation (150+155)/2=152.5}(150+155)/2=152.5.
- Next, calculate the monthly attrition rate. In this month, 20 people left, and the average number of employees was 152.5. The monthly attrition rate can be calculated with the equation
- The attrition rate for April 2015 was 13.11 percent.
Calculate the annual attrition rate
For this calculation, you need to know the total number of attritions for the year. Then, you need to calculate the weighted average of employees. Using the weighted average is more mathematically accurate since it smooths the effect of seasonal changes in the number of employees a company has throughout the year.
- Suppose the telecommunications company in the above example had a total of 62 attrition for the year.
- They typically hire 20 percent more employees for the last quarter of the year for their busy season. So, they have an average of 155 employees for the first three quarters and an average of 186 employees for the last quarter.
- Knowing that there are four quarters in a year, you could calculate the weighted average with the formula ((155*.75)+(186*.25))=(116.25+46.5)=162.75}((155*.75)+(186*.25))=(116.25+46.5)=162.75.
- You could also use the number of weeks worked. There are 52 weeks in a year. In the first three quarters, there are 39 weeks, and in the last quarter, there are 13 weeks. Use the formula ((155*39)/52))+((186*13)/52))=116.25+46.5=162.75}((155*39)/52))+((186*13)/52))=116.25+46.5=162.75.
- Finally, you could use the number of hours worked. In a year, there are 2080 work hours. In the first three quarters, there are 1,560 hours, and in the last quarter, there are 520 hours. Use the formula ((155*1,560)/2080))+((186*520)/2080))=116.25+46.5=162.75}((155*1,560)/2080))+((186*520)/2080))=116.25+46.5=162.75
- The weighted average of employees for this company is 162.75.
- Calculate the annual attrition rate with the formula (62/162.75)*100=38.09}(62/162.75)*100=38.09, or 38.09 percent.