Running a business can be daunting. According to a recent HubSpot survey, 1 out of every 12 businesses in the United States shut down permanently each year. It may seem like a small number, but that’s a lot of companies going out of business – almost 2.6 million per year. The most common reasons for shutting up shop are apparent. Poor service, poor planning, poor product-market fit, hiring the wrong people, and inaccurate pricing are a few of the reasons that take down a majority of the businesses. But if you observe closely, all these problems arise due to human error. This is why hiring the right people and keeping them with the company for a long time is more important than any of these problems.
“Treat the cause of disease, not the symptoms.”
WHAT IS ATTRITION RATE & HOW IS IT CALCULATED?
In the simplest of terms, the attrition rate is the speed at which employees leave your company. For example, you own a multinational company with offices all over the world. You decide to calculate the global attrition rate of your company for January.
Looking at the data, you notice that there were 8,505 employees on your payroll on January 1st.
On January 31st, there were 8,604.
You dive deep.
In those 31 days, you find 308 employees left your company.
But your company managed to hire 407 people before the month ended, which totals 8,604 on January 31st.
Demographic-based attrition: This type of attrition can be classified as a sub-type of “voluntary attrition.” In this type, members of a specific age, sex, or ethnicity leave the organization due to a significant and common reason: discrimination. In addition to getting your company’s reputation damaged, your company might also lose business/customers very quickly if the rest of the world is made aware of these issues. Worst case scenario, you can be hit with a class-action lawsuit if the victims have strong evidence against your company.
So, since you’re in the net positive, no damage done, right?
Attrition rate still matters.
Let’s first calculate the average number of employees in January: (8505 + 8604) / 2 = 8554.5
Then factor in the number of employees who left the org and calculate the percentage using average employees: (308 / 8554.5) * 100 = 3.6%
Your company’s global attrition rate for January was 3.6%.
TYPES OF ATTRITION?
- Voluntary Attrition: Cases where your employee or employees choose to leave for their own reasons. Most common reasons include the pursuit of newer opportunities, relocating to a different country/state, paternity or maternity reasons, or health-related reasons. Willingness to leave a toxic work environment can also contribute to the voluntary attrition rate, which as an employer, you should be looking into as quickly as possible to fix the problem and prevent other employees from leaving.
- Involuntary Attrition: Cases where one of your employee or employees are asked to leave the organization. The most common reasons include poor performance or layoffs due to budgetary or reorganizational reasons. Abandonment from employment can also be categorized under involuntary attrition even though the employee has left voluntarily. This is because the company is responsible for taking the final call of termination.
- Internal Attrition: When an employee or a group of employees leave their team or department to join another team or department within the same organization. Although this seems like a good idea, excessive internal movement can have an adverse effect on the team. Too much movement at once or frequent movement of a resource from one team to another must be avoided to preserve the existing dynamics of the teams and their members.
- Demographic-based attrition: This type of attrition can be classified as a sub-type of “voluntary attrition.” In this type, members of a specific age, sex, or ethnicity leave the organization due to a significant and common reason: discrimination. In addition to getting your company’s reputation damaged, your company might also lose business/customers very quickly if the rest of the world is made aware of these issues. Worst case scenario, you can be hit with a class-action lawsuit if the victims have strong evidence against your company.
Also read: How to Spot Great Talent?
WHY DOES IT MATTER?
There are many important reasons why the attrition rate acts as a compass for your company, giving constant guidance on whether or not you are steering your ship in the right direction. No matter if you’re a business with five employees or 50,000 employees, the foundation upon which any business thrives is people and people only. The people of your company can either make or break your company. Therefore, it is imperative you keep a close watch on every aspect of your employee-related operations.
Too many people leaving your company can have a negative impact on the performance of your company. The first impact can be felt in the cost of hiring. According to some recent studies, replacing a highly skilled employee can range from 120% to 200% of their annual salary. If this practice remains unidentified for a long time, it can have a devastating impact on the overall budget, which might even result in a permanent shutdown.
A proper handover process is vital. Without a planned and extensive handover, institutional knowledge will permanently leave the organization, which is the worst kind of loss. Money lost can be earned back. But once old knowledge leaves the company without transferring it to someone else, employees are stuck and are forced to reinvent the wheel. Unless one has a detailed succession planning process in place, it is almost impossible to transfer all the knowledge an employee has acquired over the years. Following a proper handover process softens some of the hard blows that come with the problem of having a high attrition rate.
The departure of an employee will also affect the people who work around them. More often than not, the withdrawal results in additional pressure on other team members, who are already overloaded. Departures may also lower morale, increase stress, drain employees, and perhaps even affect the company’s overall business performance.
When someone leaves, it changes the dynamics of a team and can even damage the employer’s brand and the employer value proposition (EVP). This is the primary reason why recruiters often mention they have a hard time recruiting new people when the company has a history of a high attrition rate.
HOW EXELA HR SOLUTIONS IS HELPING OTHER BUSINESSES WITH ATTRITION RATE
Exela HR Solutions is a global HR outsourcing company. We offer a full suite of HR services to our clients, from recruitment process outsourcing and global payroll processing to benefits management and HRBP services.
We have a team of HR professionals, each an expert, dedicated to their slice of the HR pie to make sure all your HR tasks are carried out correctly and on time. Not only that, but we also bring the best HR practices and robust HR technology to your company that minimizes employment-related risks like accidental non-compliance and compensation miscalculation and helps you take better care of your employees.
Our HRBP services are great at combating high attrition rates. Our services are designed and executed to provide highly professional and dedicated one-on-one support for each of your employees. With the help of experienced HR experts and tried-and-tested methodologies, Exela can help you recover and grow by providing exceptional support and technology for your employees at all times.
Contact us today!