Employee Attrition Explained: Types, Calculation, Impact, & Strategies

Table of Contents

    What is employee attrition, and why should your organization care? 

    In any labor market, employee quits, layoffs, and separations are problematic. According to the US Bureau of Labor Statistics, almost 50.6 million people left their jobs in 2022, recording a 2.9 million increase in quits from 2021. When an employee leaves, it disrupts the usual business workflow. Tasks can be delayed and additional costs are incurred to train new hires.

    Employee attrition helps organizations assess the impact of vacant or eliminated positions, enabling them to plan recruitment cycles and develop employee retention strategies. Understanding and effectively managing attrition is fundamental for maintaining a solid organizational structure and ensuring sustained growth. 

    This article aims to: 

    • Explain the concept of employee attrition
    • Differentiate attrition from turnover
    • Illustrate how the attrition rate is calculated
    • Identify common causes
    • Propose attrition prevention or reduction strategies 
    • Provide readers with insights to improve employee retention effectively

    What Is Employee Attrition?

    Employee attrition occurs when an employee leaves an organization for any reason, and the position they vacated remains unfilled indefinitely or for a considerable time. This often leads to a decrease in the size of an organization’s or department’s workforce.

    Let’s simplify with an example.

    Imagine a small tech company, “InnovateTech,” with 50 employees. Over a year, five employees decide to leave the company – two retire, two find new jobs because they want more challenging roles, and one moves to a different city.

    While the company loses valuable talent and possibly faces a temporary decrease in productivity, this also opens opportunities to hire fresh talent with new ideas and skills. If InnovateTech decides not to replace these employees, they have experienced a 10% attrition rate for that year (5 out of 50 employees).

    How Do You Calculate Attrition Rate Using an Attrition Formula?

    Understanding how to measure your company’s attrition rate accurately acknowledges its significance in human resource (HR) analytics. 

    blog employee attrition formula

    Attrition Rate = (Number of Attritions / Average Number of Employees) ×100

    You only need two elements to calculate the attrition rate:

    • Total Number of Attritions: The count of employees who left the company during a specific period.
    • Average Number of Employees: The mean number of people working at the company during that period.

    Here are examples of calculating the attrition rate annually and quarterly:

    Example 1: Yearly Attrition in a Tech Company

    Consider a tech company that started the year with 200 employees. Throughout the year, it experienced the departure of 30 employees. The attrition rate calculation involves two primary steps:

    Step 1: Find the average number of employees by averaging the start and end counts: (200 + (200 – 30)) / 2 = 185.

    Step 2: Calculate the attrition rate: (30 / 185) x 100 = 16.2%.

    The yearly attrition rate is 16.2%.

    Example 2: Quarterly Attrition in Hospitality

    A restaurant starts the quarter with 150 employees but sees a reduction of 10 employees by the end of the period.

    Step 1: Calculate the average staff number: 150 + (150−10) / 2 = 145.

    Step 2: Calculate the attrition rate: (10/145) × 100 = 6.89%.

    The quarterly attrition rate is 6.89%.

    Example 3: Annual Attrition in a Growing Corporation

    A corporation with an initial headcount of 1,000 hires an additional 200 employees during the year but loses 50.

    Step 1: Average the employee count: (1,000 + (1000+200-50)) / 2 = 1,075.

    Step 2: Compute the attrition rate: (50/1,075)×100 = 4.65%.

    The annual attrition rate is 4.65%.

    Four Types of Employee Attrition

    Attrition can happen for many reasons and comes in different forms. Each type affects the workforce and the company in different ways. Let’s discuss the various types of attrition and their impacts.

    1 – Voluntary Attrition

    Voluntary attrition occurs when an employee or employees leave the organization of their own accord. Reasons can range from better job offers and personal reasons to a desire for a career change. For example, a software developer, Emma, left her job for a startup after five years, seeking innovation and flexibility. Her move symbolizes voluntary attrition for career growth.

    2 – Involuntary Attrition

    In this scenario, the organization terminates the employment relationship due to performance issues, restructuring, or economic downturns. For example, Bob was a customer service representative. He was laid off in a restructuring effort. This marked his exit as involuntary attrition due to organizational changes.

    Voluntary AttritionInvoluntary Attrition
    Employee-driven decisionEmployer-driven decision
    Often due to better opportunities, personal reasons, or career changeDue to performance issues, restructuring, or economic downturns
    Example: Emma leaves for a better job opportunityExample: Bob’s position is eliminated due to restructuring

    3 – Functional attrition

    Functional attrition occurs when employees whose departure benefits the organization leave. This could be due to poor performance, misalignment with company culture, or role redundancy. Essentially, the organization starts to gain, either immediately or in the long term, from these employees leaving. 

    For example, an IT specialist, John, was struggling with the shift to cloud computing, so he left the job for a role that matched his skills. His departure, deemed functional attrition, allowed the company to hire someone with cloud expertise, boosting efficiency and innovation.

    4 – Dysfunctional Attrition

    Dysfunctional attrition happens when the departure of employees negatively affects the organization. This includes losing high-performing individuals, those with unique skills, or employees who play a critical role in the team. Dysfunctional attrition can lead to decreased productivity and morale. Additionally, it can incur significant costs related to recruitment and training. 

    For example, a leading sales executive, Sophia, left her job for a competitor due to limited growth and recognition. Her exit, viewed as dysfunctional attrition, affected the company’s revenue and morale, highlighting the significant impact of her loss.

    Functional AttritionDysfunctional Attrition
    Benefits the organizationHarms the organization
    Due to poor performance, misalignment, or redundancyInvolves loss of high performers or critical skills
    Example: John leaves, allowing recruitment of needed skillsExample: Sophia’s departure impacts revenue and morale

    Difference Between Attrition And Turnover

    Attrition occurs when an employee leaves an organization for uncontrollable or unpredictable reasons, such as retirement, relocation, returning to school, or any other personal choice, and is not immediately replaced. For example, a school faces attrition when several senior teachers retire in the same year. The school administration decides to use this to evaluate their curriculum and staffing needs before hiring new teachers, potentially leading to a strategic realignment of resources. 

    On the other hand, turnover is the total percentage of workers who have left a firm in a specific period. For example, a marketing executive at a tech firm resigns to pursue a career opportunity elsewhere. The company promptly begins recruiting a new executive because the role is crucial to its operations. 

    CauseNatural and personal reasons like retirement or relocationResignation, dismissal, or other employment terminations
    ReplacementNot immediately soughtActively sought
    ImpactCan lead to cost savings or skill gapsOften incurs recruitment and training costs
    ManagementInvolves long-term planning and forecastingRequires immediate action to fill positions

    Factors Impacting Attrition

    Navigating employee attrition involves understanding internal and external factors influencing an employee’s decision to stay or leave.

    Internal Factors

    Exploring internal factors indicates how a company’s culture, growth opportunities, and compensation influence employee retention. Some important internal factors are discussed below:

    Work Culture and Employee Engagement

    According to Forbes, under CEO Satya Nadella, Microsoft transformed its culture to focus on empathy, collaboration, and learning. This led to a significant improvement in employee retention.

    A positive company culture and high levels of employee engagement are crucial for retaining talent. Employees are more likely to stay when they feel valued, supported, and connected to the organization’s mission and values. Contrarily, a toxic or uninspiring culture can push talented individuals away. 

    Career Development and Opportunities for Growth:

    Employees seek opportunities for advancement and professional development. Organizations that invest in employee growth and offer clear career paths are more likely to retain top talent. Lack of growth opportunities can lead to stagnation and attrition. For instance, Meta’s strong internal mobility programs allow employees to pursue different career paths. They enhance retention by offering growth opportunities within the company.

    Compensation and Benefits

    Competitive compensation packages and attractive benefits play an important role in employee retention. Employees who feel their contributions are sufficiently rewarded are less likely to pursue employment elsewhere. However, differences in pay or insufficient benefits can drive attrition. In 2020, Google’s pay inequity and poor treatment of temporary workers, reported by The Guardian, showed that unresolved issues could drive attrition.

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    free to use image from BigStock

    External Factors

    Turning the focus to external factors, we see how market dynamics and economic conditions outside a company’s control can drive employee attrition.

    Market Competition and Industry Trends

    External market forces and industry trends can significantly impact attrition rates. In sectors where talent is in high demand, such as technology or healthcare, companies may struggle to retain employees tempted by better opportunities elsewhere. 

    The competition for top talent between Apple and Amazon occasionally results in increased attrition, driven by the allure of more competitive job offers.

    Economic Conditions and Job Market Dynamics

    NBER research indicates economic conditions impact attrition. Firms boost retention efforts in downturns to avoid talent loss. In prosperous times, increased opportunities lead to more job-hopping.

    This shows how employees may be more inclined to stay with their current employer during economic downturns for stability. In contrast, they may be more willing to explore new opportunities in times of economic prosperity. 

    Work-Life Balance and Remote Work Trends

    According to the World Economic Forum, COVID-19 made remote work a norm, with firms like Twitter and Square permanently adopting it. This affected attrition based on flexibility preferences.

    The shift towards remote work and developing expectations regarding work-life balance have reshaped employee preferences and behaviors. Companies that offer flexible work arrangements and prioritize employee well-being are better positioned to retain talent in the workforce. 

    What is Considered a ‘High’ Employee Attrition Rate?

    High attrition rates generally indicate that a company is losing a significant portion of its workforce. High attrition rates can hint at underlying issues such as unsatisfactory working conditions, lack of growth opportunities, unsatisfactory compensation, and bad company policies or culture.

    The Double-Edged Sword of High Attrition Rates

    While a high attrition rate is often viewed negatively, its impact can vary depending on the context and the organization’s strategic goals.

    The Downside

    High attrition rates can signal trouble within an organization. They can lead to increased recruitment and training costs, disrupt team dynamics, and result in the loss of institutional knowledge. 

    For instance, when a retail company like Walmart experiences a sudden spike in attrition rates, especially among its experienced employees. It could face operational challenges and decreased customer satisfaction due to the time required to hire and train new staff.

    The Upside

    Interestingly, a high attrition rate is not always alarming.

    As per a report, strategic attrition can foster innovation and agility by bringing fresh talent with new ideas and skill sets for technology companies like Microsoft, Meta, etc.

    Furthermore, in highly competitive industries, managing underperformers or reshaping the workforce to align with the company’s evolving strategic direction can be beneficial in the long run.

    High Attrition Rates Across Industries

    Understanding the dynamics of employee attrition and turnover is crucial for businesses seeking to hold a competitive advantage.

    Recent data from the Bureau of Labor Statistics‘ Job Openings and Labor Turnovers (JOLTS) report shows industries experiencing high attrition rates, providing valuable insights into the challenges and opportunities within the workforce. 

    The Top 10 Industries with High Attrition Rates

    As of August 2023, according to the Bureau of Labor Statistics, the industries facing the highest number of layoffs and discharges are as follows:

    Professional and business services432,000
    Trade, transportation, and utilities297,000
    Leisure and hospitality225,000
    Education and health services198,000
    Accommodation and food services170,000
    Health care and social assistance162,000
    Retail trade162,000
    Transportation, warehousing, and utilities113,000

    While these figures provide valuable insights, business leaders must assess attrition rates within their organizations to develop effective strategies for improvement.

    Nine Strategies to Reduce High Attrition Rates

    High attrition rates are a major challenge for many organizations. To combat this issue effectively, organizations must implement strategic measures that address the leading causes of employee attrition. Below are a few strategies to reduce high attrition rates: 

    1 – Enhancing Employee Engagement

    Employee engagement is essential for reducing attrition rates, as engaged employees are more productive, satisfied, and likely to stay. Recognizing and rewarding their efforts makes employees feel valued and appreciated. Providing challenging and meaningful work that matches their skills and interests further boosts their engagement. 

    Google effectively reduces attrition by offering programs like peer recognition and professional development workshops. This makes employees feel valued and engaged.

    2 – Promoting Work-Life Balance

    Promoting work-life balance is necessary for a work environment. Excessive work hours and constant connectivity can lead to burnout, negatively affecting employees’ mental and physical health.

    Organizations can offer remote work, flexible schedules, and part-time roles to support employees’ work-life balance.

    Encouraging staff to use all their vacation time and respecting their days off also helps improve work-life balance. According to LiveMint, Netflix promotes work-life balance through unlimited vacation days and flexible remote work policies, significantly lowering employee burnout and turnover. 

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    free to use image from Unsplash

    3 – Ensuring Effective Communication

    Effective communication is essential for any organization’s success, enabling trust and transparency between employees and management. Sharing updates and future plans of the organization regularly keeps employees engaged.

    Additionally, encouraging feedback and addressing concerns promptly drives improvement and innovation.

    As reported by CNBC, Salesforce uses its platform, Salesforce Chatter, for open communication and holds regular meetings to keep employees informed and involved, reducing dissatisfaction and attrition rates. 

    4 – Building a Strong Organizational Culture

    A strong and positive organizational culture is a powerful tool in retaining employees. Cultivating a culture where respect, inclusivity, and collaboration are prioritized can make employees feel more connected to the organization and their coworkers.

    In 2024, Comparably published a study based on 70,000 anonymous employee ratings for companies shared on their site over 12 months from February 2023 to February 2024.

    The study claimed that Uber won the “Best Global Culture 2024” award. The majority of Uber employees believe that the environment is favorable. Most participants believe the pace of work at Uber is comfortable and fast.

    Uber fosters a sense of community and belonging among employees through various team-building activities and Employee Event Events. 

    Organizing team-building activities and social events can also strengthen employee relationships, increasing their sense of belonging and loyalty to the organization. 

    5 – Providing Career Development Opportunities

    Career development opportunities are essential for employee retention. Many workers leave their jobs due to a lack of advancement opportunities. Training sessions, workshops, and courses can empower employees to improve their skills and career progress. Clear career paths and internal promotions motivate employees to grow alongside the organization. 

    Career development opportunities are essential for employee retention, as many workers leave their jobs due to a lack of advancement opportunities. Training sessions, workshops, and courses can empower employees to improve their skills and career progress. 

    For example, Amazon’s “Career Choice” program demonstrates a commitment to promoting career advancement. This program offers Amazon employees a unique path to a new career in high-demand industries, covering 95% of tuition fees to empower their growth and development.

    As seen with Amazon, establishing clear career paths and focusing on internal promotions and leadership programs motivates employees to grow alongside the organization, encouraging long-term growth within the company.

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    free to use image from Unsplash

    6 – Conducting Exit and Stay Interviews

    Implementing both exit and stay interviews is essential to reducing employee attrition. Exit interviews provide insights from departing employees, helping identify areas for improvement. 

    Say interviews engage current employees to understand what keeps them committed. They allow companies to enhance job satisfaction and engagement proactively. This approach helps pinpoint improvement areas and shows employees their feedback is valued. 

    According to reports by CNBC, Salesforce conducts stay interviews to gather employee feedback and exit interviews to identify areas for improvement. This proactive approach underscores the importance of valuing employee perspectives to reduce attrition.

    7 – Using Data to Retain Top Performers

    Data collaboration is sharing data insights across departments and teams to inform decision-making and strategy development. These employee insights come from a multitude of sources, including HR data (engagement surveys, exit interviews, performance reviews), Employee Training data (skills gaps, training completion rates, course feedback), and Sales/Productivity data (workload distribution, customer satisfaction metrics, time management patterns).

    ​For example, HR data on exit interviews combined with sales performance data might pinpoint areas where specific skill development can improve retention in high-performing teams.

    This collaborative approach encourages a shared responsibility for addressing attrition and enhancing the employee experience. It also opens up avenues for feedback and suggestions from across the organization, enriching the data with diverse perspectives and expertise.

    9 – Implementing a HR Information Systems (HRIS)

    HR Information Systems are powerful tools that consolidate employee data, providing a comprehensive overview of the workforce. Advanced HRIS can track various employee metrics, from performance and engagement to training completion and career progression. By monitoring these metrics, organizations can identify potential red flags that indicate employee dissatisfaction.

    Furthermore, HRIS can facilitate the implementation of personalized retention strategies by tracking the effectiveness of different approaches across diverse employee segments.

    Curbing Employee Attrition With ClicData’s Data-Driven Retention Strategies

    Employee attrition is a costly problem for businesses of all sizes. But what if you could identify the factors that lead to employee churn and take proactive steps to retain your top talent?

    ClicData’s comprehensive data analytics platform empowers you to gain valuable insights from your HR data. With ClicData’s intuitive dashboards and reporting tools, you can gain a clear understanding of factors such as:

    • Departments with high turnover rates
    • Reasons for employee exits
    • Employee engagement levels
    • The effectiveness of onboarding/training programs

    By analyzing trends and patterns, you can identify factors contributing to employee attrition and take proactive steps to address them.


    Ready to take control of your employee attrition?