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Glossary: HR & Recruiting Definitions

What is employee attrition

Employee attrition occurs when an employee leaves a company and the company decides not to replace them with a new hire. Meaning, the position held by the employee will not be filled by a new employee.

Since the job will no longer be filled, employee attrition generally results in the downsizing of a company. The reason behind the employee attrition can be either voluntary or involuntary. Attrition is measured as a percentage, called the company’s employee attrition rate.

Attrition meaning

The general definition of attrition refers to the process of gradually making something weaker or reducing it in size, such as grinding down stones through friction.

Employee attrition in HR refers to a reduction in the number of employees within a company. Whenever an employee leaves the organisation (regardless of the reason for leaving), and the company decides not to hire a new employee to fill the position, we speak of attrition. In the UK, it is sometimes called (natural) wastage rather than attrition.

The higher the number of job positions that are lost, the higher the company’s employee attrition rate. More on calculating the employee attrition rate below.

Employee attrition vs turnover

Employee attrition should not be confused with a company’s employee turnover. Although similar, they are two different concepts that signal two different things regarding the health and sustainability of a company’s staff base.

In short, with employee attrition the position isn’t refilled, whereas with employee turnover it is. Here are two examples to further explain the different definitions:

  • An employee resigns and leaves a company. The company decides not to find a new employee to refill the position. This is employee attrition.
  • An employee resigns and leaves a company. The company starts actively hiring and ultimately finds a new employee to fill the position. This is employee turnover.

How to calculate attrition rate

To calculate employee attrition rate, the company needs to first determine a time frame for which they want to calculate it. Most businesses calculate their attrition annually.

The attrition formula is as follows:

Employee attrition rate = (number of employees who left; positions not refilled / average number of employees) x 100

Note that the calculation uses the average number of employees during the specified time frame. So, if at the beginning of the year the company had 100 employees while at the end of the year they had 50 employees, the average number of employees is 75.

For example, say an organisation wants to assess their employee attrition rate for 2021. The average number of employees for the year was 63. A total of 8 employees left the company and the company decided not to refill their positions. The employee attrition rate for 2021 is (8/63)*100 = 12.70%.

High attrition signals that the company is shrinking in size. This might be an issue, but it doesn’t have to be (see further below).

Reasons for attrition

Attrition can be either voluntary or involuntary. In the case of voluntary attrition, the employee decides to leave the organisation themselves, while involuntary attrition refers to employees being forced to leave the company.

Example reasons for employees leaving the company:

  • Retirement
  • Personal health/illness, such as burnout, or death
  • Forced lay-offs (e.g. due to restructuring or a financial downturn)
  • Resignation (e.g. due to lack of growth or a toxic work environment)

Once the company decides not to replace these employees, it becomes part of the attrition rate. Companies can have several reasons for not refilling a position.

Example reasons for attrition:

  • Financial problems forcing the company to downsize
  • Difficulty finding a replacement, for example due to low unemployment and a highly competitive market in the company’s area
  • Internal redistribution, meaning the position’s tasks can be covered by other employees
  • Business relocation, during which not all existing employees decide to relocate with the company

Is high attrition always bad?

So, is a high employee attrition rate always a bad thing? Not necessarily.

For example, a company may institute a hiring freeze to save costs and prevent necessary lay-offs in the future. If an employee decides to leave during this time, it may be beneficial to the company. It means a reduction in employee costs while not being forced to make someone redundant (which can have a negative impact on the team’s morale).

It’s a more natural way of downsizing without having to force people out of their jobs.

Furthermore, employee attrition can be either a result of or the cause for a company restructure. After reorganisation, the company might realise they can get the same work done with a few less employees, thus saving in employee costs.

Preventing unwanted employee attrition

Of course, high employee attrition can also have a negative impact on a company, especially when the company isn’t able to find replacements to fill the vacancies.

This can be the result of a variety of issues. For example, the fault could be in the recruitment process, whether through a poorly constructed interview process or a bad candidate experience. The problem could also be the company itself. For example, employees might not like the company culture.

For more information on how to prevent employee attrition by providing a great employee experience, check out our employee retention article.

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