Employee Attrition: Your Complete Guide to Costs, Causes, and Solutions
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Believe it or not, employee attrition is a $1 trillion problem, and that’s just the figure for businesses in the United States.
Employee attrition has a direct, measurable impact on revenue and business growth. However, employee attrition also causes your company culture to deteriorate, damages your brand, and reduces company morale.
Drawing the connection between the impact on culture and brand might be more complex than watching your revenue numbers and business growth decline as employees separate, but those soft costs eventually hit the bottom line.
That’s why understanding exactly what employee attrition is, the true costs, and how to reduce attrition is critical to business survival and success.
This guide will supply you with all the knowledge you need to understand employee attrition—types of employee attrition, costs, and benchmarks—and stop it from spiraling out of control, so you can keep your company growing.
We’ve based this guide on our experience helping customers save on average $10M+ in attrition costs. At Praisidio, we help customers reduce their attrition by identifying talent risks months in advance and providing actionable advice. If you’d like to see how Praisidio can help you solve attrition, book a demo today.
What is employee attrition?
First, what is employee attrition? Employee attrition is the process of employees leaving a company. Some employee attrition is natural. People retire. People move away. Other types of attrition, such as employees quitting due to burnout, are a symptom of employee retention issues.
This may sound pretty straightforward, but what does attrition mean in business?
For a business, the key takeaway from the employee attrition definition is that employee attrition is a process.
When an employee leaves the company, the immediate impact is that management must work to fill the gap and make sure things continue to get done until a new team member is hired.
Then HR begins recruiting and conducting interviews to replace the separated employee (this is when your organization starts paying the cost of replacing an attrited employee).
Once a new team member is hired, HR, senior team members, and management must onboard and train the new employee. Once the new team member is onboarded, it takes some time for them to reach full productivity.
All in all, employee attrition means a lot of work and reduced efficiency for businesses, which is why it’s such an expensive problem.
Employee attrition vs turnover vs churn
Employee attrition, employee turnover, and employee churn are often used interchangeably. To be fair, they’re similar, but they’re not exactly the same. Here’s the difference.
Employee attrition occurs when an employee leaves the company, and their position is not readily filled. An employee attrition rate higher than employee hiring rate means an overall reduction of your workforce.
Although there are natural reasons for attrition—retirement or moving to another city, for example—employee attrition should always be viewed as a problem to be solved.
People consider their job when they make decisions such as moving or retiring. If an employee enjoys and values their job, they’re less likely to move or retire as soon as they’re eligible. In fact, finding a new job is one of the most common reasons people move.
Additionally, if people feel valued and have a good relationship with your company, they’re more likely to inform you in advance of their intent to retire or move, so that there’s time to hire and train a replacement before they leave.
Lastly, it’s highly improbable that many employees will retire or move within a short time period, and therefore you should never shrug off a high employee attrition rate as something outside of your control.
If your organization is experiencing employee attrition rates over about 10 percent or if employee attrition is trending upward, it indicates your company could be doing something better to retain employees.
You should always work to get to the bottom of what’s causing employee attrition, and work to correct it.
Employee turnover happens when an employee leaves the company, but the company is prepared and able to readily refill the position. Some people call it employee turnover when an employee leaves a company, and the company intends to refill the position.
However, intent does not equal action. If your company intends to fill an open position, but the position remains vacant for months, the intent to fill that position means nothing.
Therefore, it should only be considered employee turnover if you can very quickly turn the position over to a new employee, hence the term, “employee turnover.”
Employee churn is a general term that refers to both employee attrition and employee turnover.
As we mentioned earlier, people often use these terms interchangeably. We generally use “employee attrition” when we talk about attrition and turnover. Here’s why:
It costs time, effort, energy, and money to replace an employee, regardless of how efficiently you fill a vacant position. Replacing employees just costs more than retaining employees.
The cost of employee attrition
Large organizations can lose thousands of employees each year. This typically costs over $100 million in direct costs and lost growth opportunities, especially after the negative impact on employee wellbeing, engagement, and productivity.
Then there are the costs that are more difficult to attribute to revenue loss: degraded company culture, damage to your brand, and lost company value.
That figure above might seem unrealistic, but consider these stats…
The direct cost of replacing an employee ranges from 50 to 60 percent of the employee’s salary. However, that range goes up to 90 to 200 percent of the separated employee’s salary, when the lost productivity, employee engagement, and other soft costs are taken into account.
If your company operates in an industry that requires specialized skills, things get even worse. A one percent increase in attrition among nurses costs hospitals an average of $337,500. These attrition costs racked up to between $4.4 million and $7 million in 2017 — imagine how much they will have risen to today.
Then consider the potential costs of mistakes caused by employees being stressed and overworked because your teams are understaffed due to employee attrition.
88% of cybersecurity breaches are caused by human error. 45% of people report falling for a cyber scam because they were distracted, and 37% of people say they’ve fallen prey to cyber attacks because they were tired.
How much does a cybersecurity breach cost? $9.44 million for businesses in the United States, on average.
Ultimately, employee attrition costs your business about half of the separated employee’s salary, at minimum. However, the cost of employee attrition becomes an existential risk when you consider all of the secondary costs of an understaffed and unstable workforce.
Types of employee attrition
There are three core types of employee attrition. As a side note, all of them can and should be used to identify employee retention issues.
Some classify the motivations for quitting we mentioned earlier—retiring and moving employees—as natural attrition. However, those types of attrition fit better into one of the other two types of employee attrition.
Natural employee attrition is a reduction in your workforce that you do not intend to replace. Positions replaced by automation or contractors are natural attrition.
Though, not all natural attrition is acceptable. It’s not a good thing if you’re forced to contract out work because you cannot fill the necessary positions to perform the work in-house.
That’s a case of regrettable or voluntary attrition forcing your company to patch up holes in an unstable workforce.
Regrettable attrition is also called regretted attrition. Regrettable attrition is when high performing employees voluntarily leave the organization.
Regrettable attrition is almost always preventable by improving company culture, compensation, implementing better work-life balance programs, and other employee retention initiatives. High performing employees are not going to leave for frivolous reasons.
Regrettable attrition is clearly the most damaging to your company.
Voluntary attrition is quite similar to regrettable attrition, and many organizations do not differentiate between the two. Voluntary attrition occurs when employees voluntarily leave the company, without the focus on high performers.
The reason many organizations do not differentiate between regrettable and voluntary attrition is because they’re both costly, and usually caused by the same employee retention issues.
Voluntary attrition may not be as severe as regrettable attrition, in terms of impact on your company, simply because the scope is not limited to high performers. Also, separations such as retirement technically fall into the category of voluntary attrition.
Voluntary attrition still comes with all the costs associated with employee attrition (it’s still costly when an employee retires and you’re unable to fill their position). It should be taken as seriously as regrettable attrition, and you should definitely know your voluntary attrition rate.
How to calculate employee attrition rate
Employee attrition rate is a metric for how many employees leave your organization over a period of time, expressed as a percentage. Calculating employee attrition rate is essentially dividing the number of attritions by the total employees at the end of a time period, then multiplying by 100.
This is the formula for calculating employee attrition:
Employee attritions in a given time period / ([beginning time period headcount + ending period headcount] /2) * 100
For example, if you had 95 employees at the beginning of the quarter, and 89 employees at the end of the quarter, you’d add 95 and 89, then divide that number by two. That gives you 92, the number you need to divide the number of employee attritions by.
Now, say you had six employees leave during that time. That means you’d divide 6 by 92, which gives you 0.6523. Multiply that by 100 to get the percentage: 6.5%.
This percentage is your employee attrition rate.
The most common time periods for calculating employee attrition rates are yearly, monthly, and quarterly. There is an ideal interval for calculating your employee attrition rate, though.
Calculating your employee attrition rate on a yearly basis allows your employee attrition to run unchecked for several months and leaves issues that cause employee attrition in place for a long time.
On the other hand, checking your employee attrition rate every month makes your assessment susceptible to outliers. Some months will have an unusually high employee attrition rate that’s not representative of a larger trend.
At Praisidio, we recommend calculating your employee attrition rate on a quarterly basis. It’s a long enough interval to identify trends, but it’s frequent enough that you can be responsive to employee retention problems.
The most important thing about calculating your employee attrition rate is not to calculate a company-wide employee attrition rate.
You should calculate employee attrition rates for each cohort of employees in your organization. It’s much more useful to calculate the attrition rate for the employees in a certain job, for employees from a particular demographic, or even the employees who work for a specific manager.
Calculating employee attrition rates based on cohorts like this gives you much more insight into who’s most likely to separate from your company, where the employee retention issues are, and what problems you need to solve to improve your employee attrition rate.
Book a demo if you’d like to see how Praisidio can calculate your employee attrition (per cohort) in real time.
Average employee attrition rates
While it’s impossible to eliminate employee attrition completely, it’s important to understand the average for your industry. This shows how you’re performing against the average and gives you a target to beat.
The variety in average attrition rates per industry also show how external factors can influence attrition, which companies sometimes have little control over.
Your company may not be located in a geographically desirable location, and remote work may not be an option in your field. Or you may operate in an industry that’s prone to high rates of employee attrition.
For reference these were the average employee turnover rates for each industry during Q3 (July - October 2022), based on Praisidio's data. The rates have been annualized.
- Artificial Intelligence - 17.71%
- Financial Services - 17.14%
- Health Care - 16.29%
- Data and Analytics - 16.24%
- Software - 16.24%
- Food and Beverage - 14.36%
- Payments - 13.52%
- Sales and Marketing - 13.42%
- Gaming - 13.26%
- Privacy and Security - 12.92%
- Education - 12.64%
- Transportation - 12.36%
- Media and Entertainment - 11.58%
- Sports - 11.50%
- Real Estate - 11.45%
- Commerce and Shopping - 11.28%
- Energy - 11.27%
- Biotechnology - 11.15%
- Platforms - 10.62%
- Information Technology - 10.39%
- Science and Engineering - 10.24%
- Consumer Goods - 10.17%
- Lending and Investments - 10.13%
- Messaging and Telecommunications - 10.12%
- Sustainability - 10.05%
- Government and Military - 10.01%
- Video - 9.97%
- Mobile - 9.95%
- Agriculture and Farming - 9.86%
- Internet Services - 9.85%
- Events - 9.71%
- Apps - 9.70%
- Hardware - 9.51%
- Music and Audio - 9.42%
- Community and Lifestyle - 9.36%
- Other - 9.33%
- Travel and Tourism - 9.02%
- Professional Services - 8.87%
- Administrative Services - 8.71%
- Consumer Electronics - 8.61%
- Advertising - 8.44%
- Design - 8.25%
- Clothing and Apparel - 8.04%
- Navigation and Mapping - 7.98%
- Content and Publishing - 7.70%
- Manufacturing - 6.99%
- Natural Resources - 5.57%
Bear in mind these are averages and they’re calculated based on a range of businesses. They are a solid starting point for measuring how well you’re retaining employees, but they’ll never be as useful as benchmarking your own employee attrition rate—that’s the number you truly need to beat.
Factors affecting employee attrition
At Praisidio, we have identified five key areas that contribute to employee attrition. Each of these can be broken down into subcategories.
None of these factors will shock you, but there are nuances that many companies overlook. Understanding these factors more deeply will help you start addressing employee attrition risks right away.
The experience of working for your company must be, in some way, satisfying and enjoyable. Good companies make an intentional effort to manage workloads, avoid burnout, and produce a sustainable work-life balance.
You’re doing well if you have programs and systems in place to address these attrition risk challenges. Many companies completely overlook how employees work and how tertiary responsibilities (meetings, policy training, etc.) impact how much work your teams get done.
Most employees need maker time—hours of uninterrupted time to get their work done—which means a day full of meetings is often an unproductive day.
Maker time ensures that people have time to do the work they’re hired to do in an uninterrupted way, on a regular basis. It created time for focus and to dig into challenging projects.
Ultimately, keeping workloads reasonable, ensuring your teams are adequately staffed, offering plenty of time off, and all your other standard employee experience efforts are important. However, you also need to make sure you’re not unintentionally sabotaging your teams’ ability to get things done with needless meetings.
Sadly, employee attrition tends to cause more employee attrition.
More precisely, people develop relationships—both personal and professional—with their co-workers and collaborators, and people often consider leaving if friends or key colleagues leave.
One of the tricky things about these relationships is that they’re hard to track. It might seem that the social aspect of employee attrition would be limited to employees who work together on the same team.
However, every department in a company relies on other departments to accomplish their mission. This cross-department collaboration develops unofficial teams and networks of relationships that aren’t apparent simply by looking at the org chart.
For instance, a group of engineers may develop a relationship with a tech in the IT department whom they rely on to quickly solve network and computer equipment problems. If that IT tech leaves the company, it can cause engineers to leave, because they no longer have that direct contact in the IT department who quickly solves their IT problems, which degrades the employee experience.
We can’t stress enough that Identifying the invisible, but irreplaceable, connections in your company are essential for reducing attrition. We’ve seen cases where one person has left and the domino effect of attrition was far greater than the perceived influence and importance of that one departing person.
Employees who feel stalled in their career or that the company has no potential to help them grow as a professional are more likely to find another job. This is no secret.
Most companies offer training programs to help employees gain relevant skills or offer to pay for training in an external program, which is part of the solution. However, if you want employees to stay, your company also has to give them opportunities to use the skills they develop.
If an employee goes through a training program and learns how to be a manager, the company must offer some sort of management position fairly quickly. If no manager role opens, the employee is likely to take their management skills and find a management position with another company.
The key to this problem is helping employees develop skills and offering positions that enable them to put those skills to work. Doing just one or the other won’t solve the problem, and could actually exacerbate employee attrition issues.
Most companies understand that they need to offer competitive compensation. Unfortunately, most companies focus almost entirely on offering compensation which is competitive in the job market.
This disregards how well employees are paid relative to each other.
This is especially unfortunate, because we’ve found that differences in compensation relative to an employee’s peers has more impact on employee attrition than pay that’s competitive with the wider market.
Fortunately, every company has all the data on how much their employees get paid, and they can measure and optimize how equitably their employees are paid using their compa ratio.
It’s no surprise that employees want to be recognized by managers and peers for their hard work. Feeling under-recognized makes people more likely to leave for another company.
What might be a little surprising is recognition doesn’t happen organically. It takes recognition programs and training to ensure employees are being recognized for what they do, in a way they appreciate.
Also, you must take a holistic approach when you create recognition programs and training. Take a look at the first statement again: employees want to be recognized by managers and peers.
Therefore, getting your managers together and assigning a high-five quota won’t do the trick. You need to build a culture of recognition and help everyone, managers and employees alike, develop tactics for giving recognition.
How to reduce employee attrition
Reducing employee attrition starts with complete company commitment. By “complete” we mean that the entire organization, from top to bottom, has to get involved.
Your employees are smart. If leadership just hands down a bullet list of things supervisors and managers need to do to keep more employees with the company, people will see that it’s not a genuine effort.
This makes people suspicious, and can cause people to seek new employment, which is the exact opposite of what you want.
Start by getting buy-in from everyone in the company, and a commitment to participate in employee retention initiatives.
Next, choose one team or department where the leadership can partner with HR teams and executives to implement employee retention strategies. Leadership in this context includes the c-suite executive who’s at the top of the chain of command for that department.
This might seem like the tricky part. However, most businesses and business leaders are good at the implementation stage, because organizations are set up to execute strategies.
Unfortunately, most companies make a critical mistake in the implementation process: they fail to take a data-driven approach to designing their employee retention programs, measuring the impact, and improving employee retention initiatives.
This causes things to fall apart quickly. Creating employee retention programs without first collecting data to identify where problems lay is flying blind, and the “set-it-and-forget-it” approach simply doesn’t work for reducing employee attrition.
The good news is that most companies already collect the data they need to create effective employee retention programs and measure the impact.
The problem is that organizations often don’t leverage this data in a useful form that shows information in real-time, preventing early and targeted intervention.
This is where Praisidio comes in. Praisidio analyzes management-accessible data to create real-time retention dashboards which give actionable insights for reducing employee attrition.
This puts all the information you need to retain valuable talent over the long-term right in front of you, so you can take the right steps and achieve the final stage of any employee retention strategy: making sure it works.
How do you predict employee attrition?
Traditionally, predicting employee attrition relies on surveys, exit interviews, and other manual data collection and review processes.
The issue with these traditional approaches is that they aren’t truly predictive. They’re mostly rearward-looking methods that show you what went wrong, usually after the attrition has occurred.
These methods are also time-consuming and imprecise. There’s a reason that manual data analysis has largely been replaced by automated data analysis in most other areas of business.
Why not use automated analysis to predict employee attrition?
That’s what the Praisidio platform does: it analyzes your internal data, and truly predicts employee attrition risks, so you can make changes that prevent the need for things such as exit interviews. Praisidio helps you look months ahead, so you can intervene before employees consider resigning.
Predicting employee attrition through talent intelligence
Right now, there’s an incredible amount of data available to your HR department. Leveraged properly, this data offers paradigm-shifting opportunities to provide a much better employee experience, maximize productivity, and retain employees for much longer.
Processing this firehose of data in a useful way is the challenge. There’s a lot of data to analyse, every level of the organization, from the company-wide layer all the way down to the level of the individual employee.
Identifying broad attrition risk factors across the company is a start, but then to intervene effectively, you need to drill deeper to find the risk factors that have the most impact on each unique employee.
This is where talent intelligence comes in. Praisidio analyzes your data and turns it into easy-to-digest dashboards that pinpoint critical trends and biases in real-time, and identify which employees are at risk of departing 6 months into the future.
Praisidio also creates actionable strategies to help you reduce attrition (without hiring a new FTE). You can choose between plans that target the entire company, specific departments, critical single employees, and cohorts of employees.
The cost of employee attrition has never been higher, and Praisidio enables you to take a proactive approach to building relationships with employees and maximizing retention, instead of scrambling to recover from employee attrition after the fact.
Book a demo to see how Praisidio’s can helped you reduce attrition costs by as much as $10 million for every 2000 employees.