What is Attrition Rate?
The Attrition Rate measures the employee turnover within a company, i.e. the number of individuals that leave their positions over a specified time frame.
Tracking the employee attrition rate — often used interchangeably with the term “employee turnover rate” — is a crucial step for all companies seeking to ensure that their current organizational structure is functioning properly with no (or very limited) internal problems.
How to Calculate Attrition Rate (Step-by-Step)
The attrition rate measures the rate at which employees have left a company — either voluntarily or involuntarily — within a specified period.
Employee retention is critical to a company’s long-term success, and the attrition rate provides insight into how effectively current employees are retained.
The amount of time allocated to recruiting activities can directly impede a company’s productivity since it detracts the attention away from the core business, and can also be a costly process that weighs down on a company’s profit margins.
The process of calculating the attrition rate is straightforward and can be broken into four steps.
- Step 1 → Establish the Specific Time Parameters for Measurement
- Step 2 → Count the Number of Churned Employees
- Step 3 → Calculate the Average Number of Employees
- Step 4 → Divide the Churned Employees by the Average Number of Employees
Attrition Rate Formula
The formula for calculating the employee attrition rate is as follows.
In order to express the attrition rate in percentage form, the resulting figure must be multiplied by 100.
For example, let’s say that a company began the month of June with a total of 100 employees, of which 10 left throughout the month.
The number of churned employees in June is 10, which we’ll divide by the average between the beginning and end of period employee headcount, i.e. 100 and 90.
- Employee Attrition Rate = 10 ÷ 95 = 10.5%
How to Interpret Attrition Rate (“Employee Turnover”)
A high employee attrition rate suggests that a company’s employees are quitting frequently, whereas a low rate means the company’s employees remain on board for a longer duration.
- High Employee Attrition → A high attrition rate implies that there are problems within the company that needs to be identified and fixed promptly.
- Low Employee Attrition → On the other hand, a low attrition rate — what most companies strive to achieve — is most often perceived positively and reflects that current employees have an incentive to remain with the company rather than pursuing different roles elsewhere.
Generally speaking, most companies with low employee turnover have a better organizational system and practices in tact for retaining employees over the long run — which often coincides with outperformance relative to competitors, not just in revenue and profitability but also in attracting more qualified, higher-tier of talent in their pool of potential candidates.
In contrast, a high employee turnover can be time-consuming, as resumes and cover letters must be reviewed, new candidates must undergo screening (i.e. background checks), and interviews must be conducted, before the onboarding and new employee training can even start.