Definition
– Attrition is the intentional, gradual reduction of a workforce by not replacing employees who leave. It typically happens when staff resign, retire, or otherwise depart and the employer chooses to fill fewer positions (or none) in their place.
Key concepts (brief)
– Voluntary attrition: Employees choose to leave (resignation, new job, relocation, retirement).
– Involuntary attrition: Employer-driven exits (dismissals, position eliminations, layoffs).
– Internal attrition: Movement of employees between units or roles inside the same organization (promotions, lateral moves).
– Demographic-related attrition: Disproportionate departures from specific demographic groups (gender, race, veterans, older workers, people with disabilities) that may signal discrimination or cultural problems.
– Customer attrition (churn): Loss of customers over time; separate from employee attrition but equally important for business health.
Why it matters
– Tracking attrition helps detect problems (culture, pay, management, market moves) before they harm productivity or revenue.
– It can be used as a controlled cost-cutting tool (avoiding disruptive layoffs) but can also signal hidden risks if top talent leaves.
– Replacing staff is expensive: estimates often put hiring and onboarding costs from roughly one-half to two times an employee’s annual salary, depending on role and training needs.
How to calculate the attrition rate (step-by-step)
1. Choose the time period to measure (e.g., one year).
2. Count the number of employees who left during that period (departures).
3. Compute the average headcount for the period: (headcount at start + headcount at end) / 2.
4. Divide departures by the average headcount and multiply by 100 to express as a percentage.
Formula
– Attrition rate (%) = (Number of departures / Average number of employees) × 100
Worked numeric example
– Suppose XYZ Co. had 200 employees on Jan 1 and 300 on Dec 31. Average employees = (200 + 300) / 2 = 250.
– If 25 workers left during the year: Attrition rate = (25 / 250) × 100 = 10%.
Checklist for HR and managers (practical actions)
– Measure consistently: pick a time frame and method and use it each period.
– Break down departures by type (voluntary, involuntary, internal, demographic).
– Monitor who is leaving: role, tenure, performance level, manager, and location.
– Survey exit reasons and aggregate themes (compensation, career path, management, culture).
– Benchmark against industry peers and historical company rates.
– Act on signals: improve onboarding/training, clarify career paths, discuss retention with managers, and review pay/benefits.
– Address demographic spikes immediately with investigation, remediation, and diversity/inclusion measures.
– Track customer churn separately and correlate with employee departures where relevant (e.g., account managers leaving).
Practical notes and trade-offs
– Attrition vs. layoffs: Attrition reduces headcount by not refilling positions; layoffs remove staff proactively. Attrition tends to be less disruptive but slower.
– Attrition vs. turnover: Turnover often includes all exits plus incoming hires (net replacement), whereas attrition emphasizes exits that are not replaced.
– Employee vs. customer attrition: Employee attrition concerns staff loss; customer attrition (churn) concerns loss of clients or subscribers. Both affect performance but have different drivers and remedies.
– When attrition is “good”: When it removes redundant roles, allows reallocation of resources, or avoids forced layoffs during downturns.
– When attrition is “bad”: When it drains institutional knowledge, removes high performers, or creates coverage gaps that harm customers or productivity.
Causes and common remedies (brief)
– Causes: weak management, poor pay or benefits, limited career paths, poor fit, poor work environment, external opportunities, retirement, or structural role elimination.
– Remedies: better training and onboarding, open employee communication, competitive compensation and benefits, clearer promotion ladders, targeted retention programs, and diversity/inclusion initiatives.
Sources
– Investopedia — Attrition: https://www.investopedia.com/terms/a/attrition.asp
– U.S. Bureau of Labor Statistics (JOLTS data and quits/layoffs): https://www.bls.gov/jlt/
– Society for Human Resource Management (SHRM) — employee retention and turnover resources: https://www.shrm.org
– Harvard Business Review — articles on employee turnover and retention: https://hbr.org
Educational disclaimer
This explainer is for educational purposes only. It is not individualized employment or financial advice. Use your organization’s data and consult HR, legal, or financial professionals before making decisions based on attrition metrics.