There's no hiding it. America has a labor market problem. A big one.
Since April 2021, an average of 4 million Americans per month have decided, entirely of their own volition, to leave their jobs. Some call it the Great Resignation, others the Great Awakening – but whatever pundits are naming week to week, it’s changing the way we think about employment.
From the outside, the scale of employees leaving work is shocking. But some HR and HCM professionals have the insight and data to know why people leave work in the first place: and the roots are in attrition and turnover.
While the reasons behind the Great Resignation are complex and still developing (from Covid-19 to wage depression and rising inflation), the reasons behind any individual person leaving their job can usually be categorised and quantified.
Knowing what drives people to leave a company takes reliable data. And the first step is making the distinction between attrition vs turnover.
What is employee attrition?
Attrition is an expected employee lifecycle event – and it’s usually amicable. A person’s reasons for leaving are not normally tied to shortcomings or failings of the company; although internal changes, pivots, and restructures can be a factor.
In today’s HR lexicon, the word attrition has come to mean losing important, high-performing members of the company: people with an extensive tenure, who are pivotal to operations and would be very hard to replace. This is unwanted attrition, and it can have a heavy impact on a company.
Technically speaking, the term attrition is used when a person leaves a company and will not be replaced – like when an employee in a legacy role retires. It can also mean that the role is impossible to refill.
Attrition can have pros and cons, which we’ll get to in a little bit.
How to calculate employee attrition
To calculate your company’s unwanted employee attrition rate, you need to know how many people fall into the unwanted attrition category, the average number of employees over a defined period.
Here’s an example: let’s say that in 2021, Company X started with 250 people and grew by 20 employees overall – but 9 key people left their roles.
Take the number of people who left (9), divide it by the average number of employees in 2021 (250 plus 270, divided by 2, which equals 260) and multiply by 100.
9 ÷ 260 x 100 = 3.5%
The employee attrition rate at Company X for 2021 is 3.5% in this example.
What is employee turnover?
Employee turnover measures the rate at which employees leave, either voluntarily (finding a better opportunity, leaving due to a lack of progression) or involuntarily (termination due to misconduct or poor performance).
Turnover can be a telltale sign of a poor working environment, poor hiring decisions, and progression roadblocks – and so it’s usually viewed negatively. There are, however, some pros among the cons, which we’ll get to.
The key difference to understand when pitting attrition vs turnover is that turnover relates to roles that must be filled, and filled quickly, to maintain operations.
When turnover and attrition rates become particularly high, over a normal or expected level, we get employee churn. And this is problematic; because not only does churn impact productivity and growth, it’s expensive: the average cost to hire is $4,000, and doing this many times over multiple roles each year can cause profits to shrink.
Worse still, churn and high turnover can be a sign that your culture or working practices are damaging the people in your company.
This is why it’s seen negatively, and why it’s so important to get a handle on.
How to calculate employee turnover
To calculate turnover (or churn, for that matter), we use the same formula as we did for attrition – only this time, we count everyone who left the company.
Let’s use Company X again: we know that in 2021, they started with 250 people and grew by 20 employees overall – but in total, 40 people left the company (either voluntarily or involuntarily), so we divide our average by 40.
40 ÷ 260 x 100 = 15.4%
Employee attrition vs turnover: pros and cons
Attrition: the pros
An amicable parting is likely with attrition – and this has many benefits. Morale is maintained, as are working relationships. And, if the role doesn’t need to (or can’t) be filled, then there will be some financial benefit to attrition, too.
When key people voluntarily leave – even on good terms – there’s a skill gap, which can be difficult or impossible to fill.
This can mean key clients or customers decide to leave with them, which will have a direct financial impact on the company.
On the other hand, there’s a potential for increased workloads on remaining employees, which can cause additional stress and burden – and this could cause other members of the team to leave.
Turnover: the pros
Surprisingly, turnover does have some positives.
For example – a poor hire can be resolved before any significant damage is done, opening opportunities for internal promotions and better hiring practices. And, as brutal as it may seem, it can even be beneficial to shrink a workforce in dire times.
But generally speaking, turnover isn’t a good thing, and it has several negative implications.
Turnover can be dangerous. It’s often a sign of a larger problem in a company. And in time-dependent roles, longstanding vacancies can put sustained, heavy workloads on the rest of the team, feeding a cycle of burnout and employee churn.
Resources have to be directed to training new team members almost constantly, and productivity can suffer. Morale can become affected. Engagement can crash. It’s vital that HCM and HR teams step in to avoid this becoming the norm; because it can kill a company from the inside out.
Here’s what stakeholders, finance, and leadership will resonate with most: rehiring due to turnover is costly, even before salaries and training are considered.
Recruitment agencies don’t work for free – and even if you recruit in-house, advertising and the resources applied to recruitment are expensive.
The real cost, though, is what it can do to your people – your most important asset. Burnout and churn go hand in hand, and it can massively impact people’s lives. It doesn’t just affect people’s work performance and work relationships; it impacts their health.
Dr Meng Li of OSU wrote a blog post about it – and one of the standout statements makes for stark reading:
“People who experience chronic burnout have a 26 to 35 percent higher risk of early mortality (mortality under the age of 45) and pain problems, are three times more likely to have increased risk of experiencing future depression and coronary heart disease, and have an increased risk of developing type 2 diabetes by 200 percent.”
If even just one member of a team has this as their outcome, we’ve failed them. If it’s a widespread problem in a company, then fixing it has got to become a priority.
With data. eqtble is an advanced HR analytics platform that aims to change the way the world works – and with the Great Resignation in full swing, it looks like that change is coming: ready or not.
Understand your employee attrition and turnover – fast
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