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After spending time at several startups, I have seen firsthand the impact employee turnover rate and attrition can have on a company - especially a small one. The heartache, the frustration, and the moments of sadness when a valued team member leaves- all add up quickly and employees get discouraged and finally burn out.
The distinction between employee turnover vs attrition, though seemingly technical, actually reveals the deeper story of an organization's culture and values.
The attrition rate in HR refers to the natural reduction of a workforce through retirement, resignation, or even death. While a sad thing, it's an inevitable aspect of any organization- but it doesn't have to be a source of despair. Rather, a healthy attrition rate can signal a strong company culture that supports its employees in their career growth and personal development.
On the other hand, the employee turnover rate is a measure of how many employees leave a company and are replaced within a specific period. High turnover rates can signal underlying issues within the company that need to be addressed, such as poor management, lack of growth opportunities, or an unsupportive work environment.
In essence, the turnover rate represents the emotional, mental, and psychological well-being of the employees within a given organization. It tells a story of their experiences, their joys and sorrows, and their hopes for the future with the company.
So what's the takeaway from these two metrics? Pay attention to the distinction between employee turnover vs attrition. Together, they paint a nearly complete picture of why your employees are leaving.
For a short time early in my career, I worked for a VP that told me before taking over the division, the team's turnover rate was 87% each year... that's right, 9 out of 10 employees would be gone in 12 months. It only took a few years for recruiting and hiring costs to skyrocket and morale to plummet. The VP that took over had a different perspective though; he believed in investing in his team with better pay, better benefits, and more growth opportunities - and increased everyone's pay by 20%, gave them the tools to succeed, and began to expect more from each member.
The result? Employee turnover dropped to less than 20% within a year, morale rose significantly, and the division saw amazing results.
We also implemented new hiring practices that specifically identified key characteristics that would help people win in their roles. If we would've used interview intelligence software like Pillar, we would've figured these key characteristics out sooner because our data collection on each candidate would've been better.
The lesson here is that employee turnover and attrition can be powerful indicators of a company's workplace culture. Pay attention to what the numbers are telling you, and take action to create an environment where employees feel supported, respected, and successful. After all, investing in team members pays itself back 10-fold!
When dealing with the sensitive topic of employee turnover, it's necessary to understand how to calculate the turnover rate correctly. The turnover rate formula is straightforward, but it can provide profound insights into the health of an organization's culture and employee satisfaction - and once you unlock these, you'll know what actions must be taken to decrease employee turnover rates.
How to calculate the turnover rate.
To calculate the turnover rate, divide the number of employees who left the company during a specific period (usually a year) by the average number of employees during the same period, then multiply the result by 100 to get the percentage. This simple calculation is enlightening if you do it add a team level, a division level, and across your entire organization.
In fact, calculating annual turnover rates at every level of your organization will help you effectively understand the health of your management structure and the success of your employee, recruiting, and training programs.
Comparing your company's turnover rate to the industry average turnover rate can provide further insights into your company's performance. A higher-than-average turnover rate may indicate that it's time for some soul-searching and evaluation of the company's values, policies, and support systems - while a lower turnover rate may mean quality management, employee training, and team member satisfaction.
Low turnover rates, while often considered a good thing, aren't always indicative of a great team culture. Low turnover may mean that employees are too scared to speak up, are making just enough not to leave, or feel stuck in their current roles. A variety of internal surveys and feedback loops can provide a more accurate picture of your company's culture and levels of employee satisfaction.
So don't forget: understanding the turnover rate is key to assessing the overall health of an organization - but using the right data and exploring the numbers that go beyond face value can provide far greater insights than simple math.
The key is to understand not just the turnover rate, but what it means for your organization's culture and long-term success. With this in mind, you'll be able to find ways to boost employee satisfaction and retention, increase productivity, and create a happier workforce.
Employee attrition is an aspect of workforce management that, although painful, can provide valuable insights into an organization's long-term success. A high employee attrition rate might signal that the organization is not providing enough opportunities for growth, advancement, or personal fulfillment. A high employee attrition rate could also indicate an older workforce, suggesting that the organization is not investing in talent development or hiring enough young people. Low employee attrition may mean that salaries are competitive or even high, but opportunities for advancement are too few, or simply that employees feel stuck and lack motivation.
Employee attrition should be analyzed carefully to assess how it impacts overall company productivity. When considering strategies to understand employee attrition, look at all the factors.
For example, State Farm Insurance has an average age of almost 50 years old. Their attrition rate is low because they pay well and give their team members the training and tools that they need to succeed - however, hiring young talent has been very difficult for them, because not many millennials, GenZ, or beyond are interested in working in the insurance business.
The employee retention rate is also a powerful metric for building a thriving organizational structure. Your employee retention rate is the differential between its turnover and attrition rates and 100%.
How to calculate your employee retention rate: Employee Retention rate = (Number of employees at the end of the period - Number of new hires during the same period) / (Total number of employees at the beginning of the period) * 100
The higher your employee retention rate, the more successful you are in keeping your team members on board.
The employee retention rate is a crucial metric for HR professionals to monitor, as it offers insights into the overall satisfaction and engagement of employees within an organization. To calculate the attrition rate, divide the number of employees who left the company during a specific period by the total number of employees at the beginning of the period, then multiply the result by 100.
Understanding the attrition rate meaning and working to improve it can lead to higher employee satisfaction, better performance, and a more cohesive team. A strong employee retention rate reflects an organization's commitment to its people and their well-being.
When hiring, consider using a video interview platform like Pillar from the phone screen all the way through to the offer. The reason for this is that the data that you collect from day #1 on a candidate/ employee will give you a better idea of when they began to go off course - so you can understand what steps to take to make things right again.
Attrition is the gradual reduction of a workforce through voluntary or involuntary departures.
What is attrition?
As we mentioned earlier, attrition is a natural part of any organization's life cycle, it's one single factor in understanding how to measure employee turnover, but it's an important one. Employee attrition rates provide valuable insights into the underlying health of a company's culture and values.
The attrition rate formula is similar to the turnover rate formula, with a slight difference in the calculation. To determine the attrition rate, divide the number of employees who left the company voluntarily during a specific period by the average number of employees during the same period, then multiply the result by 100 to get the percentage.
Understanding what attrition is and how it impacts your organization can help you identify areas for improvement and implement strategies to create a more positive, nurturing work environment for your employees. Investing in employee retention initiatives such as competitive salaries, flexible hours, and professional development opportunities can help improve the health of your workforce.
Attrition is a natural part of running any business - but if it's too high, it can be costly for an organization. By understanding what attrition is and how to calculate it, you can effectively measure and manage employee turnover in your organization.
In the end, the indicators of employee turnover and attrition paint a picture of the emotional landscape within an organization. By taking the time to understand and address the factors that contribute to high turnover and attrition rates, HR professionals can create a more supportive and engaging workplace, where employees feel valued, inspired, and motivated to grow both professionally and personally.
Exploring employee turnover and attrition is not just about numbers and percentages. It's about recognizing the emotional experiences of the employees, their aspirations, and the challenges they face. By addressing these factors, organizations can create a more empathetic and supportive work environment where everyone can grow, succeed, and contribute to the collective success of the organization.
If you'd like to see how our team at Pillar has helped customers like Wistia lower employee turnover by more than 50% in the last year, book your demo to chat with someone from our team today!