Attrition & Retention insights
FAQs about attrition & retention
What is employee retention?
Employee retention is the strategy an organization adopts to hold on to its most valuable resource: its people. Your employee retention strategy starts by understanding your employee retention rate.
Employee retention is a measure of the number of employees who stay with your organization over a period of time. To calculate your employee retention rate, divide the number of employees who were working on the first day of that period by the number of employees who stayed to the end of that period (excluding any new hires). Then multiply this number by 100 to get your rate.
So, if you want to calculate your employee retention for the prior calendar year, you’d start with the number of employees you had on January 1 and end with the number you had on December 31. Let’s say you had 1,000 employees to start and ended with 950.
Annual employee retention rate = (950 / 1,000) x 100 = 95%
Typically, organizations look at this metric over a year, but calculating your employee retention rate every month will give you more insights and warn you earlier about potentially negative trends.
The higher your employee retention, generally speaking, the higher your employees’ performance and productivity. Better retention also lowers the cost of hiring and avoids losing valuable employee knowledge and skills. It also means you don’t have to spend more time and resources bringing replacement employees up to speed.
Strategies for improving your organization’s employee retention include these:
- Hire the right people for the role and your organization. Clarifying your job description and ensuring you’ve built a Success Profile for employees who will excel in the role can help you avoid making hiring mistakes that lead to employee dissatisfaction and turnover.
- Create a strong, people-focused culture. Your people want to know that what they do matters — beyond just bringing home a paycheck. They want to know that their work has purpose and that the company they work for has values that they can support. Make sure to articulate your company’s mission and vision and embed your values in your everyday culture.
- Build a career journey. While new hires invest in their role, they also want to see their company investing in them. Show employees that there is opportunity along their journey by giving them chances to develop their skills and competencies, explaining them how they can advance to the next level and setting up mentorships and other growth opportunities.
- Develop your managers. The top reason that most employees leave an organization is their supervisor. Make sure you’re offering leadership training and other development opportunities that help managers grow their skills and learn how to help their teams reach their full potential.
- Ensure you’re compensating employees fairly. They say money talks, and they’re not wrong. If your pay and benefits compare favorably to your competitors in the market, you’ll have an easier time hanging on to top talent and give your employees one more reason to stay.
Why is employee retention important?
It’s hard for companies to lose employees, because they lose valuable productivity, skills and knowledge. It also hurts an organization’s bottom line.
But organizations that focus on employee retention reap a lot of additional benefits. Here are just a few:
- Lower costs. It’s incredibly costly to find, recruit and onboard replacement workers. And don’t discount the lost productivity, lower employee engagement and other problems that can stem from lost employees, such as poor customer service.
- More productivity: People who are more engaged in their work and have higher morale are typically stronger performers. Plus, it can take new hires one to two years or more to become as productive as a more seasoned employee.
- Increased revenue: The more engaged your people are, the stronger their work, the higher their productivity and the better their customer service, all leading to improved results for your organization.
- Better employee experience: Organizations that invest in their employees’ well-being and development foster more loyalty and boost employee engagement. In turn, engaged employees are more likely to stay, become more productive and speak highly about the organization to their peers and colleagues, further strengthening your employee culture, brand and reputation.
What is employee attrition?
Employee attrition is a measure of employee turnover. It shows you how well your organization is retaining your top talent.
To calculate your company’s attrition rate, divide the number of employees who have left your company by your average number of employees over a specific time.
For example, let’s say your organization has 10,000 employees at the start of the year. Over the course of the year, you hired 300 people, but you also lost 850 people. To calculate the attrition rate, use this formula:
Annual attrition rate: [850 / ((10,000 + 10,300) / 2)] x 100 = 8.4%
Divide the number of employees who left the company (850) by the average number of employees over the year (20,300/2, or 10,150).
The higher your company’s attrition rate, the more frequently your employees are leaving. Your goal should be to lower your attrition rate as much as possible. But this is easier said than done — you’ll have to get to the bottom of what is making your employees leave.
For example, you might not be offering attractive pay and benefits packages that allow you to compete in the market. Employees who feel underpaid will readily look elsewhere for opportunities with higher compensation and better benefits.
In addition, employees who don’t feel there is room for growth or promotion in a role may feel frustrated. If you don’t make it clear how employees can progress in your organization, whether in the same role or a new one, they’re likely to look elsewhere. Offering training and development opportunities can counteract this frustration.
You might also consider whether your employees are feeling stressed or burned out. If they are, find options to help them manage their workload. Also, make sure to appreciate the work your employees are doing. Employee recognition goes a long way toward building morale and reducing employee attrition.
What is the difference between employee attrition and employee retention?
Employee attrition measures an organization’s loss of employees over time. There are two main types of employee attrition: voluntary employee resignations, where employees leave on their own, and involuntary, where an employer terminates their employees.
Employee retention measures an organization’s ability to keep its employees over a period of time.
What is a high employee attrition rate?
A high attrition rate typically means you’re losing employees rapidly. But what rate is high will depend on your industry and circumstances.
Before the Great Resignation began, SHRM found that annual employee turnover rates hovered around 19%. Today, those numbers have skyrocketed.
But pre-pandemic, certain industries have typically had a higher employee attrition rate than others.
For example, pre-pandemic, the hotel industry had a whopping turnover rate of nearly 74%. In 2020, that rate rose to 130%, according to the U.S. Bureau of Labor Statistics.
Meanwhile, state and local governments have a relatively steady turnover rate that hovers between 19% and 21%.
To figure out whether your attrition rate is high, look up the general rates for your industry over the last five years. Then start measuring your attrition rate every month.
Look for trends in your data. What do they tell you about what’s happening in your organization? Is a particular job category, compensation level, team, department or other group showing the highest attrition rate? Or are the rates comparable across the board?
If you see your attrition rate creeping up, it’s time to take action. It’s important to first find out why people are leaving. Conduct employee exit interviews and ask pointed questions about what is motivating their departure. For example, you might ask departing employees about their team’s dynamics, manager, recognition, pay and more.
If the departures are affecting a certain team or location, it may be prudent to conduct employee surveys to get additional feedback so you can begin implementing an employee retention strategy.
The sooner you identify and address any problems lurking below the surface, the sooner you’ll be able to turn your organization’s attrition rate around.