Few companies have remained untouched by the Great Resignation. And while some are bouncing back, others struggle to replace their employees. In some cases, positions go unfilled for months or even years. This employee attrition can have far-reaching impacts on organizational effectiveness.
Building a great work team means learning how to retain employees. But it also means having a strategy for replacing them when need be. By doing so, you’ll combat employee attrition and boost your effectiveness.
What is employee attrition? Let’s take a close look at what it means and how it’s affecting companies. Then, we’ll examine how to deal with it.
Employee Attrition vs Employee Turnover
Often attrition gets confused with turnover, but they’re not the same thing. Turnover includes the departure of workers for both voluntary and involuntary reasons. Employee attrition entails the reduction of a workforce through voluntary turnover.
When an employee voluntarily leaves, if the company opts to leave the position unfilled, attrition has occurred.
The company may choose to eliminate the position, resulting in a scaled-down workforce. So, turnover can lead to employee attrition, but not necessarily.
When employees resign, are terminated, or retire, turnover has occurred. But even if you have a high turnover rate, you can have a large workforce. Some turnover can even be healthy, as it brings in new talent and ideas. If you have a high employee attrition rate, your workforce is shrinking.
In turn, your overall capabilities are likely shrinking as well.
Current Employee Attrition Trends
In many companies, employees are leaving faster than they can be replaced. As a result, workforces in some companies are shrinking. In the past, when workers resigned, they’d typically find another job. But that has been changing in recent years, despite the intense competition for talent.
“The number of current job openings (10.9 million) exceeds the number of new hires (6.3 million),” writes McKinsey. In their study, 44% didn’t plan to find a traditional job in the next six months. This signals that employee attrition is happening in many companies. In other words, they’re losing employees without replacing them.
These trends are particularly affecting small businesses. Often they’re struggling to compete with large companies on pay and benefits. “The United States now has two job openings for every unemployed person,” reports ABC News. Many small business owners are left working long hours to compensate for lost employees.
Certain industries, like leisure and hospitality, have been hit the hardest.
What Causes Employee Attrition to Rise
Employee attrition can happen intentionally or unintentionally. A company can plan to allow attrition to occur (although that’s rare). Or, it can unexpectedly experience attrition (the more common scenario).
Which factors influence employee attrition? This is really a two-part question. First, we must look at why turnover itself occurs. Then, we need to explore why companies struggle to replace employees who have left.
Reasons for Employee Turnover
McKinsey & Co. found three main reasons why turnover rises:
- Overwhelming workloads: Employees don’t know how to handle all the responsibilities on their plates. In some cases, they might need time-management skills. But in many cases, they may have an unreasonable amount of work.
- Lack of growth opportunities: Employees may have grown bored with their job but don’t see opportunities to advance. “Forty-one percent of employees considering a new position look outside their organization first,” Gartner says. Their manager may never have discussed a path for advancement with them.
- Inadequate support from coworkers: They may not have a strong workplace culture that nurtures solid relationships. So, they lack the necessary support network to succeed.
Now, let’s look at why companies struggle to replace employees who leave.
Why Positions Go Unfilled
Several factors can prevent organizations from filling vacant positions:
- They haven’t prioritized upskilling their employees: As a result, workers have outdated skill sets. The organization, therefore, doesn’t view their roles as contributing enough value. If they focused on upgrading skill sets, they could allow roles to adapt to current needs.
- They failed to attract qualified talent: They might not have offered perks that matched their competitors’ offerings. Or, they may not have built a relationship as an employer of choice. After trying for a time to draw in good candidates, they may simply give up. Recruiting can take a lot of time and money, after all.
- They’ve made a conscious decision to downsize: This choice typically stems from poor financial performance. “Firms often downsize because it is seen as a way to reduce costs, adjust structures, and create leaner, more efficient workplaces,” researchers write in Harvard Business Review.
In actuality, though, downsizing may increase the risk of bankruptcy, they found. Often it dramatically decreases organizational effectiveness by reducing capacity.
Let’s now examine the effects of attrition in more depth.
Impacts of Employee Attrition
Why is understanding and tracking employee attrition so important for companies? As you might imagine, attrition has a number of negative impacts. Here are several of the most notable ones.
A high attrition rate can reduce productivity. The employees who stay are left juggling more balls. They may be filling multiple roles to compensate for coworkers who have left. As a result, the team may not accomplish as much as it once did.
When a company downsizes, it increases its risk of bankruptcy, researchers write in Harvard Business Review. It may chart an undesirable path for itself that makes success less likely. Losing employee knowledge and talent directly affects its bottom line.
Damage to Reputation
Second, attrition can harm a company’s reputation. Customers may view it as struggling to stay afloat. They may therefore have more faith in competitors with a growing workforce. The company’s reputation among employees may suffer as well.
Poor Client Relationships
Third, client relationships can suffer. Fewer employees may be left managing client relationships when attrition occurs. Hence, clients may not get the attention they want.
Fourth, attrition can negatively affect morale. The remaining employees may suffer a decrease in motivation, researchers have found. They might wonder if their organization views them as unnecessary. And they may miss the camaraderie they shared with former coworkers.
Calculate Your Employee Attrition Rate
Your attrition rate is the rate at which employees are leaving without being replaced. Indeed shares the following equation for calculating your attrition rate:
Calculate your attrition rate for previous years as well, as Indeed advises. Then, create a graph showing whether it’s rising or falling. This visual will come in handy when discussing attrition with HR staff and leaders.
Compare your attrition rate to that of similar companies, too. Like turnover, average attrition rates can vary by industry. A high rate for one industry may be average for another. The same can hold true across different regions.
How to Reduce Employee Attrition
Fortunately, you can take steps to prevent employee attrition. This involves a two-pronged strategy. First, you need to boost retention. Second, you need solid strategies for replacing employees if they do leave.
Upgrade Performance Management
Performance management tools can help increase retention. They assist managers in helping employees develop professionally. Plus, they can help you monitor workloads to ensure they’re manageable. Employees who feel supported tend to stick around much longer.
Plan for Their Future
Talk to them about their career prospects as well. Many employees have realized they feel “stuck,” fueling the Great Resignation. “While you should never make promises you can’t keep, talk through potential career advancement scenarios together and lay out a realistic plan for reaching those goals,” says Robert Half.
If some roles seem less necessary than others, don’t simply eliminate them. Instead, work to upskill employees. Upgrade their role to make it more relevant.
Hold Stay and Exit Interviews
When employees leave, hold exit interviews to find out why. They’ll provide insights into how to retain good employees. More importantly, conduct stay interviews with current employees. This will help you understand how to keep them.
The Upside of Employee Attrition
Most companies typically try to avoid attrition. However, allowing attrition to occur could make sense in certain cases. Why might a company decide to permit attrition to happen? It may wish to outsource certain functions, for one thing. So, when an employee in that function resigns, it may refrain from finding a replacement.
At the same time, the company may continue hiring in other functions.
Attrition may provide a means of reducing operating costs, too. If an employee leaves a struggling company, the organization may avoid replacing them. By doing so, it may aim to buy some time in which to bounce back. As mentioned, though, scaling down a workforce can profoundly affect the organization’s success.
Now that you understand attrition, you can work to avoid it. In most cases, preventing it will strengthen your workforce. You’ll maintain a robust team that will keep your organization running smoothly, even if some turnover occurs!
Want to learn more about how performance management software can help decrease attrition? Demo our product today to find out!