As a small business owner, understanding your workforce dynamics is crucial. You might have come across the terms 'attrition' and 'turnover' and wondered what is the difference between them. While they are sometimes used interchangeably, it's important to distinguish between the two as they have different implications for your business.
Here, we'll dive deep into the concepts of attrition vs turnover, and how to measure and interpret their respective rates. However, learning the difference between attrition and turnover is the key to using these metrics to improve your long-term employee retention.
Knowing the difference between attrition and turnover can save your company money. According to Gallup, the cost to replace an employee that quits or is fired can be as much as three times that employee’s salary. In 2023, the average weekly earnings of an employee were $1,100 or $57,357.30 annually according to the Bureau of Labor Statistics (BLS). Keeping in mind those BLS statistics, that would be nearly $172,071.90 to replace that employee! Losing employees can get costly, especially if you’re a small business.
Attrition on its most basic level is defined as a “gradual decrease”. When we talk about employee attrition, we aren’t simply talking about employees who leave for better job offers.
We’re also talking about employees who leave due to retirement or for their own personal reasons - like moving to another geographical area.
The company typically knows about the employee’s departure ahead of time, especially in the cases of retirement. Attrition implies that an organization does not have direct control over how many employees are lost for various reasons.
The key to understanding, if the departure is considered attrition, relies on two facts;
Involuntarily terminating an employee and then deciding not to backfill the role would be considered restructuring.
Conversely, when an employee decides to leave of their own volition and then you do decide to replace them – that’s turnover.
Employee turnover also refers to a reduction in the workforce. However, rather than it being a catchall for everyone who leaves your company, it only refers to those who leave the organization that you intend to replace – both voluntarily and involuntarily.
This encompasses all termination scenarios, such as an employee being terminated, getting a better job offer somewhere else or leaving due to career stagnation/inability to advance.
Additional reasons for employee turnover can also include:
When employees leave due to any of the above reasons, it can reflect poorly on your business and may indicate the need for cultural and managerial changes to improve employee retention. When it comes to attrition vs turnover, a major difference between the two is that an employee leaving due to turnover results in the need to immediately hire someone else to fill the position, and the departure is usually sudden and unanticipated.
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The formulas for calculating employee attrition rate and turnover rate are the same. The difference lies in how you interpret the data.
If turnover is high, it means that many employees are leaving the organization – either voluntarily or involuntarily. High turnover can indicate workforces that are disengaged, aren’t offered sufficient growth opportunities, or could even be as simple as making a wrong hire.
A high attrition rate typically indicates the level of people retiring or resigning – and always indicates that these employees will not be replaced. Knowing your attrition rate as an organization can be invaluable information for your organization.
It can help you understand the direct and indirect costs of new hires when isolating that personnel in the below formula. It can even help you understand your organization from a broader perspective to implement effective workplace plans for the transfer of knowledge as key employees leave the company that you don’t intend to backfill.
Overall, tracking your organization's attrition rate can be a fantastic way to stay ahead of the needs of your organization.
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To calculate your turnover or attrition rate, you need to know the following:
This equation can be represented by:
[(Number of Separated Employees {either attrition or turnover-related})] / [(Average Number of Employees Typically Employed)] * 100 = Company Attrition/Turnover Rate
For this example, let’s say that for the last six months, you’ve kept an average of 125 full-time employees on your payroll. During that same six-month period, you lost 35 employees for various reasons that are either classified as attrition or turnover (but not both!). Your equation would be:
(35/125) * 100 = 28%
In the above example, the employee attrition/turnover rate would be 28%. The United States Bureau of Labor Statistics reports the separation rates for 2016 through 2020 as ranging from 42.6% to 57.3%, respectively. This is an average rate over the last five years of 46.5%.
When calculating these metrics, it is important to remember that employee attrition and turnover are generally considered a normal part of the lifecycle of a business. They aren’t inherently considered negative and don’t always reflect poorly on the company’s hiring practices or culture.
The trick to lowering employee churn is to identify the reasons employees left. If it’s due to poor training, improving the training program and making managers and experienced employees available as mentors may help. If the reason is due to harassment or discrimination, an investigation should be performed to determine where the harassment or discrimination is emanating from, then implementing classes or workshops on those topics.
Once the fixes have been implemented, it’s important to monitor both your attrition rate and turnover rate to determine if it’s working or if further changes or training are needed.
By understanding employee attrition vs turnover, you can better anticipate your workforce needs, improve retention, lower costs and increase your company's productivity to better serve your customers.
Understanding the distinctions between attrition vs turnover is crucial for effective workforce management. Axcet HR Solutions, the trusted Missouri PEO and HR outsourcing company can help you navigate these concepts and optimize your employee retention strategies.
Contact us today to leverage our expertise and develop tailored solutions that reduce turnover, improve employee engagement, and enhance your overall business performance. With Axcet HR Solutions as your partner, you can proactively address attrition and turnover challenges, ensuring a stable and motivated workforce.
Reach out now and let us support your HR needs for a more successful and sustainable organization.