How to Calculate Attrition Rate: With Formula

Employee attrition is natural for any business. Unlike turnover, attrition usually refers to employees leaving an organization without being replaced, gradually reducing the workforce.

The attrition rate can reveal a lot about an organization’s culture, hiring practices, and overall employee experience. Understanding this metric in comparison to industry standards and global retention benchmarks can help identify areas for growth and ways to improve employee engagement.

Let's talk about calculating employee churn rate and what these figures reveal about the health of your organization. We'll also discuss the attrition rate meaning, the right formula, and how it differs from turnover rate.

Attrition rate definition

An attrition rate is a metric that tracks the number of employees who leave an organization over a specific period. It is expressed as a percentage and used as a key indicator for HR professionals to assess the health of a company.

To calculate it, here’s the formula: Attrition rate = (# of churned employees divided by average # of employees) x 100.

Keep in mind, unlike turnover, employee attrition can result from either voluntary or involuntary factors, such as employee retirements, internal attrition, resignations, deaths, or the elimination of positions.

Experts say that a good churn rate is no higher than 10%, but there is no "standard" rate for all organizations, as each one

• Employee engagement

• Industry benchmarks

• Retention strategies

• Reasons for attrition

One of the reasons for a high rate among companies is uncompetitive pay. Salary.com's Pay Equity tool can help ensure fair compensation in your organization. It addresses the gender pay gap, general pay inequality, and more.

Attrition rate vs turnover rate

The difference between attrition and turnover rate is that attrition rate measures employees leaving an organization without being replaced, usually for voluntary reasons. In contrast, turnover tracks both voluntary and involuntary departures where positions are quickly filled to maintain workforce size.

The table below shows the simplified differences between churn rates and turnover rates.

Importance of learning how to calculate attrition rate

Knowing how to calculate the churn rate in an organization is critical, as this metric provides insights into workforce stability and the overall health of the organization.

1. Helps identify potential issues

   Calculating it helps organizations identify why employees are leaving, whether it's due to dissatisfaction, inadequate pay, or management issues. This insight is key to addressing problems before they grow, such as the loss of institutional knowledge.

   Pay issues, such as discrepancies based on gender, ethnicity, or age, can be easily resolved with a Pay Equity tool. With its pay gap assessment, it analyzes the demographic distribution and pay levels across your compensation tiers.

2. Assesses impact on business performance

   High rates can disrupt operations, reduce productivity, and raise training costs. Calculating the churn rate helps organizations see its impact on business performance and make better decisions.

3. Supports effective retention strategies

   Understanding the churn rate helps companies create targeted strategies to keep employees. This includes improving company culture, offering competitive pay, and providing growth opportunities.

4. Provides a basis for industry benchmarking

   Knowing it lets you compare it with industry standards. This helps you see how your organization compares to competitors and find areas to improve in order to stay competitive.

   Though not directly related to the churn rate, having a tool that benchmarks external market pricing is a lifesaver, especially when you need to ensure your compensation remains competitive and reduce attrition.

How to calculate attrition rate for employees

Here are the steps to guide you in calculating your employee churn rate:

1. Step 1: Identify the time period

   Decide on the time frame you want to measure, like monthly, quarterly, or yearly. For example, you can measure how many employees left in a month or over the entire year. Just make sure you're consistent when comparing different periods.

2. Step 2: Find the total churned employees

   Next, count how many employees left the company during the chosen time period. This includes:

   1. Voluntary attrition: Employees who resigned or retired

   2. Involuntary attrition: Employees who were terminated, laid off, or whose contracts ended

   Ensure to include all types of separations that are relevant to your company's policies and data tracking methods. In some cases, it may also help to track reasons for employee turnover (e.g., resignation, termination) to identify areas for improving employee retention.

3. Step 3: Determine the average number of employees

   To find it, add the number of employees at the beginning of the period and at the end. Then divide the result by two. This gives a middle value or average for the employee count during that time.

4. Step 4: Use the formula to calculate

   Lastly, use the formula to calculate the churn rate: (# of churned employees divided by average # of employees) x 100

   For example, if your organization had 20 employees leave and the number of employees at the start and end of the year was 500 each, the calculation would be:

   

   # of employees at the start: 500

   # of employees at the end: 500

   Churned employees: 20

   Average number of employees: 500+500 = 1000 ÷ 2 = 500

   Attrition rate = (20 ÷ 500) x 100 = 4%

   In this example, your organization has an annual attrition rate of 4% for that period, meaning 4% of the workforce left the organization. This rate is generally considered healthy.

   A healthy churn rate may result from pay transparency. Achieve this with Salary.com's Pay Equity tool. Complete the Pay Equity Audit and Certification to show employees and job candidates that your company leads in pay equity.

Attrition rate values and their interpretations

Now that you know how to calculate it, let's look at different churn rate values and what they mean for your organization:

What does 80% attrition rate mean?

An 80% rate means 80% of the staff have left the organization without being replaced. This very high rate suggests serious issues like poor management, low employee satisfaction, inadequate compensation, or a toxic work environment.

Fixing problems like poor management and low compensation is necessary. Salary.com's Pay Equity tool uses cohort analysis to compare employees doing similar work and identify pay issues or valid reasons for pay differences.

What does 30% attrition rate mean?

A 30% rate indicates that 30% of the workforce has left the company within a specific timeframe. While not as alarming as an 80% rate, it still signals potential issues within the organization.

What does 20% churn rate mean?

A 20% churn rate means 20% of the workforce has left the company. Although it is lower than 80% or 30%, this metric still indicates potential challenges. Companies with high employee attrition rates often face increased recruitment and training costs, along with reduced productivity.

Knowing how to calculate employee attrition rates can be a lifesaver in an organization. As HR, it's your job to monitor this rate closely. Don't wait until it gets too high to act and implement solutions. For pay issues, use Salary.com's Pay Equity tool to ensure fair compensation and address disparities.