What Does Employee Attrition Mean? (And How To Minimize the Effects)

For the most part, attrition is natural — until it isn’t.

People leave companies all the time for too many reasons to count. Maybe an employee quits, or is fired. Maybe some people reach retirement age, or there are layoffs. But attrition isn’t simply a few employees leaving. Attrition is when employees leave (or are forced to leave) in such a way that it significantly impacts the workforce.

But what causes attrition? When does it become a problem? While attrition is normal (for the most part), the reason behind the attrition could indicate a deeper problem. Otherwise, it might be an intentional consequence of workforce management. In any case, attrition can have a number of effects, and it may be driven by factors you don’t immediately expect.

Let’s take a closer look at what attrition means for HR leaders, what causes it, and how to manage it with strategies that really work.

Attrition Meaning: Defining Employee Attrition for HR

Attrition is when employees depart from the organization and are not immediately replaced, creating a statistically significant reduction in your workforce. Unlike typical turnover, attrition leads to a net decrease in staff, affecting your overall operational capacity (among other impacts).

Attrition can manifest in various ways:

• Trend-Based Reduction: A gradual decline in the workforce over time.
• Sudden Occurrence: An unexpected event that leads to a significant workforce reduction.
• Intentional Reduction: Deliberate downsizing for strategic reasons, such as cost-cutting or restructuring.

What Attrition Is NOT

A few employees retiring, quitting, or being fired over the course of a year or two is not really considered attrition. These instances are too minor to significantly reduce the workforce.

Attrition also differs from turnover, which implies that departing employees are replaced immediately. While high turnover can be costly and bad for morale, it doesn’t necessarily decrease the company’s size or impact its operational capacity like true attrition. That said, turnover can be a driving factor that leads to attrition down the road, if not treated at the root.

What Is Regretted Attrition?

Regretted attrition is when highly valuable employees leave the organization, typically as a result of poor compensation, a toxic work environment, or the attrition of colleagues. In other words, it is a loss the company would prefer to avoid.

Since these employees often represent the best of the company, their departure may have harsher effects on both the performance and morale of the workforce. Fortunately, regretted attrition (like most attrition) is often preventable. In any case, a deeper analysis of what caused the regretted attrition is usually a good idea.

Reasons for Attrition

Several factors can cause attrition, and while most are undesirable, some are less problematic. Understanding these reasons can help HR leaders and executives prevent and mitigate the impacts of attrition where possible.

Voluntary vs. Involuntary Attrition

Basically, the causes of attrition can be divided into two types:

• Voluntary Attrition: When employees leave by their own choice, due to personal or professional reasons.
• Involuntary Attrition: When employees are forced to leave due to employer decisions like layoffs or terminations.

Within each of these types, the reasons for attrition are a lot more nuanced.

Personal Reasons

• Toxic Work Environment: A toxic work environment is characterized by poor management, lack of support, or pervasive negative behavior. While the problems may not always be obvious, a toxic culture can cause employees to leave in droves as they seek healthier workplaces. Addressing toxicity through improved management practices, training, and creating a positive work culture is crucial to retaining talent.
• Demographic-Specific Issues: When large parts of a specific demographic, such as women, ethnic minorities, or people with disabilities leave the organization, it indicates potential systemic issues. This type of attrition can highlight underlying problems like discrimination, lack of inclusion, or inadequate support for diverse employee needs. To be clear, this is usually a symptom of some kind of toxic work environment. However, you’ll want to diagnose the more specific problem to avoid both moral and legal issues.
• Personal Events: Personal life events, such as the death of a loved one, major health issues, or significant changes in personal circumstances, can lead to employee attrition. However, this rarely happens at a significant rate, unless the structure of work doesn’t allow much flexibility. Companies can help mitigate this by offering flexible work arrangements and disability insurance, which help employees manage personal challenges without leaving their jobs.
• Retirement: In a healthy organization, retirement is a natural part of the employee life cycle. However, if the company hasn’t upskilled enough people to fill the roles of retiring employees, this can create a skills gap and other operational challenges. That’s why it’s so important to plan proactively for succession and promote employees with the right learning and development opportunities.

Professional Reasons

• Pursuing New Positions: It’s becoming more and more common for employees to leave to pursue new positions with better career prospects or higher compensation. Job poaching by competitors is common, but companies can curb its effects by fostering loyalty and growth in a number of ways. It’s also a good idea to offer competitive pay and clear career advancement paths to promote retention.
• Lack of Internal Mobility: A significant factor driving attrition is the lack of internal mobility. In fact, in a study conducted by McKinsey & Company across several countries, lack of career development and advancement was the #1 reason for leaving a job between 2021 and 2022. When employees feel they have no opportunities for growth within the company, they are more likely to leave, causing high levels of attrition. On the other hand, studies show that “employees at companies with high rates of internal mobility stay 60% longer than those at companies with low rates of internal mobility” (Laura Hilgers, LinkedIn).
• Low Confidence in the Company: Employees may also leave if they perceive the company to be unstable, failing to adapt to industry changes, or struggling financially — whether it's true or not. This can lead to low morale and a lack of faith in the company’s future, often making other companies look more promising. Building a transparent and supportive culture and communicating the company’s vision and successes can help restore confidence and reduce attrition.
• Dissatisfaction: Sometimes, simple factors such as low pay, insufficient benefits, and poor work-life balance can drive employees to leave for better opportunities. In the same McKinsey study, this was the second most common reason for employees leaving. If your compensation package isn’t competitive, employees will seek employers who meet their needs more effectively. Compa-ratio can provide some insight into how your compensation packages compare to other employers in your industry.

Employer-Initiated Reasons

• Layoffs: While unfortunate, layoffs are sometimes necessary due to economic downturns or shifts in business strategy. Other times, it may be a misguided solution to a labor cost problem. Although layoffs contribute significantly to attrition, transparent communication with your workforce and fair severance packages can mitigate negative impacts.
• Terminations: Sometimes people simply get fired. This is a necessary move to maintain performance and cultural standards. However, high rates of terminations can indicate underlying issues within management or company culture — like inadequate training or even poor hiring practices.
• Redundancy: Organizational changes can sometimes lead to redundancy, where multiple positions overlap or become unnecessary. Eliminating redundant positions can streamline operations but may also affect the attrition rate. This is just one reason a proper position management strategy is so important. The better you understand the needs of your workforce, the better you can prevent duplicate hiring decisions.

When Should You Worry About Attrition?

Attrition can have many problematic effects, including the loss of knowledge and experience, disruption of client relationships, and even damage to reputation. Not to mention low morale among remaining employees.

But not all attrition is harmful (and many impacts can be corrected when treated with care). Attrition becomes a problem when root causes reveal deeper problems that need addressing. Otherwise, the attrition rate can get out of control.

Diversity Concerns

If a significant number of minorities start leaving the organization, it may indicate a lack of diversity and inclusion within your company culture. This could point to systemic issues that make certain groups feel unwelcome or unsupported. Not only does this create an unethical (and potentially illegal) environment, but it also deprives your company of diverse perspectives, which are crucial for innovation and comprehensive problem-solving.

Impact on Performance

When attrition begins to impact your company’s performance, it's a clear sign of trouble. High attrition can lead to a shortage of employees, causing increased workloads for remaining staff. This can result in burnout, lower morale, and further attrition, creating a vicious cycle. Additionally, when key employees leave, they often take critical knowledge with them, which can disrupt operations and negatively affect productivity.

Unintentional Downsizing and Revenue Impact

While planned downsizing is a strategic decision, unintentional downsizing due to high attrition can severely impact your company’s health. If attrition leads to reduced revenue or an inability to perform essential functions (unintentionally), it indicates a loss of control over attrition.

This scenario can arise from various factors, including a failure to retain top talent or an inability to adapt to market changes. In any case, these unintended consequences will require immediate attention to address the underlying issues causing the attrition.

When Can Attrition Be a Positive Thing?

In some cases, attrition can benefit a company, especially when it aligns with strategic goals to improve efficiency and effectiveness.

Downsizing for Efficiency

When a company has too many positions and employees are being underutilized, downsizing through attrition can help streamline operations. This approach allows the company to achieve a more lean and efficient operation, ensuring that every role is properly utilized and employees are fully engaged in their work.

This can also prevent further attrition in the future. When employees are underutilized, they tend to find less meaning in their work, which was also a major reason for quitting around the time of the great resignation after 2020. By reducing excess positions, companies can optimize their entire workforce for performance and productivity.

Cost Reduction

In times of economic uncertainty or financial strain, reducing workforce size through attrition can be a necessary step to lower costs, temporarily. Assuming the reasons for attrition are natural and attrition rate is under control, the most effective approach to this is simple: don’t immediately replace departing employees.

This cost-saving measure can provide the financial flexibility needed to navigate challenging times, ultimately helping the company stabilize and recover more quickly.

Adapting to Technological Changes

As technology evolves, the nature of work changes as well. Attrition can be a strategic move to adapt to these changes. For example, automation and digital tools can take over manual tasks, reducing the need for certain positions. A leaner team (focused on higher-value tasks that require human ingenuity and problem-solving skills) can better navigate periods of major innovation. This allows the company to remain agile and competitive in a rapidly changing market.

How To Calculate Attrition Rate

Calculating the attrition rate helps you understand the rate at which employees are leaving your organization. The formula is straightforward:

Attrition Rate = (Average number of employees during a period / Number of employees who left during that period) × 100

Let’s break down the calculation into a few simple steps:

1. Count All Employees as a Baseline: Start with a headcount of all employees at the beginning of the period.
2. Select a Measurement Period: A year is a good starting point for measuring attrition, though you can also calculate on a monthly or quarterly basis once you have the annual percentage.
3. Track Departures: Keep a record of how many employees leave (for any reason) during the chosen period.
4. Final employee Count: At the end of the period, count the number of remaining employees.
5. Calculate the Average Number of Employees: Add the starting and ending headcounts, then divide by 2 to find the average number of employees for the period.
6. Calculate the Attrition Rate: Use the formula to determine the attrition rate as a percentage.

Example A

Here’s an example of an attrition rate that is a bit high, but not necessarily unmanageable.

• Starting employees: 100
• Employees left: 20
• Ending employees: 90
• Average number of employees = (100 + 90) / 2 = 95
• Attrition Rate = (20 / 95) x 100 ≈ 21.05%

Example B

Here’s an example of a fairly normal, manageable attrition rate, but the underlying causes (and the effects on the workforce) will truly determine whether or not it’s a problem.

• Starting employees: 200
• Employees left: 30
• Ending employees: 180
• Average number of employees = (200 + 180) / 2 = 190
• Attrition Rate = (30 / 190) x 100 ≈ 15.79%

What Is Considered a High Attrition Rate?

Generally, a 20% attrition rate or higher is considered problematic. At this point, you’ll definitely want to investigate further by examining other metrics and looking for correlations. Here are some questions you might ask:

• Is your attrition related to specific demographics or groups?
• Is there a particular time of year when your attrition spikes?
• How does the current attrition rate compare to previous years?
• How does your attrition rate compare to your turnover rate?
• Is your attrition higher in specific locations, departments, or positions?

By analyzing these factors, you can better understand the underlying issues and develop strategies to mitigate high attrition rates.

At the same time, the same attrition rate in one industry may not be as problematic as in other industries. The reasons and the data surrounding the attrition are more important than the number itself.

How To Manage Employee Attrition

Remember, natural attrition is part of nearly every operation. The key is managing it effectively and using it to your advantage. Managing attrition effectively requires a multifaceted approach focused on improving retention. Here are a few key strategies:

Improve Hiring

Hiring the right fit from the beginning increases your odds of retaining those employees. To enhance hiring practices, there are a few things you can do:

• Refine job descriptions to accurately reflect the role and company culture.
• Implement a structured interview process that includes assessment tools to evaluate candidates' compatibility with the organization.
• Create a better onboarding program to help new hires integrate smoothly and feel more connected to the company from the start.

Collect Data and Generate Reports

The causes and effects of attrition are different in virtually every single organization. Because of this, generalizing an approach to any kind of attrition is often difficult, unless you understand it via data collection and analysis.

Track employee departures and collect relevant data points to generate detailed reports that identify trends and patterns. Conduct exit interviews with departing employees to gain insights into their reasons for leaving. This information can help you pinpoint areas for improvement and address underlying issues that may be contributing to high attrition rates.

Facilitate Learning and Development

Providing opportunities for employees to learn and develop new skills can help fill gaps during attrition — especially when it's related to mass retirement periods. Offer training programs and workshops that focus on skill development, and allow employees to shadow other positions to gain a broader skill set.

Ensure learning and development opportunities are easily accessible, to minimize the administrative burden on managers and HR leaders. This approach helps retain employees and prepares them for future roles within the organization.

Increase Pay and Benefits

Improving compensation can be a powerful incentive for retention. Use pay raises, bonuses, and other incentives to encourage long-term employment. Just keep in mind that pay and benefits can’t be your only retention strategy. A holistic approach that includes improving hiring practices, gaining insights through data, and enhancing learning and development opportunities will create a more robust and effective strategy for managing attrition.

Final Thoughts

Attrition is bound to happen, but it shouldn't be detrimental to your operation. To keep attrition under control, you’ll want to implement strategies that improve retention. But doing this at scale can be challenging without the right tools and partner to support you.

At Criterion HCM, our solution is designed with real HR leaders in mind. We’ve built a flexible platform to help you manage all your HR, payroll, and talent engagement processes, enabling you to implement better human capital management strategies at scale. All our features are connected on a single database with AI-driven capabilities embedded into nearly every process.

Moreover, Criterion’s open API makes it easy to integrate with any third-party application, including custom tools. This integration capability allows you to connect all the data that matters most to your organization and generate reports that reveal new insights into attrition, diversity, performance, labor cost, and much more. The flexibility of our platform means the sky's the limit for the data you handle and analyze — with all the features you need to act on those insights.

Ready to gain better insights into your workforce operations? Book a Criterion demo today to discover what’s possible with our HCM solution.