Among the metrics by which people measure organizational health, turnover and attrition are two of the most significant in what they supposedly say about your business. Rates of turnover and attrition in an organization are often categorized as an indicator of organizational health, with high rates typically seen as being “bad” and low rates perceived as “good.”
This is a false perception. Employee churn is part of every business, and it can be good or bad, but there’s no single rule that can be applied to determine whether it is one or the other. Turnover and attrition can be essential parts of a business plan, or the swords by which an organization dies. In every aspect of the employee attrition vs. turnover conversation, context is key to determining whether your gains, losses, retention, and replacement of employees are having a beneficial or detrimental effect on your organization’s future.
Defining Employee Turnover
Turnover is often incorrectly defined as the number of employees who leave an organization in the course of a year. In fact, turnover is more accurately described as the rate at which an organization replaces departing employees with new employees over a set period of time. Only positions that vacate and are filled should be counted as turnover. If an employee leaves and the position they occupied is not filled, that is either the result of attrition or an intentional reduction in workforce.
Defining Employee Attrition
Employee attrition refers to the strategic decision not to replace employees who leave an organization voluntarily. Employees leave on their own for multiple reasons: it could be to take a better offer with another company, or to advance further or make a change in their career path. It can happen due to a life event, such as retirement or a move to another state. The key aspects of attrition are that the departure must be voluntary, and the company must decide not to rehire. If you terminate an employee involuntarily and decide not to backfill, that’s restructuring. If an employee leaves voluntarily and you decide to replace them, that’s turnover.
Reexamining the Negative Implications of Turnover and Attrition
Turnover can be expected or unexpected, planned or unplanned, and that context is what makes it either good or bad for an organization.
For example, a sales team might experience a high turnover rate as junior team members advance to more senior teams within the same business, or a fast-food restaurant may experience high turnover as people leave for higher paying jobs. As long as those departures are expected and the market for new employees remains strong, both businesses will remain healthy. A different rate of turnover than expected and budgeted for–whether higher or lower–is what would indicate there’s an issue to be concerned about.
The same goes for attrition. The word attrition comes from the late Latin term atterere, which means “to rub”. BambooHR’s home state, Utah, is famous for natural examples of this process–seemingly impossible sandstone arches slowly scoured smooth by aeons of wind-blown sand.
These arches hold firm for hundreds and thousands of years, in spite of the forces wearing on them. While their shape changes over time, their foundation stays solid–until eventually, nature wins, and the arches topple.
In the case of employee attrition, the difference is that while external forces create the loss, a decision determines whether the departure results in a reduction in your company’s size. That decision is what determines whether the foundation of the business stays solid or crumbles due to lack of support. Like turnover, attrition can be expected or unexpected, planned or unplanned, and that context is what makes it either good or bad for an organization.
Attrition is often how a company can implement a gradual, lower-impact downsizing strategy or a strategic reduction in overhead. For example, think of a law firm experiencing a downturn in business and looking for ways to cut costs without the disruption of a layoff. As senior partners approach retirement age, the firm’s leadership may decide not to replace them, or to hire junior associates at a much more affordable rate. While the loss of a senior partner might be regrettable, it’s not as unsettling as an involuntary separation–it’s just part of life, and the firm can keep going while spending less money.
On the other hand, what if that firm were to hire a junior associate, but the senior partner decided not to retire? Unless it decides to forcibly correct the situation with a layoff or termination, the firm would be left paying two salaries and spending even more. That kind of unexpected shift in attrition can be disastrous.
Anticipating Turnover and Attrition as Part of an Effective Business Strategy
How many employees does it take to serve one customer? This is more than a lightbulb joke. Accomplishing your organization’s mission isn’t a one-person job, but neither is it a too-many-people job. Consider these examples of questions that a service-based organization might ask to determine their headcount needs:
If we add more sales employees, how many more support employees will we need to serve the new customers they bring in?
What is the ideal ratio of marketing personnel to other personnel?
How much slack can employees in each department pick up if a coworker leaves?
Are there times of the year where we will need more employees to handle surges in workload?
Clarifying the fact that turnover and attrition aren’t destructive is an important precondition for an effective hiring strategy. While there’s no magic analytical formula for perfect and perfectly-timed talent management, there is one guiding principle to follow: Seek transparency and expect the unexpected.
Do you know what to expect during the next few months in terms of attrition or turnover? Do your employees know what to expect from the organization? While you can’t expect unlimited insight into employees’ life events, and you can’t expect employees to behave with 100 percent consistency, you can still gain knowledge about the former and support the latter by encouraging two-way, transparent communication. Here are three opportunities to do so:
Manager/employee one-on-one meetings. While managers should be giving their employees regular, in-the-moment feedback, taking time for formal one-on-one meetings gives time to sync with employees. One-on-one meetings give employees an opportunity to ask their managers for clarification on any recent team changes, and for managers to ask about employees’ career plans and life events.
All-hands update meetings. All-hands meetings are a good place for company leaders to offer background and context on complex issues like employee attrition, company financial health, and future strategy. That kind of direct, top-down communication reduces the chance that information will get lost or distorted as it passes through several people and helps employees make decisions based on facts, not rumors or market trends.
Manager-level meetings. Once managers are talking to employees and employees are hearing accurate information from executives, the only remaining need is to connect the dots. Holding manager-level meetings where team leaders can talk candidly about trends they are seeing and how company decisions are impacting their employees gives HR and talent managers the opportunity to gut-check their hiring strategy.
Decisions about who to hire and when to hire are monumentally important choices–and the balance between when and who is a tricky one to master. Hire too quickly, and you risk the financial and cultural costs of a mishire. Hire too slowly, and you leave employees on short-staffed teams facing the dreaded “doing more with less” scenario and increasing chances for burnout.
Seeing Employee Attrition from an Organizational Perspective
The question isn’t whether employee attrition happens when employees leave–it’s really how long the period of attrition should last. An immediate rehiring effort turns a departure into a turnover event, which has its own costs and anticipated benefits. An indefinite period of attrition saves money in the short run, but has long-term impacts due to the reduction in staff. Without an overarching strategy that takes into account the upcoming needs of the business and the anticipated behavior of current employees, the decision to hire or not becomes a liability rather than a carefully calculated move in the right direction.
Everyone involved in the hiring process has an incentive to try and tilt that decision in their favor: Hiring managers may want to rehire quickly to reduce the time spent under short-staffed conditions, while recruiters may want to rehire quickly to have improving numbers so leadership doesn’t question their performance. The balance between quick and targeted hiring is likewise affected by external conditions, like changes in the hiring market due to economic conditions, the presence of new competitors, shifts in generational values, or industry trends in compensation.
It takes more than a headcount statistic to fine-tune the employee skills and collaboration you’ll need to succeed in your specific industry and with your specific mission. You need the full context–both at an organizational and an employee level–to put each instance of employee churn in its proper perspective and to make the proper decision about how to respond.
Why Context is Critical for Attrition and Turnover
Your organization will change–that’s the only constant. With employment playing such an important part in their lives, employees are constantly looking for signals on how to react to those changes. Consistent communication, consistent decisions, and following a consistent direction that aligns with your values can help reassure your employees that attrition and turnover are not signs the ship is sinking and it’s time to make for the lifeboats. And with the right understanding of how to predict and prepare for employee attrition and turnover, your leadership team can respond with decisions that strengthen your culture, your employee experience, and ultimately your retention rate.
Brian Anderson is a copywriter with BambooHR, a full-service, cloud-based HR management software. His work explores employee engagement, total rewards, recruitment strategies, and how core HRIS software connects with every aspect of HR.