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    Managing Costs Through Employee Attrition

    “Employee turnover” and “employee attrition” aren’t words that usually get business owners excited. Losing employees is most often viewed in a negative light—it can be a headache to deal with, and it’s often expensive and time-consuming for employers.

    However, when strategically managed, business owners and HR managers can use employee turnover and attrition to their advantage by realizing cost savings and using insights about why employees are leaving to improve retention efforts, if necessary.

    In this blog post, we’ll clarify the difference between employee attrition and turnover; give you tips to strategically manage attrition at your organization; and explain how you can leverage data about your attrition rate to meet your employee retention goals.

    What’s the Difference Between Employee Attrition and Employee Turnover?

    Employee attrition refers to the natural loss of employees in circumstances such as retirement, resignation, a position being eliminated, personal health issues, or other similar situations. These departures might be voluntary or involuntary. In the case of attrition, an employer does not fill the vacancy left by the former employee.

    You can determine your company’s attrition rate by comparing your employee total at the beginning of the year or quarter to how many employees you have at the end of that time period. So, if you started Q1 with 100 employees, and ended it with 90, your attrition rate would be 10%.

    Contrastingly, employee turnover describes any situation in which an employee leaves the organization (voluntarily or involuntarily) and is then replaced. Your employee turnover rate is also expressed as a percentage per year or quarter.

    To determine your employee turnover rate, you’ll need to know:

    • Your average number of employees during the specified time period
    • The total number of employees who left their job during this time, and
    • The total number of employees who were replaced

    You can calculate your average number of employers in a year or quarter by adding the total employee count on the first day of the reporting period to the total employee count on the last day and dividing that number by two. So, if you started Q1 with 100 employees and ended with 90, your average number of employees for Q1 would be 95.

    After calculating your average number of employees, you’ll divide the number of employees who left their job in Q1 (10) by that number (95), then multiply that result by 100 to get a percentage. In this example, (10 / 95) x 100 = 10.52% employee turnover rate.

    Leveraging Employee Attrition

    If managed strategically, attrition can sometimes help organizations manage their costs. For example, if you need to reduce expenditures by diminishing your staff size, but don’t want to lay anyone off, attrition might provide an elegant solution.

    According to Jobzology, attrition is typically considered more of an amicable or cordial departure from the organization. If your organization simply doesn’t hire anyone to replace those employees who leave naturally, you may be able to achieve your goal of reducing personnel-related expenses without having to introduce layoffs.

    At the same time, if your organization is anticipating a lot of upcoming attrition that’s related to retirement and you’re worried about keeping up with the increased workload, this can be an indicator that you need to ramp up your recruitment efforts.

    Leveraging Employee Turnover

    Employee turnover doesn’t necessarily need to be viewed in a negative light—it is simply a metric you can use to track the movement of employees in and out of our organization. If leveraged effectively, this data could be used to provide valuable insights about which people are leaving your company—and why.

    You can then use data to improve your employee retention efforts. For example, if you find that employees are leaving for better-paying jobs, you could adjust your compensation packages.

    Many employees choose to leave their jobs due to unsatisfactory benefits offers. In fact, poor benefits offerings are causing 42% of employees to consider leaving their current jobs, and 55% have already left jobs because they found better benefits offerings elsewhere. If you find your employee turnover is higher than you’d like, you may want to consider adjusting your benefits options.

    Improving Employee Retention

    According to TinyPulse, “87% of human resources leaders have placed their employee retention attempts as a number one priority for the next few years. The same study noted that 20% of them find it difficult to maintain focus on this priority, as there are other factors that take away their attention and budgets.”

    Professional Employer Organization (PEO)—which is basically a company that acts as your outsourced HR staff—can help you improve your employee retention efforts while proving a 27% ROI. A good PEO will work with your company as a trusted partner, and have the resources and expertise to ensure the job gets done right. 

    Contact us to request a free consultation.

    Related Categories

    HR Administration Reduce Expenses

    Norman Paul

    Norman Paul is CEO of SWBC PEO Services. He is responsible for overseeing the division’s day-to-day tasks, including payroll, employee benefits administration, workers’ compensation, and HR support for more than 7,000 shared employees in Texas and 18 additional states. Norman also serves as Corporate Counsel for SWBC PEO, providing guidance on compliance issues, overseeing unemployment claims administration, and conducting client training.

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