Employee turnover and attrition comes at a high cost. Every time an employee quits, companies incur significant financial and non-financial costs. The loss of productivity and key knowledge as well as the impact on company culture can be very disruptive. As a result, leaders need to understand how to attract, grow, and keep the great talent that they hire.
- Employee turnover is when an employee voluntarily leaves and a new candidate is hired to fill their spot
- Employee attrition is when an employee voluntarily leaves but the role is not filled; the net effect is fewer employees
What is employee turnover and employee attrition?
Employee turnover occurs when an employee voluntarily leaves a company and a new candidate replaces them. Employee attrition differs in that after the employee leaves there is no intention to fill the role. Instead, other employees have to take on absorb the asks and responsibilities. With attrition, the net effect is fewer employees at the company.
Employees leave companies for many reasons. In some cases, employees are forced to leave if a company is going through a transformation, lagging in financial performance, or restructuring. These employees are laid off and would not be considered as turnover or attrition.
Reasons for turnover and attrition
Employees leave companies for numerous reasons.
- Attractive outside opportunities
- Perceived lack of opportunities to grow at current company
- Planned career trajectory, e.g. leaving for graduate school or other reasons
- Poor relationship with leadership and management
- Dissatisfaction with the current level of compensation
Surprisingly, research demonstrates that no single factor significantly contributes to employees leaving. Leaders and managers should take a personalized approach when managing employee turnover and attrition.
Impact of turnover and attrition on a business
Turnover and attrition create financial and intangible impacts on a business. When an employee leaves, all the monies spent on hiring and training are lost. Additionally, all tacit knowledge also disappears when an employee leaves. This knowledge includes understanding the company’s culture and how to navigate the organizational structure. Both factors are key for gaining the right influence in a company.
Additionally, productivity decreases when an employee quits. This is because it takes time to hire and fill the open role. Even if other employees backfill the role, ramping up takes time. Task switching will also reduce productivity and quality.
Finally, all the relationships of the employee are also affected when they leave. Key customers may be loyal to the employee. As a result, they may follow the employee to the new company. Inside the company, the culture may be harmed and how people work together may be affected. If an employee is a great mediator, they may be missed when meetings go awry.
Benefits and drawbacks
Lowers cost of problematic employee – a problematic employee voluntarily leaving can save the company money. Managers do not have to spend the effort to manage the problematic performance and severance doesn’t need to be paid for termination.
Low impact on employee morale – for shrinking the workforce, attrition is preferred over layoffs. Attrition doesn’t pit management against employees. It also doesn’t initiate fears with employees about job security.
Costs – when an employee leaves, all the hiring, onboarding, and training costs are gone. On top of that, there are the costs associated with loss of productivity, disruption to the workforce, and recruitment of the new candidate.
Loss of productivity – losing an employee immediately decreases productivity. Their tasks and responsibilities get reassigned to other employees; that process can take time. Customers and vendors may be affected by delays. In the case this is attrition, existing employees need to absorb the additional workload; this reassignment of work can dampen employee morale and breed resentment.
Negatively affect employee morale – during their tenure, an employee builds relationships with colleagues and management. When they leave, they disrupt the norms and working relationships that the team is accustomed to. Having to re-establish these norms with a new employee will take time.
Increased workload for other employees – existing employees have to take on the work of the employee who left to keep the business going. This can create resentment, dampen employee morale, and negatively impact company culture. Worst case scenario, it may even drive other employees to leave.
Destroy company culture – employees and their relationships with one another shape the culture at a company. Having an employee will change the relationships in the company. Too much turnover will make it impossible to create any culture. This will make it even more difficult to attract and retain employees.
How to manage turnover
When managing turnover and attrition, managers can view this from an employee lifecycle lens. This helps managers understand where changes and improvements can be made.
Informed Hiring – one way to manage turnover is to hire people who are not likely to leave. Host exit interviews to understand why employees are leaving. Use candidate screening and assessment tools to understand if the candidate is a good fit. Ask questions about the candidate’s career goals and objectives to see if they match the opportunities available at the company.
Address work conditions – managers should evaluate different aspects of the role to understand what drives employees to leave. Again, facilitating exit interviews can help management understand what factors are contributing to employees leaving. Is the pay competitive? Are there aspects about the work conditions that making employees don’t like? Address the aspects of the work conditions to improve employee satisfaction and retention.
Monitor employee job satisfaction – check-in with employees regularly to see how satisfied they are in their current role. Ask questions about where they envision their career. Discuss what career opportunities are available to them at the company. This will position the company as a partner in the employee’s career success. It also helps management understand who the flight risks are.
To manage turnover, leadership should evaluate the full aspect of an employee’s life cycle including how they are hired, the work conditions of their role, and their satisfaction with their jobs.