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Attrition Rate

The attrition rate has always been a sensitive issue for all organizations. Calculating employee turnover rate is not that simple as it seems to be. No common formula can be used by all the organizations. A formula had to be devised keeping in view the nature of the business and different job functions. Moreover, calculating attrition rate is not only about devising a mathematical formula. It also has to take into account the root of the problem by going back to the hiring stage.
Attrition rate: There is no standard formula to calculate the attrition rate of a company. This is because of certain factors as:

  • The employee base changes each month. So if a company has 1,000 employees in April 2004 and 2,000 in March 2005, then they may take their base as 2,000 or as 1,500 (average for the year). If the number of employees who left is 300, then the attrition figure could be 15 percent or 20 percent depending on what base you take.

  • Many firms may not include attrition of freshers who leave because of higher studies or within three months of joining.

  • In some cases, attrition of poor performers may also not be treated as attrition. Calculating attrition rate:
Attrition rates can be calculated using a simple formula:

Attrition =(No. of employees who left in the year / average employees in the year) x 100

Thus, if the company had 1,000 employees in April 2004, 2,000 in March 2005, and 300 quit in the year, then the average employee strength is 1,500 and attrition is 100 x (300/1500) = 20 percent. Besides this, there are various other types of attrition that should be taken into account. These are:

  • Fresher attrition that tells the number of freshers who left the organization within one year. It tells how many are using the company as a springboard or a launch pad.

  • Infant mortality that is the percentage of people who left the organization within one year. This indicates the ease with which people adapt to the company.

  • Critical resource attrition which tell the attrition in terms of key personnel like senior executives leaving the organization.

  • Low performance attrition: It tells the attrition of those who left due to poor performance.

Attrition Costs
One of the best methods for calculating the cost of turnover takes into account expenses involved to replace an employee leaving an organization. These expenses are:

A. Recruitment cost
The cost to the business when hiring new employees includes the following six factors plus 10 percent for incidentals such as background screening:

  • Time spent on sourcing replacement

  • Time spent on recruitment and selection

  • Travel expenses, if any

  • Re-location costs, if any n Training/ramp-up time

  • Background/reference screening
B. Training and development cost
To estimate the cost of training and developing new employees, cost of new hires must be taken into consideration. This will mean direct and indirect costs, and can be largely classified under the following heads:

  • Training materials

  • Technology

  • Employee benefits

  • Trainers’ Time
C. Administration cost
They include:

  • Set up communication systems

  • Add employees to the HR system

  • Set up the new hire’s workspace

  • Set up ID-cards, access cards, etc.