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 hires workspace Set up ID-cards, access cards, etc.

Employee Turnover Cost Calculation

The following table can be helpful to calculate the cost of employee turnover per week or per month. Employee Detachment Cost Exit interview (One Hour: Preparation, interview, follow up) Cost of termination time Cost spent in administrative procedures Increased unemployment (based on the Department of Labor) Cost of vacancy Overtime Labor Wages Cost of substitution Job advertising Pre-employment administration Cost of new hires interviews Staff cost Cost of training Stationary cost (Books, training manuals, etc.) _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______

Formal training sessions (Class room, lab, etc) Informal training (Mentors, etc.) Employee performance differential Difference in performance (Productivity, learning, etc.) TOTAL TURNOVER COST PER EMPLOYEE

_______ _______

_______ _______

It is difficult to accept when organizations say they have zero attrition rates. Companies may have healthier turnover rates, however, there is no such thing as zero attrition. There are other such facts about turnover, about which most of us are not aware. Some of such facts have been highlighted below: Turnover always happens: Companies who believe in zero attrition rates only fool themselves. This happens because employees keep on moving due to reasons like marriage or further education. Nothing can top these employees from moving on. So, rather than achieving zero attrition companies should focus on identifying whom they want to keep so that they have healthy attrition rate.

Some Turnover is Desirable: Zero attrition is not desirable mainly because of two reasons. Firstly, if all employees continue to stay in the same organization, most of them will be at the top of their pay scale which will result in excessive manpower costs. Secondly, new employees bring new ideas, approaches, abilities & attitudes which can keep the organization from becoming stagnant. Turnover includes costs: Turnover always includes some costs. Consider the costs of replacing the key employee who falls in to the category of high performers. This includes the costs of recruitment advertisement, referral bonuses, selection testing, training costs, etc. Moreover, turnover results in loss of time and efforts, low productivity, loss of morale, loss of knowledge and so on. High salary doesnt work: Most managers assume that a high salary package is enough to keep employees loyal to their organization. Employees may face other problems like low job satisfaction, low engagement levels, no recognition, poor working conditions, less support from superiors and so on. Salaries are not always the solution to attrition. Managers should try to identify the roots of the problem and then find a feasible solution. The manager can reduce attrition: Managers should take primary responsibility for retaining their employees. Much of the employees perception of job satisfaction stems from the relationship they share with their immediate supervisor. Managers should try to support their subordinates and give proper feedback on performance. HR managers should work in collaboration to make the key employees last in their organization. Reducing Turnover takes Commitment: Reducing turnover takes an investment in coaching, developing, motivating, mentoring & listening to people. There should be universal acceptance of the goal of reducing turnover along with top management commitment and dedication.

What Makes Employee Leave?

Employees do not leave an organization without any significant reason. There are certain circumstances that lead to their leaving the organization. The most common reasons can be: Job is not what the employee expected to be: Sometimes the job responsibilities dont come out to be same as expected by the candidates. Unexpected job responsibilities lead to job

dissatisfaction. Job and person mismatch: A candidate may be fit to do a certain type of job which matches his personality. If he is given a job which mismatches his personality, then he wont be able to perform it well and will try to find out reasons to leave the job.

No growth opportunities: No or less learning and growth opportunities in the current job will make candidates job and career stagnant. Lack of appreciation: If the work is not appreciated by the supervisor, the employee feels demotivated and loses interest in job. Lack of trust and support in coworkers, seniors and management: Trust is the most important factor that is required for an individual to stay in the job. Non-supportive coworkers, seniors and management can make office environment unfriendly and difficult to work in. Stress from overwork and work life imbalance: Job stress can lead to work life imbalance which ultimately many times lead to employee leaving the organization. Compensation: Better compensation packages being offered by other companies may attract employees towards themselves.

New job offer: An attractive job offer which an employee thinks is good for him with respect to job responsibility, compensation, growth and learning etc. can lead an employee to leave the organization. Attrition is not bad always if it happens in a controlled manner. Some attrition is always desirable and necessary for organizational growth and development. The only concern is how organizations differentiate good attrition from bad attrition. The term healthy attrition or good attrition signifies the importance of less productive employees voluntarily leaving the organization. This means if the ones who have left fall in the category of low performers, the attrition in considered being healthy. Attrition rates are considered to be beneficial in some ways:

If all employees stay in the same organization for a very long time, most of them will be at the top of their pay scale which will result in excessive manpower costs. When certain employees leave, whose continuation of service would have negatively impacted productivity and profitability of the company, the company is benefited. New employees bring new ideas, approaches, abilities & attitudes which can keep the organization from becoming stagnant. There are also some people in the organization who have a negative and demoralizing influence on the work culture and team spirit. This, in the long-term, is detrimental to organizational health. Desirable attrition also includes termination of employees with whom the organization does not want to continue a relationship. It benefits the organization in the following ways: o It removes bottleneck in the progress of the company

o o

It creates space for the entry of new talents It assists in evolving high performance teams

There are people who are not able to balance their performance as per expectations, lack potential for future or need disciplinary action. Furthermore, as the rewards are limited, business pressures do not allow the management to over-reward the performers, but when undesirable employees leave the company, the good employees can be given the share that they deserve.

Some companies believe attrition in any form is bad for an organization for it means that a wrong choice was made at the beginning while recruiting. Even good attrition indicates loss as recruitment is a time consuming and costly affair. The only positive point is that the realization has initiated action that will lead to cutting loss.