Attrition Rate: What is it and How Does It Affect Indian Companies?

30 of November, 2022

The attrition rate of a company is the percentage of employees who leave the organisation within a specific time period. A high AR is not desirable – employees are an organisation’s single most expensive asset, with recruiting, training and onboarding new employees being extremely costly.

Reducing employee turnover and increasing loyalty among existing staff can have a direct impact on your company. Such as improvement of productivity, efficiency and cost-effectiveness.

An effective employee retention strategy helps to minimise the risk of losing valuable employees and avoid the costs associated with hiring and onboarding new team members.

How does it help? Keep reading to know more about it, its types, causes, and prevention methods for Indian organisations.

What is attrition rate?

Attrition rate is the rate at which employees are leaving your company. It is calculated as the number of employees who have left in a given time period divided by the number of employees you have currently employed.

The formula for calculating the attrition rate is as follows: AR = (Number of employees who left / Number of employees employed) × 100

The AR of an organisation can be either positive or negative. A positive attrition rate indicates that more people have left the company than those who joined it. This can be due to a company downsizing.

A negative attrition rate means that more people have joined the company than those who have left it. This can be due to an increase in hiring or employees staying with the company for a long time.

The key to understanding the AR is to know the reason behind the calculations. Companies use the attrition rate to track their employee turnover and identify areas that need improvement.

Types of Attrition

There are generally two types of employee attrition – voluntary and involuntary. Voluntary attrition is when employees leave the company willingly due to a variety of reasons.

Reasons may vary, such as dissatisfaction with the work environment, better job opportunities elsewhere, or personal reasons.

Involuntary attrition is when employees are fired or pushed out of the organisation for not meeting the required performance metrics. Voluntary attrition is the most common form of attrition.

Attrition in Indian companies

According to SHRM (Society of Human Resource Management), the average employee turnover rate globally is 19%. This number means that one in five employees leave their job every year.

In India, organisations that track their employee turnover rate report an average turnover of around 25% annually. The highest attrition rates are among sales and marketing employees, followed by IT and engineering employees. This can be due to the nature of the work in these industries.

For example, in sales and marketing, employees experience pressure to achieve certain targets every quarter. While in engineering employees are motivated by solving difficult technical problems.

When they are unable to meet expectations, employees may feel pressure or be demotivated. This feeling can lead to them leaving the company.

Why does attrition happen?

Although the exact reason behind high attrition rates is different for every company, there are a few common triggers.

• Low salaries: if your salaries are too low, you may find it difficult to retain key employees during hiring freezes or layoffs.
• Poor management: poor management can affect the entire working environment. An employee who is not being supported or developed by the management team is likely to look for a better workplace.
• Poor work culture: an unhealthy work culture can be the result of a variety of issues, such as poor communication, lack of clarity in roles, or unmet expectations.

Strategies to reduce attrition rate

Retaining your employees is a great way to improve productivity, reduce the risk of turnover, and increase the efficiency of your company. If you want to retain your employees, you must invest in them.

Here are a few ways to reduce employee turnover and improve loyalty at your workplace.

• Offer attractive salaries – If you’re experiencing high turnover, one of the first places to look is your salary structure. Are you offering fair salaries?
• Have clear career progression – Employees want to feel like they have a path forward in the company. They want to see the end of the road in their careers.
• Offer better benefits – Many companies are already offering better benefits to employees. Benefits such as on-site gyms, free snacks, tuition reimbursement, and even on-site child care.
• Improve the work culture – If your employees feel like they are part of a team, they are more likely to stay with the company.

Conclusion

It is important to keep track of the attrition rate of your company and try to lower it as much as possible. An effective employee retention strategy helps to minimise the risk of losing valuable employees and to avoid the costs associated with hiring and onboarding new employees.

Reducing employee turnover and increasing loyalty among existing staff is crucial to every company willing to achieve success. The best way to keep control of how your employees feel is having powerful HR software such as Sesame HR.

With a pack of robust features, you can launch work climate surveys that will give you a crystal clear vision of how your team feels. To discover a bunch of other tools available, keep browsing our page.