Defining attrition: "A reduction in the number of employees through retirement, resignation, or death."
Defining Attrition rate: "the rate of shrinkage in size or number."
Defining Attrition Analysis: Knowing reasons for leaving organization and overcoming it.
Formula for calculating attrition rate: ((number of attrition x 100)/(Actual employees + new joined))/100
There are massive costs associated with attrition or turnover, and, while some of these are not visible to the management reporting or budget system, they are nonetheless real. The 'rule of thumb' appears to be very inaccurate indeed and, while it depends upon the category of staff, it is probably better to estimate around 80% of salary as a truer rule of thumb - and this will be on the conservative side.
What does this mean? Well, it means that if a company has 100 people doing a certain job paid 25,000, and that turnover or attrition is running at 10%, the cost of attrition is:
(Total staff x attrition rate %) x (annual salary x 80%)
100 staff at 10% attrition means 10 people leave and are replaced each year.
A replacement cost of 80% of a salary of 25,000 means the cost of each replacement is 20,000.
The cost of turnover is therefore 10 x 20,000 or 200,000 a year.
The on-cost to the overall salary bill is 8%.
Employees resign for many different reasons. Sometimes it is the attraction of a new job or the prospect of a period outside the workforce that 'pulls' them; on other occasions, they are 'pushed' due to dissatisfaction in their present jobs to seek alternative employment.
Sometimes it is a mixture of both pull and push factors. For a fourth group, reasons for leaving are entirely explained by domestic circumstances outside the control of any employer, as is the case when someone relocates with their spouse or partner.
Recent research strongly suggests that push factors are a great deal more significant in most resignations than most managers appreciate. It is relatively rare for people to leave jobs in which they are happy, even when offered higher pay elsewhere.