How to Calculate Annualized Attrition

On average, breaking in a new employee costs more than $1,000 and 30 hours of training. The more of your current staff leave, the more expensive it gets to onboard replacement workers. Your company's annualized attrition rate is the measure of how many employees leave over a year. Attrition is also known as employee turnover.

TL;DR (Too Long; Didn't Read)

To use the annual attrition formula, add the number of employees at the start of the year to the year-end number and divide by two. Divide the result into the number of employees who left your company in the same period.

The Annual Attrition Formula

Calculating annualized turnover is simple if you have your staff numbers for the year. You need the number of employees at the start and end of the year and the number who left during the year. The same method works just as well to calculate monthly or quarterly turnover.

For a turnover report sample, suppose you start the year with 50 employees. Over the following 12 months, 12 employees leave. You replace them, and because the company's growing, expand your staff to 70 by the end of the year.

Plug those figures into the annual attrition formula:

  • The average number of employees: (50 + 70)/2 = 60
  • The attrition rate: 12/60 = 20% 

Why Calculating Annualized Turnover Matters

Attrition is an important HR metric. If the annual attrition formula shows you have a high rate of turnover, you need to ask why employees are leaving.

  • Is pay significantly lower than normal in your industry?
  • Are you top performers leaving for better jobs elsewhere?
  • Does your management style turn off employees? 
  • Is it simply that you shed your worst workers and replaced them with better-quality hires? 

Comparing your turnover report sample to previous years can show whether your attrition rate has changed. If there's a marked rise or fall, it may not relate to changes at your company. A booming economy with more job openings can increase the number of employees who head off for greener pastures.

How Much Is Too Much?

The annual attrition formula can tell you how many employees are leaving, but by itself, it can't tell you whether the rate is too high. There is no perfect attrition rate that applies to all industries at all times.

The retail and hospitality industries, for example, have more employee churn than manufacturers or law firms. Jobs in retail are often part-time and low paying, and the workers are often only looking at it as a second job. That doesn't encourage a stable workforce.

In tourist areas, business is often seasonal, shedding employees after the winter or summer tourist season ends. In college towns, students may take jobs, then leave as their class schedule changes or they graduate. To really understand the meaning of the annual attrition formula, you need to place the figures in context.

Lessening Your Turnover

If calculating annualized turnover shows that you do have a problem hanging on to good workers, your company has work to do. Improving the retention rate saves you the onboarding costs and the loss of experience when a good worker leaves.

  • If you have toxic employees, such as bullying supervisors or backstabbing coworkers, they can drive good employees off.

  • Giving top performers regular recognition and respect is a powerful motivator for them to stay.

  • Training and development programs not only improve your staff's abilities, but they also reward good employees by giving them challenges and a better skill set.

  • Offering flexible schedules or other perks that allow for a better work/life balance make it easier for employees to enjoy life with your company.

It's also a good idea to improve your hiring and onboarding. Selecting employees who are a good fit for the company culture can reduce turnover down the road. Onboarding them fast reduces the costs due to attrition.

References

About the Author

Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com