When determining the overall health of the business, the first statistic most organizations examine is employee attrition rate.
However, a common misconception is that if the attrition rate is low, all is well with the company, and if the rate is high, there must be a serious problem within the business.
The truth is attrition is not as simple as the percentage of employee turnover. It has more to do with what is behind the numbers. There is positive attrition and negative attrition, and it's important to understand the factors driving either type.
What is the Difference between Negative Attrition and Positive Attrition?
Frequently, the organizational perspective is that staff turnover is usually not a good occurrence. Companies invest resources in recruiting, assessing, hiring and training each person. When an employee leaves, contributing to an already high turnover rate in some situations, the automatic assumption is that the attrition is negative and will cost the company even more money to replace the exiting employee with someone who can quickly reach full performance.
The reality is there is negative attrition and positive attrition. Negative attrition refers to the loss of an employee the organization would like to keep. Qualified and skilled employees leave for a variety of reasons, and it is often challenging to find an equally skilled replacement. Negative attrition, especially in industries with the highest turnover rates, is expensive. The organization must once again recruit, assess, hire and train a new employee, and until the position is filled, team productivity declines.
Positive attrition refers to staff turnover that actually benefits the organization. Think of an employee who is a poor performer, makes many errors, has difficulty working with others, delivers low quality customer service and/or uses sick leave and vacation time as the hours are earned. When the employee quits, the organization benefits because now the supervisor can replace the low performer employee with someone who is better for the organization. All staff turnover costs an organization money, but the costs are more than offset by the increased productivity of a replacement employee who is a better fit for the job and more productive.
Why Employee Turnover Is Not Always Negative
What is positive attrition? Many companies assume the staff turnover rate in their own organizations is either due to the fact that the employees are unhappy with their work environment, or the company is not hiring the right employees. This is especially true for a high turnover rate.
While this assumption could be partially true, it probably does not highlight the entire picture of what is spurring the increased rate of attrition.
High staff turnover, especially in the service industry and in hourly positions, is normal in some situations. Which industry is having the highest attrition rate of employees? According to the Bureau of Labor Statistics, the average employee in the services industry only remains at the same place of employment for three years. So a normal attrition rate in the services industry is a high attrition rate, especially when compared to other industries. That does not mean an organization's turnover rate has to automatically be exceptionally high just because their industry has the highest turnover rate. Recruiters and hiring managers do have some control over the staff turnover rate by maximizing the quality of job applicants and new hires.
In addition, employee attrition does not always have a negative impact on a business. If the staff turnover rate is mostly due to the loss of several poor performers in the workplace, this could ultimately have a positive impact on the business and its productivity. This is good attrition because the employees voluntarily leaving are not productive. Sure, you may have to determine why these employees were hired in the first place and if they left voluntarily or involuntarily, but ultimately the results are more positive than negative.
Furthermore, if you are looking at attrition by departments, you must factor in the number of high performers who were promoted into other departments of the business. These conditions may actually signify a number of positive attributions, like a good work culture that supports employee career progress and helps to prevent your high performers from leaving the company.
The Cost of AttrItion and the Weak Performing Employee
What is negative attrition? Negative attrition is when a business loses productive employees on a regular basis. Employees leave because of a poor company culture, poor leadership, a mismatch of skills and job duties, lack of adequate training and so on. There may be a gradual loss of employees which may disguise a developing attrition problem for a while, unless the business investigates to pinpoint the reasons people are not staying with the company. There are always reasons for a high turnover rate, and frequently an investigation reveals it is an issue that had been developing for a while. It is another reason to calculate the employee turnover rate on a regular basis to identify a developing trend as early as possible.
A high attrition rate is costly. Some experts suggest the entire hiring process can cost as much at 50% of the annual wage for an entry-level position. If your company loses a strong performer, especially one in a supervisory position, these costs should be a concern.
However, keeping poor performers around has equally high costs for the company.
Positive attrition is good for the organization and can save a business a comparable amount of money by ousting underperforming employees. In his piece, Calculating the Dollar Cost of a Bad or Weak-Performing Employee, Dr. John Sullivan illustrates the financial impacts of weak performers using the weak employee differential (i.e. the performance percentage difference between the average and the worst employee in a job family). Indeed, a poor performer's continued presence can have exponential impacts on business revenue:
- Minimum weak employee: 33.3 percent of the average revenue per employee, or three-fourths of their annual salary.
- Typical weak employee: 100 percent of the average revenue per employee, or two and one-fourth times their annual salary.
- Exceptionally bad employee: 300 percent of the average revenue per employee, or six and three-quarters times their annual salary each year.
Additionally, weak performers tend to stick around longer than their more skilled counterparts, because they realize they may have trouble finding another job. This could multiply the damage to your business over years, or even decades if not addressed. A poor performer's exit, though, has a myriad of benefits, including increased productivity, improved employee morale, improved quality of service, and a lower risk of losing high-performing employees.
Dealing with Your Employee Attrition Rate and Turnover
Companies should embrace periods of positive attrition as a way to bring in new talent and enhance the talent already in place. It can be the perfect time to implement changes or introduce new ideas. On the other hand, if it appears that your top performers are leaving the company, or there is a surge of poor performers coming onboard, there is a problem that needs addressing.
What Industries have High Attrition Rates and Why
Some industries are notorious for having high rates of staff turnover. Depending on the source of data, the industry rankings may vary a bit, but some industries are always on the list for having the highest turnover rate. According to LinkedIn research the industries are:
- Technology - 13.2%
- Retail and Consumer Products – 13.0%.
- Media and Entertainment - 11.4%
- Professional Services – 11.4%
- Government, Education, Non-Profit – 11.2%
- Financial Services and Insurance – 10.8 %
- Telecommunications – 10.8 %
The Bureau of Labor statistics tracks occupational separations which is defined a bit differently than straight staff turnover. These statistics include people who retire, leave employment for other reasons or change occupations to enter a different industry. Some industries really stand out:
- Construction – 58%
- Information – 38.4%
- Retail trade – 58.3%
- Transportation, warehousing and utilities – 44.2%
- Professional and business services – 63.3%
- Arts, entertainment and recreation – 87.4%
- Accommodation and food services – 74.9%
Looking at the big picture, the services industry includes banking, wholesale and retail trade, communications, call or contact centers, professional and business services, computer software development, consumer services, government services and nonprofit services. It has the highest turnover rate compared to other major industry categories. The call center sector within the services industry has one of the highest turnover rates, reaching up to 45 percent for large contact centers. Another exceptionally high staff turnover sector is the hotel and motel industry which can experience up to 74 percent turnover.
Why is there such high turnover in some industries?
The reasons vary, and in each industry there are multiple reasons. For example, the tech industry turnover rate is due to factors like a lack of career development opportunities, stagnant wages, tight labor market (makes it easier to change jobs when dissatisfied), contracted project terms of employment and/or a poor or toxic workplace culture.
In the retail industry it could be due to a combination of low pay, lack of promotion opportunities, insufficient benefits, repetitive work and/or seasonal work schedules. Some industries are experiencing higher turnover rates because technology is automating work, like in the media and entertainment industry.
Call centers and contact centers have high turnover rates due to high stress work environments, fast-paced work, low employee engagement, repetitive work, lack of career advancement, poor supervisor leadership skills and/or lack of adequate job training.
It's important to keep in mind dysfunctional companies are more likely to hire dysfunctional employees, and high performing employees will not stay in a work culture where they cannot thrive. All organizations should track their staff turnover rates, but companies with the highest turnover rate within their industry are most likely experiencing a high negative attrition rate. Companies with negative attrition should not only look at their hiring process, but also use hiring assessment tools to look for problems that lie deeper within the company.
The people you hire drive your business forward and ultimately, determine its success. For more information on how your organization can identify and retain high-potential employees, speak with one of our talent selection specialists and discover how you can transform your organization's business outcomes, starting with the hiring process.