Hello everyone, in the previous topic we were talked about the meaning and importance of manpower planning, types of Manpower, and understood the steps involved in manpower planning in this topic we will discuss the meaning of attrition rate and retention rate and learn how to calculate the attrition rate and retention rate and we will look at some current trends for attrition too.
Contents
Attrition Rate and Retention Rate
What is the Attrition Rate?
Attrition is the reduction of staff due to voluntary and involuntary reasons. Voluntary reasons would mean when the employee leaves on his or her own. Example- Due to resignation or retirement. Whereas, involuntary reasons mean when the employee is asked to leave by the organization. Example- Due to performance issues, disciplinary action, layout ethics.
Basically, whenever an employee leaves the company and it leads to a reduction in staff it is referred to as attrition.
How we can calculate the Attrition Rate?
Attrition rate refers to the rate at which employees are leaving the organization. The attrition rate can be calculated by dividing the number of employees who have left the organization within a specified period of time by the average number of employees of the organization within that same period of time.
| Attrition Rate (%) = (Number of separations / Average number of employees in that duration) * 100 |
So, the attrition rate is equal to the number of separations divided by the average number of employees in the duration x 100. It can be calculated for any duration monthly, quarterly, and number of months.
How to calculate the average number of employees?
Now we try to learn how to calculate the average number of employees, the average number of employees is calculated by taking the total strength for a count of employees on each day and then dividing it by the port number 30.
But to calculate this is difficult to do you will need the data for all the day’s calculations. Simpler we take the number of employees on the first day of the duration and on the last day in the end. you can also take it for three days one at the beginning one in the middle and one at the end of the time duration and divided by 3.
| Average number of employees = (Employees on day 1 + Employees on the last day) / 2 |
So, the average number of employees is equal to the employees on day 1 plus employees on the last day / 2. Now we try to learn how to calculate the average number of employees for the time duration. let’s take an example- Now we can calculate the attrition rate of an IT company that has 200 employees as of 1st January 2016 during the month of January. 30 employees left the company and the company also hired 3 new candidates now we calculate the attrition rate.
| Example- Employees at the beginning of the month = 200 Employees at the end of the month = 200 – 30 + 40 = 210 Average employees = (200 + 210)/2 = 205 Calculation of Attrition rate = Number of Separation / Average number of employees * 100 Attrition rate for January 2016 = (30 / 205) * 100 = 14.65% |
So, we know the formula for calculating the attrition rate. Now let’s first calculate the average number of employees for the month of January. So employees at the beginning of the month will cover 200 than at the end of the month employees would be 200 – 30 left plus the 40 join which is equal to 210 the average will be 200 + 210 divided by 2 which comes out to be 205.
Now let’s put this number in the formula for attrition rate. The attrition rate for January 2016 will be 30 divided by 205 multiplied by 100. Which is the number of separations in January 2016 / the average number of employees in January x 100 which comes out to be 14.6 3%.
Many employees often leave within the first few months of joining an organization, so it makes sense for a company to locate the attrition rate for those who live within the first three or six, or twelve months.
So let’s learn how to calculate the attrition rate for the first year of employment. To do this we divide the number of employees who live within the first year of employment by the total number of employees who leave the company in the same time period multiplied by 100. For calculating the attrition rate within the first year of employment for the year 2016 divided the employees who joined in 2016 and left in 2016 by the total number of employees who left in 2016.
| First year attrition rate (%) = (Numbers of employees who leave within the first year of employment / Total number of separations within the same period) * 100 |
The total number of employees includes those who joined in 2016 as well as those who have been with the organization before 2016 but left in 2016 looks like.
Example- To calculate the attrition rate for the first year of employment in the year 2017. 30 employees left an organization within the first year of employment, and the organization has 120 employees in total. Employees who left the organization within the same time period calculate the first-year employee attrition rate.
| First-year attrition rate (%) = (Numbers of employees who leave within the first year of employment / Total number of separations within the same period) * 100 let’s put the information in this formula First-year employee attrition (%) = (30 / 120) * 100 = 25% |
Why is it important to calculate the attrition rate
The reason behind this is that looking at the attrition rate gives you important insight into the company. If it has high it means that more people are leaving the company in relation to the average number of employees. Looking at this data is attrition rate is high than 1 introspects and try to understand what could be the possible reason for so many people leaving the company and which of these factors can be controlled.
For example- some of the reasons why employee attrition is too high are low salary, managers’ behavior, work culture of the company, leave policy, work-life balance, mismatched hires e.t.c.
What we need to also keep in mind is that different industries and companies have different attrition rates. Now according to research by the Society of Human Resource Management (SHRM), direct Replacement Costs can reach as high as 50 to 60% of the employee’s annual salary.
Why is it so costly to replace employees
So, the reason for the high cost of Replacement becomes much clearer when you consider all the expenses associated with replacements. To understand these expenses firstly you need to find in hiring new entries then you have to hire these new employees and train them you also need to take into account the time taken by the employee to reach full efficiency. Such as the time spent in understanding the work culture, and in culture-building reports with the stakeholders.
It next sharp inexperienced employees tend to be less productive all this takes a lot of time and training. It is a long journey in boarding time and resources all the time and effort constitute the high cost of replacement so now that you know how much money time and effort it takes to replace existing employees it is important that the company focuses on employee retention.
What is Employee Retention?
Employee retention is a process in which the employees are encouraged to remain with the organization for the maximum period of time or until the completion of the project. In short, it is the ability of an organization to retain its employees.
How we can calculate the Retention Rate?
Retention rate is the number of employees who stayed with the company for the whole period of time divided by the total number of employees at the start of the time period x 100.
| Retention Rate (%) = (Number of employees who stayed with the company for the whole time period / Number of employees at the start of the time period) * 100 |
For calculating the retention rate for the year 2016 for a company at the beginning of 2016 the company had 110 employees, and 95 stayed until the end of the year.
| Retention Rate = (95 / 110) * 100 = 86.36% |
So the retention rate will be 95 divided by 110 and multiplied by 100 which comes out to be 86.36% of new joiners are not counted sure they are considered in the next cycle.
Now the last thing we have to look at in this topic is the current trends for India with respect to attrition so here are some statistics based on research.
| Automotive | 6.6% |
| Automotive components | 7.9% |
| Engineering and Manufacturing | 8.4% |
| Energy and Natural Resources | 8.5% |
| NGO / NPO | 9.2% |
| Consumer Goods | 12.8% |
| Infrastructure and Real Estate | 13.3% |
| Transport and Logistics | 13.7% |
| IT | 14.6% |
| Telecom | 14.6% |
| Life Sciences / Pharma / Healthcare | 14.8% |
| ITeS | 15.1% |
| Banking | 17.8% |
| Professional Services | 18.1% |
| Financial Services | 18.2% |
| Insurance | 18.2% |
| Retail | 18.5% |
There is an average of 13.1 % and involuntary attrition across sectors as a report by KPMG the highest voluntary attrition of 18.5% is reported by the Retail Industry by the lowest of 6.6 % is reported by the automobile industry against a report of KPMG. Industry experts estimate that currently, the attrition rate at Indian startups ranges between 50% and 80% overall average attrition level in tech firms is usually in the range of 12 to 18% a report by (Mercer).
Also, see some industry-specific Trends now you see the chart mentioned above based on the KPMG report, and if you look you can see the attrition rate for your sectors to the lowest attrition rate is given you are in the automotive sector with the nutrition rate of 6.6% and the highest is 18.5% attrition in the retail sector also the average lies at around 13.9% you can keep the start handy for future reference as well as you can download the chat has been given above.
So, with this, we come to the end of this topic and that is all for today guys see you in our next blog. If you like our article please don’t forget to share it with others & follow our Instagram Page for your daily dose of Motivation.
Thank You,
Regards
Grooming Urban
| Source Link Integrated Report 2017-2018 – assets.kpmg |
What is the Attrition Rate?
Attrition is the reduction of staff due to voluntary and involuntary reasons.
What are Voluntary reasons?
Voluntary reasons would mean when the employee leaves on his or her own. Example- Due to resignation or retirement.
What are Involuntary reasons?
Involuntary reasons mean when the employee is asked to leave by the organization. Example- Due to performance issues, disciplinary action, layout ethics.
How we can calculate the Attrition Rate?
Attrition rate refers to the rate at which employees are leaving the organization. The attrition rate can be calculated by dividing the number of employees who have left the organization within a specified period of time by the average number of employees of the organization within that same period of time.
What is the formula for calculating the attrition rate?
Attrition Rate (%) = (Number of separations / Average number of employees in that duration) * 100
How to calculate the average number of employees?
Average number of employees = (Employees on day 1 + Employees on the last day) / 2
How to calculate the first-year attrition rate?
First-year attrition rate (%) = (Numbers of employees who leave within the first year of employment / Total number of separations within the same period) * 100
Why is it important to calculate the attrition rate?
The reason behind this is that looking at the attrition rate gives you important insight into the company. If it has high it means that more people are leaving the company in relation to the average number of employees. Looking at this data is attrition rate is high than 1 introspects and try to understand what could be the possible reason for so many people leaving the company and which of these factors can be controlled.
Why is it so costly to replace employees?
So, the reason for the high cost of Replacement becomes much clearer when you consider all the expenses associated with replacements. To understand these expenses firstly you need to find in hiring new entries then you have to hire these new employees and train them you also need to take into account the time taken by the employee to reach full efficiency. Such as the time spent in understanding the work culture, and in culture-building reports with the stakeholders. It next sharp inexperienced employees tend to be less productive all this takes a lot of time and training. It is a long journey in boarding time and resources all the time and effort constitute the high cost of replacement so now that you know how much money time and effort it takes to replace existing employees it is important that the company focuses on employee retention.
What is Employee Retention?
Employee retention is a process in which the employees are encouraged to remain with the organization for the maximum period of time or until the completion of the project. In short, it is the ability of an organization to retain its employees.
How we can calculate the Retention Rate?
Retention Rate (%) = (Number of employees who stayed with the company for the whole time period / Number of employees at the start of the time period) * 100
