Churn Rate

What is churn rate?

A company’s churn rate is the rate at which employees leave the organization. This includes both turnover and attrition. All of these terms refer to the number of employees who leave the organization during a specified period of time, generally a year. (Note that the term ‘churn’ used generically can also apply to customers.)

Churn, attrition and turnover: how do they differ?

Attrition is a measurement of the reduction of staff during a set period of time. Most companies measure it annually. Attrition encompasses all reasons for separation including resignation, termination or retirement. If an employee is replaced, the separation is not included in the rate of attrition.

Turnover is a measurement of the reduction in workforce when separated employees are replaced by new hires.

The Importance of Employee Churn Rate

Because employee churn rate can impact productivity, business performance, and growth, employers need to monitor the rate.

In what ways does a high churn rate affect an organization?

A high churn rate affects an organization in many ways. First, it can cripple a company financially because costs for recruiting, hiring, and training are significant. The Society for Human Resource Management (SHRM) places the cost to replace a worker at six to nine months of the annual salary for the position. A company with a high churn rate will spend between $17,500 to $26,250 replacing an employee who makes $35,000 annually. Employers who lower their churn rate can save money on hiring and related costs which can increase their profit margin.

Second, a high churn rate can lead to a lack of experience in the workforce. This puts a burden on employees with more skills and experience, who may grow to resent shouldering the bulk of the workload. If it leads to experienced employees quitting, it can trigger a downward spiral that is hard to reverse.

Thirdly, a high churn rate damages the company’s reputation, which in turn can dissuade customers and investors as well as making it harder to attract new employees.

However, in some scenarios companies can use attrition to their advantage. If an organization wants to lower costs, they may postpone filling open positions. An employer can leave a position unfilled when an employee quits, retires, or is terminated. This is sometimes referred to as a hiring freeze and is common during widespread economic crises or industry-specific downturns.

Steps Employers Can Take to Lower Their Churn Rate

Churn rate is an important metric for employers to compare to their competitors in the same industry and labor market. Employers who identify an increase in their churn rate can take steps to address the issue. These include using a structured onboarding process, making sure the company’s benefits package is competitive, improving management practices, providing flexible schedules and supporting employee work/life balance in other ways, conducting exit interviews to determine why employees are quitting, and providing professional development programs so employees can progress along a career path in the organization.

Employee retention, a vital aspect of business management, involves strategies to keep employees motivated and focused on their work so they elect to remain employed and fully productive for the benefit of the organization. A comprehensive employee retention plan can play a vital role in both attracting and retaining key employees, as well as in reducing turnover and its related costs. All of these contribute to an organization’s productivity and overall business performance. The Society of Human Resource Management

HRMS software can help employers and HR teams analyze employee retention, as well as the effectiveness of programs designed to improve retention.

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What is attrition?

When a company’s workforce is reduced during a specific period—usually one year—it is known as attrition. Attrition includes all separations from the organization, including resignations, terminations and retirements. If a person is replaced, the separation does not count toward the attrition rate.

Why is employee attrition important?

Employee attrition is a key metric in Human Resources. A high rate of employee turnover is expensive for a business, because the costs for recruiting, hiring and training replacements are typically tied to the rate. Employers who reduce their rate can save money on labor costs and increase the profit margin.

What causes the attrition rate to increase?

A high turnover rate could be due to low engagement, poor management, or inadequate compensation and benefits. It could also indicate that competing employers are more attractive in the labor market.

Is attrition the same as turnover?

Employee attrition refers to the voluntary or involuntary departure of employees from an organization, while employee turnover is a measure of the rate at which employees are replaced by new hires.

For employers, it is important to compare the rate of employee turnover within their industry. Employers who see an increase may be able to enact programs to reduce employee turnover, which will in turn increase their profit margin.

How can a company increase employee engagement to improve retention?

To create an employee engagement program, you should follow these three steps:

1. Map the employee journey

The employee journey is everything that happens from the moment a job candidate applies for a position to the day he or she leaves. A thousand little things–from initial application to post-employment follow up–combine to create a positive or negative experience.

By mapping the employee journey, you can determine where your company falls on the spectrum of engagement. Of course, the journey isn’t the same for every employee. The employee’s manager, department, and team influence it. Improving the employee journey is the first priority when it comes to engaging employees.

2. Conduct ‘stay’ interviews

‘Stay’ interviews help you to identify weak points in the employee journey. These interviews are most effective when conducted by someone in HR, who can ask questions that will encourage employees to be candid about their relationship with their manager.

3. Automate HR to remove obstacles to engagement

Automating HR processes can improve employee engagement. Employees are constantly performing administrative transactions—punching in, turning in timecards, and receiving a paycheck. They request shift trades and vacation time and enroll in a health plan and use their benefits. An integrated HR system streamlines these processes for employees by providing transparency about HR-related information and allowing them to perform transactions themselves.

HRMS (Human Resources Management Systems) can be used to track both attrition and turnover, as well as efforts to reduce them.

See also

Additional Resources