Employee Turnover vs. Attrition: What are Their Cost to Company?

December 9, 20192:39 pm2219 views
Employee Turnover vs. Attrition: What are Their Cost to Company?
Employee Turnover vs. Attrition: What are Their Cost to Company?

Both employee turnover and employee attrition are important metrics for company growth. They give clues to employers about recruitment insight and financial loss within an organisation. While many employers believe that turnover and attrition are under the same definition, they actually serve different meaning and cost a company differently. Hence, it is important for employers to know the distinction between both in order to address each metric problem better. 

What is the difference between turnover and attrition? 

Employee attrition

Employee attrition is generally viewed as a well-managed layoff because it occurs under a natural process of employment such as retirement, resignation, elimination of a position, personal health problems, and so on. That said, attrition is normally a positive representation of a company because employee’s reasons commonly happen to any organisations. 

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Moreover, when you have employee attrition, you can likely reduce costs when an organisation faces financial distress. Attrition is also better to be considered more on an amicable or cordial departure from an organisation. 

For example, Amanda has been working in a company for 30 years and now she is entering the retirement age. HR is already mentoring junior employee to replace Amanda’s position, thus, HR does not need to hire for a replacement for her. In this case, Amanda is considered as a part of a corporation’s staff attrition. 

A firm cannot necessarily control staff attrition due to its natural occurrence. However, HR can help reduce the cost of replacement when it is happening by promoting former junior employees. 

Employee turnover 

On the contrary, employee turnover could be a result of poor hiring decisions or discriminatory work environment. Turnover is the opposite of attrition which means a company has a negative reason for terminating employees. Or, employees have a negative reason for quitting their current employer. 

There are two sub-categories of employee turnover, namely voluntary or involuntary turnover. Voluntary turnover refers to an employee decides to leave an organisation because they have a better offer somewhere else or they feel that the current employer does not fulfil their needs. Involuntary turnover refers to when employees are terminated or fired due to poor performance, behavioural issues, or serious malicious. 

See also: How to overcome Toxic Employee Behaviour?

To illustrate, Patricia has worked in a company for over 5 years. She is excited about any promotion that could be offered to her. But when she asked the HRD, the officer told Patricia that there is no promotion in the company but the salary will rise following the season and bonuses will be given annually. Patricia is sad because she was hoping for better development and promotion to excel in her career. She then decides to quit and works for another company that gives her a better career path. Thus, Patricia is considered as a corporation’s staff turnover. 

The cost burden 

As attrition and turnover have different perceptions, they cost differently for company’s financial plan. For employee attrition, the cost will not give bad effect to corporate’s bottom-line because it is synonymous with a company looking to reduce costs via layoff or retirement. The outlay of this activity can be minimized by a cost-cutting method. 

On the contrary, the costs associated with turnover which include separation, loss of productivity, interviewing, training, and onboarding of a single employee is estimated to cost businesses approximately 40 – 60 percent of that individual’s annual salary, a survey reported. The replacement costs can be lower for entry-level roles but it can be significantly higher for professional, technical, and supervisory positions. 

In a fine term, employee attrition can be a means of cutting the company’s spending and employee turnover is a way to increase the spending. To prevent high turnover from happening, it is advisable that HR should understand the internal and external reasons why employees quit their current position. 

Read also: Employee Turnover: Understanding Why Top Talents are Leaving