An annualized attrition rate is the ratio of the total number of employees who exit from an organization due to death, retirements, resignations or any other reasons to the average number of employees who remain on the payroll for the whole year. The Human Resources department typically calculates this rate.
An annualized attrition rate is a crucial metric that is used to shed light on the performance of an organization. It helps expose some underlying dysfunctions or strains that cause employees to leave an organization. The organization can then look into the causes of departure and come up with solutions to the challenges employees face. Conversely, a low attrition rate may imply that an organization has a motivated workforce and good HR systems.
Organizations often try to curb the attrition rate because a higher attrition rate means that more costs are incurred in recruiting and training new staff. A greater loss of productivity occurs due to new employees taking time to get used to new procedures, flows and work systems.
To calculate an annual attrition rate, the first step is to determine the average number of workers employed by the organization within a year. Next, the average number of employees who exited from that organization within the same year is confirmed. The attrition rate is found by dividing the number of resignations by the average number of employees and multiplying the result by 100.