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The importance of Employee Attrition within an Organization

Employee attrition is the speed of which organizations and/or company's hiring and open fire employees to either symbolize their company or leave their firms. It is also described the worker turnover rate.

Employee attrition rate is also known as employee turnover. This rate shows how often the employees at a place of business change during the period of per month. Usually companies choose a minimal attrition rate, but the rates differ predicated on the industry. For instance, an easy food restaurant will have an increased employee turnover in comparison to a law firm. A lower staff turnover rate allows a business to keep coherence over the entire year.

The attrition rate is definitely a sensitive issue for all organizations. Calculating worker turnover rate isn't that simple as it seems to be. No common formulation can be utilized by all the organizations. A method needed to be devised keeping in view the nature of the business and various job functions. In addition, determining attrition rate isn't just about devising a mathematical formula. It also has to take into account the root of the situation by heading back to the hiring stage. Most organisations do not develop strong measurements for calculating the expense of labour turnover or a poor hire. The facts of information required and the dimension metrics aren't common formulae, but need to be designed in keeping with the nature of the business and various job functions. As a result, most organisations do not plan to mislead by disclosing statistics which might not exactly be true; it is merely that perhaps they believe that those to be true. It really is imperative to develop the knowledge of measurement before the solution itself.

The following are the three common methods companies used in calculating worker attrition:

Method 1:

While there a wide range of techniques for calculating the price of turnover, the following is one of the better. It takes into account expenses involved to replace an employee going out of an company.

A. Recruitment cost

The cost to your business when hiring new employees includes the next six factors plus 10 percent for incidentals such as background screening:

Time spent on sourcing replacement

Time spent on recruitment and selection

Travel expenditures, if any

Re-location costs, if any n Training/ramp-up time

Background/reference screening.

Additionally, for the positions that are billable, there's a lost opportunity cost. This is done using the income factor.

B. Training and development cost

To estimate the cost of training and producing new employees, start by looking at the price of new work with orientation. This means direct and indirect costs, and can be essentially classified under the following heads:

Training materials


Employee benefits

Trainers time.

C. Administration cost

Additionally, you might measure the per-employee cost to:

Set up communication systems

Add employees to the HR system

Set the new hires workspace

Set up ID-cards, access credit cards, etc.

On the softer area, to estimate the training curve or productivity cost, estimate the common amount of time it takes an employee in a fresh position to get right up to rate and produce at the common rate for the organisation. If it takes a new worker six months to reach average productivity, the average productivity loss is 50 percent. Use your total annual revenue factor consequence and increase it by the production loss.

The consequence of these costs (and an additional 10 percent to protect other employing costs such as criminal background checks, credit checks, medication verification, and other administrative costs) can provide you fairly appropriate calculation of turnover cost.

The ideal strategy is:

Cost of selecting employees (hard and very soft costs) + Cost of training and expanding new employees (hard and delicate costs) = Total Cost of Voluntary Turnover

Method 2:

Some organisations analyze it at 150 percent of the annual salary of the exiting worker. For managerial and sales positions, the price can rise to 200-250 percent of the annual salary of the staff.

Method 3:

Another way to calculate the cost impact of turnover on companies is to check out the total reimbursement costs as a percentage of a firms revenue. According to one analysis, corporate on the average spend 36 percent of the revenue on human capital expenditures.

Again, using conservative estimates, for a firm with the total compensation costs at this average, an average rate of employee turnover of 25 percent and the cost associated with turnover equivalent to one-time salary.


Globalization, customization of services for the clients, timely delivery of services, immediate innovation and embracing of technology to keep cutting costs in order to remain competitive in the global market are a few of the challenges experienced by the Indian IT industry. All these tasks have a very important factor in common- a reference which you should definitely been able well, would lead to the derailment of the fast moving IT communicate. The source of information is only the manpower used in the IT firms.

The IT industry is not all about fats pay packages, international tours, renowned training programs and coding on computer systems. Additionally it is about working extended hours, sleepless nights, monotonous work, stressing deadlines and undoubtedly attrition. The young developers and professionals, who become a member of the hallowed portals of the most prestigious IT companies in India, tend to be disgruntled and leave.

Attrition is used as a way of measuring the maturity of an industry and it can help steer clear of the unpleasantness of laying off people, however the shape should be around 4-5 percent. However, in the Indian IT industry, the attrition has significantly overshot the make.

The retention insurance policies employed by the companies leave too much to be desired and an effective grievance handling and recommendation system is often found lacking in many companies.

The idea of knowledge workers is fast catching up in the Indian IT industry. The employers are realizing that we now have many parameters that determine an employee's stay at a company. They are not only motivated by health factors like salary on your but also look for softer rewards like a challenging job, quality of work, wedding caterers to training needs etc.

In the recent generations the complete industry has evolved its prospect. The employment landscape has changed its appearance. The factors like skill sets, job satisfaction drive the employment and not only the amount of money. The company hence faces the heat of continuous staff turnover. Continuous efforts are created by organisations to control the employee turnover rate as it directly influences the performance of the company as many key people leave the organisations for various reasons at vital points.

Attrition rate in Indian IT industry had gone down in the past couple of years. This dip in attrition rate was not sudden. It got occurred to recent slowdown in world market. However, the key reasons of the downfall of attrition rate were smaller number of new jobs in industry and companies preferring cheaper freshers over experienced employees. Taking a look at the current attrition rate of the best 3 of Indian IT industry in 2009 2009, we find that, for the last 1 / 4, attrition rate for TCS, Wipro and Infosys were 11. 9%, 11. 9% and 11. 8 % respectively. One year back, the pace was 11. 5%, 20. 10% and 13. 7 % respectively for the three IT majors.

But high attrition rates return to plague Indian IT industry in the year 2010. The attrition rate is growing alarmingly at the pace of 18-25% at the moment.

The requirement for manpower has increased manifold with the growing demand for IT and ITeS services worldwide. It has virtually created a huge task for the HR managers in the IT industry. It is suggested that in such a situation the IT and ITeS organizations ought to take on fresher graduates from specialized institutes and teach them to satisfy the void anticipated to attrition. This approach will help the tech companies in get together their manpower requirements in the long run.

Now the IT professionals don't have much choice. Before IT companies were fighting for people who were good in various IT systems. Now the situation has evolved, now they are really fighting for his or her success and new businesses. However the attrition rate continues to be in double digit since it companies have been silently laying off employees scheduled to performance issues, background checks and not clearing the exams after training.

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