The considerations that apply to the method to set employee attrition rate have marked similarity to the ones for salary revision. Most importantly, in both scenarios, the assumptions reveal the expectancy of the future, unknown experience.
Here we take a look at 6 things which actuarial companies suggest people be aware of.
- Gaining knowledge about the regulations
In actual fact, both AS 15 and AS 19 call for establishing an assumption that focuses on anticipating the total number of employees leaving service in future. Actuarial companies in Mumbai cite that the crux here lies in comprehending that the assumption, in this case, is made about the future and not the past. The previous experience should find use only as a guiding tool to lay down the assumption.
- Avoiding to set the attrition rate assumption thoughtlessly
It’s imperative that you don’t settle on assumptions to fix the attrition rate equal to those of the accounting period or any other historical instance of employee attrition without thinking. The historical account is only a chronological guide to deciding upon the assumption and should be amended, if needed, to point towards the events likely to take place in future.
- Ensuring attrition assumption in consistency with business plans
By and large, it’s primarily for the purpose of business planning that companies take to making assumptions related to future attrition. These include recruitment, budgeting, redundancies etc.Actuarial companies in Bangalore give emphasis to maintaining coherence between attrition assumption and these business plans. But, a difference must be drawn between the business perspective which would be relevant for new employees to be hired in future and the actuarial standpoint which is agreeable to the projected attrition of the current employee strength. It may be noted that the actuarial attrition assumption is expected to be lower by a certain degree than the equivalent business attrition assumption.
- Assuming attrition rate as a ‘time-average’ over long-term
While fixing the attrition assumption, it’s vital to grasp that attrition isn’t reflected for only the following year. The assumption has to be a long-term measure of the attrition rate averaged over time. This time, as a rule, is agreed to be one and the same as the period of liability. The experience of chronological attrition may be unpredictable. Using it as the only starting point to attrition assumption will give rise to need less unpredictability in the actuarial end results.
- Circumventing year on year change in attrition assumption
Altering the attrition assumption on a yearly basis is unfavorable but for only a change in the company’s slant as far as future attrition is concerned. There can be occurrences of random fluctuations marked by a discernible increase or decrease in attrition rate. However, having yearly attrition experiencing a higher or lower value than anticipated doesn’t imply that there’s a need to revise the assumption.
- Using a staggered attrition rate assumption
As per actuarial companies in Pune, this often improves the correctness of actuarial valuation and brings in more stable results. Let’s say, companies can agree to different attrition assumptions corresponding to different locations or cost-centers. In this context, attrition assumption that changes with service tenure or attained age is also applicable, especially for small-scale companies whose employees are known to have accumulated substantial past service.