Employees are the backbone of every company, making employee retention vital. Business Insider called 2021 the "year of the quit." In October of 2021 alone, 4.2 million people left their jobs in a mass workplace exodus known as the Great Resignation. Even now, the latest employee turnover statistics find that one-third of employees quit after six months of being on the job.
Employee retention is about not only keeping employees happy and engaged but also setting your business up for long-term success. Let’s examine why turnover happens, how much it can cost a business, and how your business can reduce high employee turnover.
What Is Employee Turnover And What Causes It?
Employee turnover is defined as the number or percentage of employees that leave a company on a monthly, quarterly, or annual basis. Employee turnover can be voluntary (the employee chooses to go) or involuntary (you decide to terminate the employee). Regardless of who made the decision, high employee turnover is an indication that employee retention is low. There are various reasons for this, including:
- Employee burnout
- Inconsistent expectations set by managers and supervisors
- Lack of employee appreciation and recognition
- Lack of professional growth and career advancement
- Low pay
- Less comprehensive benefits
- Poor workplace culture
What Is The Cost Of Employee Turnover?
There are many ways that losing an employee can hurt your bottom line. Turnover creates several direct and indirect costs that affect your business, including:
- Hiring expenses: It costs money and time to advertise for a new position, interview candidates, perform background checks, and hire a candidate.
- Productivity loss: While a company looks for a new employee, other employees might have to cover that employee's tasks while taking care of their own, resulting in productivity loss.
- Training issues: New employees need to be onboarded and trained, and it takes the average company 31.5 hours to train a new hire, which, on average, costs $1,888 for companies with fewer than 500 employees.
- Lower employee morale: Low employee morale leads to increased absenteeism, costing an organization money and productivity.
The exact costs caused by turnover can vary from employee to employee. Investopedia reported that it costs a company, on average, $3,500 in turnover costs to replace an employee only making $8 an hour. Their report also shows that it takes up to six months or more for a company to break even on its investment for a new hire.
Salaried employees who leave cost businesses much more than their hourly counterparts. The Society for Human Resource Management (SHRM) found that turnover costs an average of half to three-quarters of an employee’s salary. For someone making $100,000, that’s a potential loss of $50,000 to $75,000 caused by turnover. Those numbers can range even higher for more specialized or upper management positions. For salaried employees, LinkedIn reported that turnover costs can cost 1.5-2 times their salary.
Different Ways Small Businesses Can Reduce High Employee Turnover
Employees are more likely to stay at a company that they feel meet their needs on multiple levels. The following measures can help you reduce high employee turnover.
Offer your employees competitive pay
In 2021, Pew Research Center reported that 63% of employees left their jobs because of low pay. If you find that employees are regularly leaving for more money elsewhere, it may be time to examine your compensation structure to see if you’re competitive with the rest of the industry.
You may also want to identify specific employees who would be particularly painful to lose. Sometimes paying an employee a few thousand dollars more is a smart way to retain top talent and lessen the chances of losing tens of thousands of dollars in turnover costs.
Provide your employees with comprehensive benefits packages
An alternative to paying employees more money is enhancing your benefits package. According to the Association of International Certified Professional Accountants (AICPA), 80% of Americans prefer workplace benefits over extra salary. Policy Advice also reported in 2021 that only 49% of the country’s total population receives group health insurance.
If your company isn’t a part of this percentage, you’ll be more likely to recruit and retain more employees by offering them group health coverage. If your company is a part of this percentage, you can offer supplemental benefits to give your company an even greater competitive advantage. These benefits include:
- Dental and vision insurance
- 401(k) plans/profit sharing
- Metabolic wellness
- Diabetic management
- Maternity and paternity leave
- Life Insurance
- Continuing education reimbursements
- Pet insurance
Foster workplace flexibility
Allowing hybrid or remote work styles gives your business a competitive edge when it comes to retaining talent and recruiting new employees. A 2022 poll conducted by Forbes revealed that 63% of employees would feel more empowered if they had more flexibility. In addition, employees say having the freedom to choose when to come into the office matters as much as traditional benefits such as a 401(k) plan.
Flexibility can also help eliminate or potentially offset turnover costs in other surprising ways. A Gartner, Inc. CFO survey revealed that 74% of companies planned to permanently shift to remote work after the pandemic ended, partly because of a decrease in operating costs and increased business profits. It Is estimated that business owners can save up to $11,000 a year by switching to remote work because they’ll pay less in overhead and utility costs.
Make recruiting and retaining employees a priority
An excellent hiring and onboarding experience can help limit the odds that new hires will leave within their first year. According to the Brandon Hall Group, a well-organized onboarding process improves new hire retention by 82%.
For this reason, many companies outsource a company to take care of their employee recruiting services. You can partner with a professional employer organization (PEO) to write a quality job description that attracts top talent. Also, recruitment process outsourcing (RPO) reduces recruitment costs, ensures candidate quality, and uses applicant-tracking systems (ATS) to lead to cost savings and an improved recruitment process.
Care about culture
Even though it’s almost been a year since the Great Resignation, employees leaving their jobs is still trending. A 2022 survey from Flex jobs revealed that 62% of people leave their jobs because of company culture issues. Implementing a positive workplace culture includes:
- Creating employee recognition programs
- Setting clear and consistent departmental goals
- Promoting diversity and inclusion
- Accepting and utilizing your employees’ feedback
You also want to create a workplace culture that doesn’t lead to employee burnout. Employee burnout leads to more absenteeism, resulting in lower productivity and higher profit loss. Offering your employees ample paid time off (PTO) ensures that they return to work feeling revitalized and refreshed. Ernst & Young reported that for every 10 hours of PTO taken, employee performance ratings improve by 8%. Unsure of how much PTO to offer your employees? Check out our post on How To Create A PTO Policy For Your Business.
Analyze employee turnover
If you have high employee turnover, it's best to analyze why. One way to do so is by implementing employee exit interviews and surveys and looking at the data. Staff feedback about current workplace culture and practices is also helpful and can help identify potential reasons employees are leaving your company.
Save Time And Money By Reducing High Employee Turnover
It’s not easy to find good employees, and it’s even harder to replace them. Between turnover costs and the impact of losing good talent, companies must have retention and recruitment strategies in place to protect their bottom line.
Of course, employing those strategies takes a lot of valuable time. That’s why GMS partners with employers to help you save time and money and reduce high employee turnover. Contact GMS about our benefits administration, recruiting, onboarding, and training services today.