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The High Cost of Star Employee Turnover and How to Minimize It

Human Resources
Article
08/30/2018

Losing a valued employee is tough for business, but when the situation involves star employee turnover, it's time to take actions that minimize the chances of it happening again.

Unfortunately, when an outstanding employee makes the decision to leave an organization, it could be too late, says Paychex HR consultant Rob Sanders.

"Generally speaking, an employee has invested a great deal of time, emotion, and effort into this decision, and even well-intentioned, last-minute efforts to retain him or her are rarely successful," he says.

A continuous challenge to business

According to the Bureau of Labor Statistics, the number of "total separations" from businesses (categorized as quits, layoffs and discharges, and other separations) has hovered around 5.5 million nationwide in recent months, or a total separation rate of 3.7 percent.

The price of employee turnover is often painfully high: Experts estimate that it can cost one-and-a-half to more than twice a staffer's salary to find and train a replacement. Your organization's turnover rate is a metric often central to workforce planning and strategy.

Clearly, an employer should make every effort to keep its valuable employees. Indeed, staff retention represents one of the best competitive advantages your organization can have in the marketplace today.

Why do employees leave their jobs? Primary causes can include:

  • Career advancement opportunities elsewhere;
  • Dissatisfaction with pay and/or benefits;
  • A poor fit with the role they were hired for; and
  • Unhappiness with a supervisor.

Some individuals will leave a company they believe lacks a vision, fails to connect them to the big picture, or offers little motivation.

The 'hard' and 'soft' costs of losing staff

Every company experiencing employee turnover has a significant financial impact. You expect the hard costs: posting the position to online job boards, hiring a head hunter, interviewing time, and possibly offering a cash incentive to staff for hiring a referral. But soft costs to fill openings can be just as expensive, including:

  • Reduced productivity: Existing staff is stretched to cover the vacant position or no one is available to fill the job, resulting in less work accomplished.
  • Overworked remaining staff: Those who remain have their own jobs to do, as well as the duties of the open position, which could hurt morale and risk further turnover.
  • Lost organizational wisdom: Departing employees take their know-how with them: job-specific procedures, information, contacts, and industry knowledge.
  • Training expenses: These can be obvious, such as sending a new hire to outside seminars or workshops. But staff time spent orienting and training new personnel can also affect your bottom line.

These losses in time and productivity mean that employee retention should figure high on your organization's priority list. Hiring the best people for the job and retaining those individuals — preserving the organization's investment — represent the best employee turnover strategy for your business.

Staff retention represents one of the best competitive advantages your organization can have in the marketplace today.

Look out for warning signs

Employee turnover, to some extent, is inevitable. People's ambitions and needs change over time and what once worked for them in a particular position no longer applies. Other employees are easily dissatisfied, or restless or unhappy with their present work conditions.

Unless the employer is aware of how employees are feeling, each departing worker can come as a huge (and unpleasant) surprise. That's why it's so essential to recognize the tell-tale signs that can mean an employee intends to leave your business. Here are five red flags to watch for, including:

  • Formerly high-achieving employees now contribute the bare minimum to their jobs.
  • A change in "normal" behavior (less outgoing, more preoccupied, etc.).
  • Messy desks that suddenly become cleared and tidy.
  • The occasion of a major life event (marriage, baby, a death in the family, etc.).
  • Increased activity on LinkedIn (looking for job openings, making new professional contacts, etc.).

Several small business owners offer these additional warning signs:

Sheri Smallwood of Sheri Smallwood, Chartered points to "coming in late, an upswing in personal phone calls, or a lack of interest in or enthusiasm for work."

Employees about to exit "start coming to work dressed better than usual and then need to leave for a 'doctor's appointment,'" says Vicky Graham of Microchip Identification Systems Inc.

For Brooke Shatles of Ring Savvy Inc, warning signs include "work productivity starting to decrease," an employee exhibiting a "poor attitude with colleagues," and "complains about non-issues."

Jane Mount of Libran Research & Consulting LLC, says departing employees "stop looking you in the eye" and "seem disconnected personally from the job."

A departing worker can come as a huge and unpleasant surprise. That's why it's essential to recognize tell-tale signs that can mean an employee intends to leave.

Leveraging the stay interview and other tactics

Sanders recommends incorporating a "stay interview" as part of your ongoing talent management development process.

"The key focus of a stay interview is to find out from top performers what it is about their organization, role, teammates, culture, etc. that keeps them wanting to be part of the organization and engaged in their role" he says.

This is not a performance review, nor should it be linked to a performance review, Sanders adds.

"The stay interview is designed to better understand why an excellent employee chooses to stay with an organization," he says. "Make no mistake, it's a conscious choice on the part of any talented, high-performing employee to stay with a company."

If enough of these interviews are done across various roles in various departments, a series of key themes may emerge, and provide a basis for better understanding of what organizational elements impact star employee retention.

"This information can be strategically assessed to ensure these elements remain in place, and are in fact enhanced and emphasized moving forward," Sanders concludes.

Heather Brainard of Quantex Laboratories Inc., advises being direct with employees.

"The why is the most important question to see if it's something you can either change or prevent, so it doesn't dissuade future employees from leaving," she says. "Ask why they've decided to leave without being aggressive or negative about it."

"Communication is key!" says Cyndi Kastoll of Eduardo Ainza, DDS. "Have a meeting with the employee to discuss his or her concerns and complaints. Some problems can be addressed and even solved if a genuinely open discussion takes place."

Managing the impact of star employee turnover

A star employee's departure will likely affect everyone in the business. Rather than let rumors spread and damage workplace morale, get in front of the situation and let others know what's happening as soon as possible.

If possible, meet with employees in person and give them time to ask questions about the employee leaving. Find out what concerns they have and brainstorm possible changes to the work environment that make the transition easier for everyone involved. How can you help employees cope with the additional workload caused by the star's impending absence? Are there ways to move people around so no one individual is saddled with so much work that they, too, will consider leaving?

A star employee's exit doesn't have to be all doom and gloom. Instead, it marks an occasion to take a fresh look at teams and processes, with an eye toward making changes that enhance efficiency and boost morale.

Focus on improving employee engagement

While engaged employees come in various types, they share some similarities across industries. Many engaged employees:

  • Provide feedback and suggestions for how to improve your business;
  • Seek new opportunities instead of complaining about lack of work;
  • Inspire clients, partners, and coworkers to feel passionate about your mission; and
  • Refer friends as potential hires to your organization.

Proper hiring processes are critical to finding employees who will fit well with your organization and become passionate advocates. To find that fit, you need to know what your company's culture is and what it means for prospective employees.

Take some time to think about your organization. How would you describe the culture there? Is it fast paced? Perhaps attention to detail is a key to your business. It's important to take stock of not only what employees need to do in your office, but how they conduct themselves. Do you have flexible hours or telecommuting options? Be sure to ask others in the company the same questions to get a holistic view of your company's culture.

With a better knowledge of your culture, it is easier to create and ask questions regarding company culture to help determine how well a qualified prospect will fit into your company. You'll be able to sell your organization to the people you really want to hire.

Proper hiring processes are critical to finding employees who will fit well with your organization and become passionate advocates.

Does your benefits package serve retention goals?

Offering a high salary in a job advertisement instead of benefits might attract applicants to your posting, but what can help retain employees? Offering a competitive salary combined with benefits and perks can be a winning combination, fostering improved work habits and reduced employee turnover.

Benefits tend to drive employee engagement while providing a sense of security, encouraging workers to stay on the job, even during tough times.

Certain employee benefits may be legally mandated, based on your workforce and business. These may include:

  • Social Security, Medicare, and Federal Insurance Contributions Act (FICA) tax: FICA is a federal payroll (employment) tax used to fund Social Security and Medicare, and both employees and employers are required to contribute to these funds.
  • Employers are required to withhold Social Security tax at 6.2 percent of gross compensation, up to the Social Security wage base ($127,400 for 2018). Employers must also match 6.2 percent for Social Security, up to the wage base and 1.45 percent for Medicare.
  • Employers must withhold Medicare tax at 1.45 percent of gross compensation, and an additional 0.9 percent of compensation in excess of a threshold amount based on the employee's filing status if an employee's compensation exceeds $200,000 (there is no wage base for Medicare).

In addition, your company may be legally required to offer benefits like unemployment and workers' compensation insurance. Some businesses may be required to offer health insurance, family and medical leave benefits, or paid sick leave depending on the federal, state, and local laws and regulations applicable to the business.

Also consider benefits like 401(k) retirement savings plans, life and disability insurance (note that some states mandate employers to provide short-term disability leave), education assistance, wellness programs, and child care assistance.

Basic health coverage and paid time off are examples of benefits that can allow employees to take care of themselves and spend time with their families, says Jennifer Benz, Paychex HR consultant.

"In addition, many employees today are taking care of children and aging parents," she says. "Adding benefits such as a flexible spending account, with options for dependent care expenses, and offering flex time or telecommuting can also provide a sense of work/life balance."

Benz adds that having a solid retirement plan may also give employees a chance to be financially prepared for the future — and can be relatively easy for businesses to manage.

"There are many retirement plan options available for employers, where they can decide how much they would like to contribute to their employees' retirement fund, and create a vesting schedule, which would also aid in employee retention," she says.

Many employee benefits can contribute to a worker's job satisfaction, help strengthen their financial position, and strike a healthy work/life balance

A mix of traditional and non-traditional benefits

Offering competitive benefits ranked among the top five biggest HR challenges, the 2018 Paychex Pulse of HR Survey found, with 33 percent of HR professionals listing it as a challenge, followed by retaining talent (31 percent). Another survey of 1,000 full-time employees indicated that employees rank regular bonuses, health care, dental insurance, 401(k) plans, casual dress days, and free snacks as top job incentives.

A mix of traditional and non-traditional benefits can help keep your business competitive in your industry. Additionally, offering low-cost employee benefits can be a solution that staff value without adding significant administrative burdens on HR.

"Employers can offer low-cost or non-traditional options such as a floating holiday, an employee-of-the-month parking space, company-paid lunch breaks, casual Fridays, etc.," Benz says. "Creating a culture within your company that makes employees feel valued is also a great tool when considering or creating a benefit package."

Evaluate your current benefits package

Businesses looking to stay competitive in today's tight labor market should understand why employee benefits are important. Take these actions to get a better understanding:

In the battle for talent, no business can afford to ignore star employee turnover. Gaining a clear picture of what motivates and engages your workforce — as well as those factors that leave them discouraged and looking for alternatives — is a proactive way to reduce, and possibly eliminate, such unwelcome departures. Take the next step in evaluating your benefits package as a strategy to help reduce star employee turnover.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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