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Reducing Employee Turnover Costs and Creating a Culture of Retention

Human Resources
Article
02/06/2019

Whether you have a medical practice, a restaurant, or a retail shop, the prospect of significant employee turnover cost haunts many businesses. And for good reason.

According to the U.S. 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 times, or a total separation rate of 3.7 percent.

The cost of 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. Clearly, an employer should make every effort to keep its valuable employees.

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

Employee turnover has a significant financial impact, regardless of the business or industry. You expect the hard costs: posting an open position to online job boards, hiring a headhunter, interviewing time, and possibly offering a cash incentive to staff for hiring a referral. But soft costs 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.
  • Loss of valuable customer connections. For a business with loyal clientele, such as a dentist's office or neighborhood diner, customers often come to know and like the staff. When they stop seeing familiar faces, that might prompt them to think something's not going well with the business

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.

Why do employees leave?

Employees leave a position for a variety of reasons. Monique Jennings, Paychex HR generalist, identifies some common reasons: "Pay is not competitive, or sub-par. No flex-time, no work/life balance, and most of all, poor management. Employees leave managers, typically not the company or the position."

Here are other major factors that may go into making this decision:

  1. Job isn't as expected or advertised. Many new hires leave their positions within the first six months because of unrealistic expectations or promises made about their position that go unfulfilled. The new hire's early days on the job is not a time for unpleasant surprises.
  2. No meaningful or satisfying work. You've hired an individual at least partly for their skills and talents. If these go underutilized, boredom and frustration can quickly set in.
  3. A negative or unsafe workplace. Men and women who find themselves in an environment ruled by negativity or harassment won't stay any longer than they have to. An unsafe workplace will drive valuable employees away as well. People who willingly spend 40 hours or more a week in your place of business deserve to work in an atmosphere free of gossip, inappropriate behavior, harassment, and conditions that can risk their health and well-being.
  4. No opportunity for advancement. Not all employees are equally ambitious or interested in moving up the corporate ladder, but all employees want to know the opportunity exists. If you've hired wisely, your employees would like to expand their range of abilities and knowledge while working for your business. They also value an employer who conscientiously seeks to promote from within.

Values can also be a determining factor, notes Paychex HR consultant Rob Sanders: "Employees want to find a conducive working environment that aligns with their personal values. Very few people remain long-term with an organization that doesn't mesh or align with those values, whatever they might be."

Addressing the issue in high-turnover industries

Food service, retail, hospitality, tourism, and similar industries seem to be always searching for dependable, hard-working employees — and constantly refining their strategies on how to keep them once they're on board.

The food service industry is particularly challenged when it comes to hiring and retaining employees. With relatively few benefits to offer, as well as low pay and the demands of shift work, these employers must focus on effective retention techniques or risk losing any competitive advantage they have due to an endless turnover in reliable staff. Here are suggestions to keep in mind:

  • Administer tests during the recruitment phase. Rather than hire any warm body that comes in the door, instead ask candidates questions that focus on behavior and "people skills," and conduct job-related skills-based tests as well. What you learn may help predict how well an individual can handle the built-in stress of a food service environment.
  • Get employees off to a good start. Employee retention starts on day one. With proper orientation and guidance, a rookie can overcome anxiety and gain a good feeling about the employer at the outset. Appropriate training helps eliminate the frustrations a new employee may feel due to a lack of skills or experience in a food service job. Customer-service training is equally important, so that those who prepare and serve food know how to act with courtesy and understanding in the face of customer complaints.
  • Be fair with shift schedules. Employers stand a greater chance of retaining employees by accommodating their individual schedules as best as possible. Establish a system for scheduling and exchanging shifts that makes the most people happy. Communicate the process so that everyone understands what's in it for them.
  • Give workers some authority. Nothing crushes the spirit of a food service employee like being caught between satisfying irate customers and meeting the demands of his or her employer. Too many incidents like this and employees may decide it's time to walk, regardless of how much they need the job. In addition to proper customer-service training, give employees some leeway to make low-level decisions on the spot — whether to adjust a bill, return a meal because "it wasn't right," etc. Being able to respond to customer complaints on the spot is beneficial for patrons and employees alike.

Can you tell when an employee is about to leave?

Employees tend to send signs that they are going to leave long before giving two weeks' notice. Here are "red flags" to watch for:

  • 9-5 every time. Disengaged employees don't put in long hours. They focus on the bare minimum. Often, they're unwilling to take on extra work. They no longer feel a strong commitment to your business. These employees may work regular hours, but no more than necessary.
  • Going through the motions. "In these situations, you'll see a measurable decrease in performance," Sanders says. "Employees still possess the necessary skills and knowledge exhibited in the past, but now seem to go through the motions with no productive energy or enthusiasm."
  • A suddenly clean desk. When you're going to move to a new house, you start emptying out the old house, cleaning and preparing to leave. The same pattern may happen when people are planning to leave a job. Messy desks become more organized. Pictures come down. It starts to look less like an employee's workspace and more like an empty desk you'll need to fill.
  • Major life event. Big events like marriage, a new baby, or a death in the family don't just affect employees' personal lives. These big events can create new pressures. For instance, if a parent gets sick, an employee may start to need a job that allows telecommuting. That may not be a feasible option in your business.
  • Increased social media activity. "An employee who changes their status on LinkedIn to 'active job seeker' is a dead giveaway," Jennings says, "as is an employee who uses social media to 'vent' about unhappiness in the workplace."

Whether an employee has begun the process of leaving, these signs are an opportunity for management to be proactive. Catching these signs becomes an opportunity to sit down with employees and discuss what's going on.

Not all employees will stay for the long haul. Noticing these signs and working to keep employees may reduce your churn rate and help you minimize your expenses related to turnover.

Early evaluation to help offset turnover

Doing a better job of initial evaluation and assessment of a qualified job candidate can help offset employee turnover in the long run. How well does your organization perform in the following areas?

  • Verification of employment and education history. The Society for Human Resource Management has estimated that more than 50 percent of job resumes contain some falsehood. Perhaps a candidate stretches their title, tries to disguise dates of unemployment, or claims an educational credential they didn't complete. A candidate background screen should begin with verifying dates of employment, titles and employer history, and educational credentials. In addition, any special training or licensing that is required for the position should be verified as well. Confirming candidates have the experience and education their resume represents can help protect your company against misrepresentation while ensuring you have qualified individuals working for your company.
  • Social Security verification. While employers will confirm a candidate's eligibility to work in the U.S. through the completion of a Form I-9 and reviewing supporting documentation, many background checks also include Social Security number verification. During this process, you confirm a candidate's identity via their social security number, previous addresses, and date of birth. This information can also be verified directly with the Social Security Administration.
  • Criminal history. Using access to state and federal databases, a criminal background screen can identify whether the candidate has been convicted of a crime. If yes, additional information may be assessed, including the nature and date of the crime.

Depending on the nature of the position, a background screen may include additional areas of information. Note: Use of information in a criminal background or other background screens may be restricted. Employers may in fact create additional liability and exposure to discrimination lawsuits where certain information is obtained, regardless of whether the information was considered in the employment decision.

Additional background screens may include:

  • Credit checks. These are generally only appropriate for positions related to the management of funds or access to company credit cards and cash and where permitted by state and local law.
  • Department of Motor Vehicle records. There may be appropriate when the position involves driving a vehicle on behalf of the company.
  • Reference checks. Where permitted by state and local law, reference checks can verify references provided by the candidate, to prevent against false recommendations.

Conducting a background check can be a worthwhile investment. It may be time-consuming, and it's imperative that you comply with legal requirements in terms of the background check itself, the timing of the check, as well as the applicable notices and disclosures. An experienced background check partner and consultation with legal counsel can help you establish compliant processes to gather the information needed to make the best hiring decisions.

Key employee retention strategies for your business

According to Jennings, employers can offset turnover by:

  • Giving more opportunities for promotion
  • Providing the freedom to work independently
  • Offering challenging and satisfying work projects
  • Making room for personal and professional growth

Just as importantly, Sanders says, is checking in from time to time with members of your team. "Ask your top performers, 'What are we doing right as an employer that keeps you motivated and contributing at a high level?' and 'What can we be doing better?' Their answers often provider incredibly useful information to adjust your employee policies as needed, before you have to deal with the turnover question."

Other key strategies include:

  • Evaluating the company culture. Take some time to think about your organization. How would you describe the culture there? 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 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.
  • Offering a benefits package that serves your 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? 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.
  • Providing flexible work schedules. Startups, perhaps more than other established businesses, may consider offering flexible work schedules to their employees, particularly if their competitors do so. Explore the range of remote work opportunities and technologies, and determine if this is a possibility for your business. If possible, offer employees a schedule that fits with their individual lifestyles. They may greatly appreciate this flexibility and be less inclined to leave a work/life arrangement that benefits their needs.

The cost of an employee leaving is too high for any business. Establishing a supportive, positive, and rewarding culture can help in your efforts to reduce employee attrition, as can paying close attention to your workers' attitudes and behaviors. Take the next step in evaluating your benefits package as a strategy to help reduce 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.