Once upon a time, high school or college graduates could go to work for a company and count on remaining with the same employer until they retired. This has not been the typical scenario for several decades. According to the Bureau of Labor Statistics, the average employee stays with a company for three to five years. Furthermore, the total number of voluntary terminations is about twice the total of involuntary terminations. In the month of June 2019, for example, 1.7 million Americans lost their jobs due to discharges and layoffs, but 3.4 million quit. Unfortunately, many entrepreneurs fail to understand that it is far more likely that they will lose an employee they would prefer to retain than it is that they will have to fire an undesirable worker. In addition, they often do not realize that employee turnover can be costly.
The Costs Related to Employee Turnover
You can easily assign a dollar amount to some costs related to employee turnover. For example, your records should provide you with the costs of placing ads in your local newspaper or on online sites. You may even be able to assign a dollar amount to represent the salary cost of having your personnel manager review applications and resumes, conduct screening interviews, and verify references. You will also have records of any fees that you paid to employment agencies.
Other costs, however, are difficult or impossible to quantify accurately, but they can be even more significant. When you hire a new employee, he or she will need to be trained. Even employees with previous experience will need to learn how to perform their assigned tasks the way that you want them completed in your company. Their initial productivity will be impacted, but the employees who are training the new hires will also show reduced productivity. Even if the job requires minimal training, it could take several months before the new hire achieves the efficiency level that the experienced worker you lost had achieved.
If an employee quits without notice, other employees will have to fill in until you hire and train a replacement. This could mean that you have to pay overtime to your hourly employees or ask your exempt employees to work longer hours. Your remaining employees may resent the additional work or stress, increasing the risk that they may start looking for another job. Furthermore, important tasks may be overlooked or shoved aside. Perhaps calls from customers are not being returned in a timely manner, your remaining technicians cannot handle all the requests for service, or payments from customers are not getting deposited as soon as they are received.
When assigning a dollar amount to employee turnover, experts say that you can expect the costs to total about 20% of the annual earnings of the employee you lost if those earnings were between $25,000 and $50,000. For employees with postgraduate degrees, the amount can exceed 200% of their annual salaries. To put it another way, depending on their turnover rates, American companies lose between 12% and 40% of their income before taxes to costs associated with employee turnover.
What Is the Main Reason That Employees Quit?
Some employees always planned to quit as soon as they built their savings or paid off a specific debt. Others quit because the demands of their personal lives have changed; perhaps a parent falls seriously ill or a spouse is transferred. However, most of your employees will not quit for these reasons. Even if they do not admit it to you, the main reason that most of your employees will quit is because they are unhappy, and the source of their unhappiness is seldom related to their pay. Instead, they are unhappy because of one or more of the following.
1. They believe that they are stuck in a job that offers no chance to advance their careers. They may feel that they will be in the same position and performing the same tasks for as long as they work for your company.
2. They feel unappreciated and undervalued. Perhaps their suggestions were discounted, or maybe someone else took credit for their ideas. They may feel that they did not receive proper recognition for helping out in another department, suggesting a way to save the company money, or volunteering to work on their days off to ensure that an order was completed on time.
3. They are frustrated because they did not receive the training or tools needed to perform their jobs successfully. Most employees take pride in delivering high-quality work. When they feel that their ability to shine has been diminished because of an employer’s negligence, they may become extremely dissatisfied.
4. They feel that the interviewer misrepresented the company culture, potential for advancement or job duties during the recruitment process. For example, if candidates are told that their duties will be interesting and diverse, they will be unhappy if the work is actually repetitive and boring.
5. They have a problem working with a supervisor or fellow employee. Sometimes, personalities or habits just cannot coexist peacefully. A highly organized individual may be annoyed by a coworker’s messy desk, or a vegan may be disgusted by the smell when a colleague decides to eat a hamburger at a nearby desk. The offended employee may even believe that the behavior is deliberately intended to annoy them.
6. They feel they have been discriminated against or treated unfairly. The issue may involve duty assignments, promotions or reprimands. In addition to gender, race, sexual orientation, religion and ethnicity, employees may feel that the discrimination or unfair treatment is due to their age, the type of pets they own, their marital status, the number of children they have, their preferred means of transportation, the type of literature they read, or virtually any aspect that might differentiate them from their fellow employees.
What Is the Best Way to Retain Employees?
Knowing why employees quit can be helpful, but it can be even more helpful to determine why they stay.
1. They stay because leaving would require sacrificing something important. For some, they would be giving up a means to support a certain lifestyle for themselves or their families. For others, it may be that you offer certain incentives that are linked to their tenure or unique perks that they would forfeit if they left your company.
2. They stay because they have links to the community or the company. For example, they may not want to move away from friends and relatives who live in the same town, or they may feel connected to their mentors or work colleagues.
3. They stay because they feel that they fit. They believe in the company’s vision, mission and culture. They feel that they excel at their jobs and make a meaningful contribution to the company’s success. They enjoy the lifestyle in their community; this could involve good schools for their children, an easy commute to work, or just a sense of belonging.
As your company grows, you will probably find that the need to retain quality employees becomes increasingly important. Your company may currently be small enough that you know all the details about every customer, every quote, every job in progress and every employee. However, success will bring too many customers and too many projects for you to keep track of everyone and everything, so you will need to hire more employees. The last thing you want is to have employees leave as soon as they are trained and productive. If you want to keep your turnover rates as low as possible, you might want to consider developing a strategy for engaging your employees. Our next post will discuss the topic of employee engagement in greater detail.
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