Right now, more than ever, companies are struggling with attracting and retaining talented employees. According to a Manpower Group survey, 69% of businesses report talent shortages and difficulty hiring. The problem is that this is a 15-year-high, and other research companies like Korn Ferry are saying that this trend will be expanding into the next decade, with more than 85 million jobs going unfilled by 2030.
The truth is the importance of employee retention is at an all-time high, and you can't afford to do it wrong. Not following best practices will negatively affect businesses and set you back. On the other hand, low employee turnover promotes a better overall culture and a higher ROI.
The impact of high employee turnover on your business should never be underestimated. Here's how to attract top talent to your company and tips for retaining employees for small businesses.
Attracting (and Keeping) the Right People
Keeping your company growing and profitable requires attracting new talent and keeping those employees engaged for the long term. While this includes finding candidates that are skilled and qualified for the position, it also means that they are aligned with company values and culture.
This is because hiring the wrong candidate — one who is not compatible — will only lead to another hit on your employee turnover rate because they'll move to a more suitable company when given the first chance.
For inspiration, here are six ways you can attract and keep great employees:
- Lock in employees with great salaries and benefits
- Provide a work environment where employees are allowed to express themselves freely
- Appreciate and respect
- Listen to their feedback
- Trust employees to do their job and don't micromanage
- Invest in your workers
Failure to Attract the Right Employees Will Cost You
Failing to attract suitable candidates leads to a decrease in ROI. Research shows that the cost of a bad hire can often add up to $840,000 after two and a half years. This is because bottom-line costs like hiring, compensation, disruption, severance, mistakes, missed opportunities, and more can add up quickly when you don't hire the right people.
Other costs you may not have considered yet include:
- Disrupts your team and workflow
- Brings down employee morale
- Financial impact
- Decreases in productivity
- The effects on company culture
- The effects on your reputation
Why Does Employee Retention Matter?
Simply put, employee retention matters because time and money are invested in the hiring of a new employee — and are lost if an employee leaves prematurely. According to Chron., employee turnovers can cost a company anywhere from $3,500 to $25,000 to replace a retail employee making $8 an hour. That figure is significantly higher for businesses filling top positions with more compensation.
When you don't give more focus to managing employee retention, you run into similar costs (if not higher) because:
- Management labor costs rise (having to interview and find a new employee)
- High turnover affects employee morale
- Workplace productivity drops
- High turnover affects overall ROI
- Quality of work deteriorates
How High Turnover Affects Your ROI
Business isn't getting done when you're too busy with employee recruitment. Therefore, production suffers, and your ROI is negatively impacted as a result. According to HubSpot, loss of productivity costs U.S. businesses $1.8 trillion each year.
What's more, turnover can cost a company the employee's salary plus 33% of the salary on top of that. This means that not only are you losing money due to low productivity, but you're also paying well over an employee's salary just to replace them with a better fit.
So how is ROI affected? Loss of hiring costs, and training – which can be substantial — on top of the 8-12 weeks it takes to onboard a new employee stack up to lower revenue and profitability.
Your ROI Depends on Good Employee Engagement and Low Turnover
You must foster good employee engagement to maximize ROI, contributing to low turnovers. Forbes reports that highly engaged teams document at least 21% greater profitability, experience a 41% reduction in absenteeism, and have 59% less turnover. This is due to the passion and commitment engaged employees bring to work with them compared to a team that can't wait to leave and doesn't want to be there.
Fostering good employee engagement and low turnover begins with having a quality workplace culture. Strong company cultures reduce stress and increase employee engagement by focusing on employee well-being and satisfaction. Stress alone can contribute to 50% involuntary turnover — and that's only a small portion of what a strong culture can fix in a company.
Building and maintaining good employee engagement and low turnover require:
- Respectful treatment of employees
- Policies and compliance rules in place for better expectations
- Fair and adequate compensation
- Trust between employees and management
Invest in Your Company's Talent with a Professional Employer Organization (PEO)
When your HR team isn't sufficient for the growth of your business, a trusted PEO is a great addition to the team. A PEO is an organization an employer can partner with to reduce the strain on in-house HR by accessing the PEO's employees to complete responsibilities such as payroll, benefits, and other employee-related tasks.
PEOs can do everything from showing businesses how to retain employees to creating a productive culture and improving ROI.
So, why should you use a PEO?
One good reason is that small businesses in PEO arrangements have higher growth rates than other small businesses. Company executives who use PEOs also better focus their attention on the core business rather than other time-consuming tasks. Another good reason is that PEO clients experience 10 to 14% lower employee turnover rates than other companies.
When you're ready to start attracting and retaining employees — and increasing ROI — contact us for more insight into how we can help you make it happen.
