employees working together

After the events of the last few years, lifestyles and priorities have dramatically shifted while costs of living have increased at a dizzying pace. Many employees aren’t looking for the same things they were pre-pandemic and are unwilling to go back to the old way of doing things. With that in mind, we’re seeing very high rates of employee turnover across most sectors.

For a small business, the amount of time and effort put into training new staff constantly can be devastating so it’s more important than ever to retain great employees when you find them. In this guide we’ll cover the ins and outs of staff retention, why it’s important and how to improve yours.

What is employee retention?

Often expressed as a percentage, employee retention is the amount of your employees who choose to stay with you in a given period. You could look at it quarterly, yearly, or in any other time frame that’s relevant for you.

In order to measure your employee retention rate, there’s a formula that you can use to make it into a percentage:

employees working together

What’s considered to be a good retention rate will vary depending on the sector but as a general rule of thumb if your retention rate dips below 85% - 90%, you’re probably spending a lot of time and money trying to get new talent in the door.

Why is employee retention important?

It should come as no surprise that holding onto some of your well-seasoned employees is important. They know the ropes and keep your business running. When a valued member of the team hand in their notice, it is anticipated that it will take you an average of 40 days to replace them. In the UK in 2019, it was estimated that it would cost SMEs £12,000 to replace an average employee. These numbers go up the more specialised a role is and when unemployment is low.

If that number seems exceptionally high, we’ll breakdown where those costs could be coming from. First, you’ll have to advertise for the role. If you choose to do this via recruitment agency, they’ll make commission that is often 10%- 20% of the job’s salary. If you plan to do the hiring all on your own, you’ll likely still need to advertise online. The prices vary widely for job boards – but can often be well over £100 for a 30-day listing. Once you’ve got the CVs coming in and have selected a few candidates that interest you, you’ll need to interview them. This process, depending on the number of rounds, will take up existing employee time. Usually, it’s the time of higher-level staff such as managers who are now prevented from bringing value to the company as they take time away from their usual tasks to interview. Once a new employee is hired, it’ll take time for them to get up to speed and may also pull other employees’ time as they help with training the new hire. All in all, it can be very expensive to have high staff turnover.

Let’s take a look at a few of the other benefits of having a high staff retention rate:

Increased efficiency and productivity: by keeping all of your staff members who know how the business runs and who do not need training in order to complete their essential tasks, your productivity and efficiency is much higher than if you had high staff turnover. High turnover can create a big knowledge gap if experienced staff leave before they are able to properly train the new recruits. Having a good retention rate eliminates that issue.

Better employee morale: A steady stream of departures can have a negative effect on workplace morale. When there’s high employee retention, there’s often also good engagement and happy workers all of which creates a great atmosphere in the workplace. When people are leaving, their dedication to completing tasks can taper off during their notice period. Other employees who are picking up the slack may feel frustrated or disenfranchised leading to further turnover. This can also lead to a lower quality of work which then affects your relationships with customers.

Better customer experience: Employees who are at the company for a long time may develop strong relationships with customers. A long-term employee will know the ins and outs of that customer’s needs and be more readily able to help them. They’re less likely to make a mistake and upset a customer.

Strong company culture: Long-term employees help set the company culture and keep it alive. When there’s high staff turnover it can really shake up the knowledge and dedication to a company’s ethos and employee expectations.

What is staff turnover?

Staff turnover is essentially the reverse of employee retention. Also able to be expressed as a percentage, it shows the number of employees that are leaving your business within a specific timeframe .

employees working together

According to Croner, an HR Services organization, in 2018 the average cost of employee turnover, based on the average UK salary, was around £11,000 per person. For specialist roles, they noted that the turnover cost could be much higher due to the challenges of finding someone who has more niche skills.

While that statistic can be worrying, some amount of turnover is completely natural and isn’t something you should worry about. It can be a good way to get new people and new skills into the company. The goal is that there should be a good balance between retention and turnover, that way you have new ideas coming in, but also have reliable employees with experience who can guide the new ones.

According to Monster, the UK’s average staff turnover rate is approximately 15% a year. While this may vary by sector that’s a useful baseline to know. If your turnover is much higher than this, don’t take it personally – there’s many reasons why employees might leave a company. However, you may want to look into what’s convincing staff to leave so that you can counteract it.

Why employees leave their job

There are many different reasons why an employee might leave, but these are a few of the most common reasons:

  • Salary isn’t competitive
  • Lack of/bare minimum benefits package
  • Limited career advancement
  • Stagnating skills/lack of challenge
  • Feeling overworked
  • Looking for a better work/life balance
  • Lack of support
  • Lack of recognition
  • Issues with management style
  • Concerns about the company’s future
  • Better offers elsewhere

Staff retention strategies for small business

According to the Deloitte Global Millennial Survey 2020, the chances of an employee remaining at a company increase when the businesses addresses employee needs from support to diversity to sustainability and upskilling. It can be hard to define what those actually look like, so here are some concrete ways to try and improve your employee retention and reduce turnover:

Allow your employees a good amount of self-determination when it comes to how their hours are allocated. For example: workers need to be online for 5 hours sometime within 9am – 6pm, but the rest of their hours can be at any point of the day. Similarly, you can let them work extra hours at busy times and bank them to get more time off at a later date.

A Robert Half survey found that over 30% of professionals working from home would look for a new job if they were required to return to the office full time. After working from home for the better part of two years, many employees will be frustrated if they’re told they can no longer have any of that flexibility. Allowing some amount of hybrid working moving forward will keep employees feeling happier as they’re trusted to choose the work location that is most effective for them.

As your company grows, you may find it increasingly difficult to deal with human resources tasks. When you’re a small business, having a full-time HR professional in-house may not make sense, however it may be something you can outsource as needed. If a problem arises, it can help staff feel like the issue has been dealt with fairly when there’s a neutral, third party mediating it.

If employees start to seem extremely stressed or like they are struggling at work, checking in with them can help. Wellbeing support can take many forms such as helping employees access counselors and mental health resources or having an emergency fund that helps employees who have fallen unexpected financial hardship.

By enabling career development and progression opportunities, they continue to feel valued and engaged. They won’t feel like they need to leave the company in order to take their next steps or ensure that their skills don’t stagnate.

Make sure that every new employee has a good start to their employment as it sets the tone for their time with you. Giving them some extra time and check-ins for the first 6 months can really make a difference in ensuring employees feel supported and set up for success.

Without having a competitive salary, you’re unlikely to keep employees for too long. Inevitably, if they’re underpaid, they will start working elsewhere. If you can’t increase their salaries, check if there are other benefits you can manage such as better pension contributions or bonuses whenever possible.

Make sure that you recognize the good work that people are doing. Acknowledging the importance of employees and how they help you keep the business running goes a long way towards keeping them happy and feeling appreciated. Small gestures such as thank you notes can go a long way when you feel an employee has gone above and beyond.

One of the benefits of having a small business is that employees can really feel like they have a stake in helping you build it up. They’ll see the results of the work they’re doing and they tend to be a lot closer to what the ethos of the business is. Giving your employees the chance to really own a certain project and feel like their making a difference can make their employment feel more meaningful.

Gather feedback frequently from your employees whether that’s through formal or informal methods. As a small business, you may find that formal methods such as a survey feel odd to use, but they do allow employees to respond anonymously so you may receive more honest or candid responses. If you prefer a more informal method of checking in, having regular 1 to 1 catch ups with your staff can make sure they feel heard. It may help to have some specific questions prepared for these meetings to guide the discussion and give it some structure. As a starting point, you may want to ask about their confidence in leadership, any struggles they’re having and if there’s anything they’d like more training on.

Before employees leave the company, have an exit interview with them to find out more about their reasons for leaving. This gives you insight into what’s causing people to leave and can help identify issues in your current retention strategy. If many employees that have left cite the same reasons for going, then you know to prioritise fixing that problem first.

While there’s no sure-fire way to make your employees stay, the strategies outlined above may help create a culture where your employees want to stick around or feel comfortable reaching out to you if they’re having an issue. Don’t panic when employees leave – a 100% retention rate isn’t a reasonable standard to hold yourself to. However, if you see your staff turnover rate rising rapidly, take the time to re-evaluate your staff retention strategies and identify where you might be able to make some positive changes.

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