Employee Retention: Taking a Close Look, Part 3
- Taking a closer look series
- Part 1: Workplace Morale
- Part 2: Employee Engagement
- Part 3: Employee Retention
According to the Bureau of Labor Statistics, three million employees have voluntarily left their jobs every month in America since June 2017.
We’re taking a closer look at retention and the unique challenges that come with employing hourly workers. These are challenges PayActiv has done extensive research on and we feel our expertise will be helpful for both businesses and their employees.
Read on to understand, then leverage, the deep inner workings of employee retention.
What is Employee Retention and Turnover?
Employee retention refers to the ability of a company to keep its employees long term. On the other hand, employee turnover is the percentage of workers who leave, voluntarily or involuntarily, from a company and are replaced.
So why is employee retention prioritized? High turnover impacts profitability:
- Replacing a $10/hour employee costs $3,328
- Replacing a $40k per year manager costs $8,000
- Replacing a $100k per year CEO costs $213,000
Add that up and you’re dealing with millions of dollars in annual turnover costs that affect your bottom line. These costs are made up of interview expenses, training and onboarding new hires, advertising costs, and so on. Each employee who leaves takes a chunk of your profitability with them.
There are two main types of turnover, voluntary and involuntary.
Voluntary turnover is when an employee willingly leaves an organization. Reasons employees quit their positions include:
- Feeling undervalued
- Inadequate employee benefits
- High job stress or unfair treatment
- Low job satisfaction
Involuntary turnover happens when the employer terminates an employee. Some reasons include:
- Poor performance
- Dishonesty or lack of job integrity
- Inappropriate work behavior
- Violating company policy
How does employee retention benefit a company in the long term?
The longer employees are retained, the higher the level of performance they provide. Regardless of the industry, long term employees know your organization like the back of their hand. Seasoned employees create high workplace morale as well. This comes with the added benefits of increased productivity, improved workplace culture, and happier, healthier workers.
High employee retention is the goal. But how do you get it?
Employee retention is a balancing act, one where many factors come into play. Therefore, before you’re able to deploy a high-level retention strategy, you need a high-level understanding of the inner workings of employee retention (i.e. the psychological factors).
Psychological Factors of Employee Retention
Consider Maslow’s Hierarchy of Needs. This concept is widely understood as a fundamental understanding of human motivation, that is adopted by HR professionals who want to improve employee performance and retention.
Employee retention stands little to no chance without this understanding. Let’s cover the basics:
- Social (or love/belonging)
Fortunately, offering a work environment which caters to Maslow’s Hierarchy of Needs is more straightforward than you may think:
Physiological: Appropriate facilities such as cafeterias, vending machines, water fountains
Safety: Formal contracts of employment, retirement plan, sick pay, a healthy and safe work environment, medical benefits, regular and fair monthly income, predictability
Social: Promote team building, facilitate outside social activities, allow participation
Esteem: Use periodic individual praise and recognition, use a peer-to-peer or social recognition program, encourage participation, celebrate accomplishments
Self-actualization: Offer high-level professional development, training, mentoring, engage in career discussions, provide challenges, encourage creativity
What about job fulfillment? How much does the work matter to retention rates?
An American Psychological Association study revealed that the level of enjoyment the work brings to an employee means more than pay, benefits, or lack of other opportunities to retention. Even though benefits (60%) and pay (59%) mattered to participants in the APA study, more than two-thirds reported they choose to stay with their current employer because they enjoy their work (67%) and stated their jobs fit well with their lifestyles (67%).
And as we know from a wide variety of research, happiness matters in the workplace:
- Happy employees are 12% more productive
- Unhappy employees cost U.S. businesses $300 billion per year
- Happy employees earn 1.2% to 1.7% more
- Companies with happy employees are 2.1% above industry benchmarks
As an employer, it’s your job to cater to these needs if you want high retention and optimal employee performance. But what about employing hourly workers? Statistics show, that employing predominantly hourly workers comes with its own unique set of challenges.
The Unique Retention Challenges of Hourly Workers
If you’re an employer with mostly hourly workers, you’re likely dealing with high turnover rates. What challenges are hourly workers dealing with that make them harder to retain?
Hourly workers are often dealing with severe financial stress. Here are some of the average wages for common hourly workers positions:
- Retail salesperson — $13.07/hour
- Restaurant cook — $12.23/hour
- Senior care worker — $10.40/hour
- Hospitality worker — $15.66/hour
- Call center representative — $13.29/hour
These wages aren’t enough to support oneself, let alone those support a family of 2 or more people. These wages can barely support one human being, many live paycheck to paycheck. This is where the employee retention problem comes in for employers. These hourly workers are in a constant battle to save money and secure their own financial stability.
And considering the fact hourly workers take up 60% of the U.S. workforce and account for 80% of hires each year, it’s no wonder financial stress plagues most employees and businesses:
- 71% of employees say they suffer from financial stress
- Stress costs U.S. businesses $300 billion per year, and 64% of stress is money-related
- 60-80% of workplace accidents are attributed to stress
- 23% of low-income employees exhibit two of the three indicators of depression, more than double that of high-income employees
- Research shows 1 in 4 Americans experience PTSD-like symptoms from financial stress
In the meantime, hourly workers are getting caught by the alternative financial services industry. Payday loans, title loans, overdraft, and late fees, and similar predatory financial services target upon urgent between-paycheck needs to make their profits, and it works.
These predatory products and services trap hourly workers in a never-ending cycle. The average payday loan borrower is in debt five months of the year.
- Americans spent $15 billion in overdraft fees in 2016
- Twelve million Americans take out payday loans each year, spending more than $7 billion on loan fees
- Roughly 2.5 Americans spend $3 billion on auto title loans fees each year
This brings us to the conclusion, to have any chance of high retention — and to also be able to save your workforce from these predatory financial services — you must offer a financial wellness program in your workplace which caters to your hourly workforce’s needs that improve their personal finance options.
But what about addressing job fulfillment to increase hourly worker retention rates?
Hourly employees can be less invested in company goals. With less investment in the company mission comes less engagement, and with less engagement comes involuntary turnover.
This is all showcased in the turnover rates of industries with predominantly hourly workers:
- Hourly retail store employees have a turnover rate of 65 percent
- The hospitality employee turnover rate was 72.9 percent in 2016
- Call center representative turnover rates range from 30 to 45 percent
The solution? Check out our high-level employee retention strategies to create a positive work environment that retains employees — strategies which will make your organization a top pick among top talent.