Employee turnover can be costly for small businesses, especially in a labor shortage. Read about retention strategies that can help you meet your staffing needs and find success in a challenging labor market.
Businesses of all sizes experience turnover. But for small businesses, losing valued employees can be especially tough. The cost to replace someone can be anywhere from 16% to 213% of the lost worker’s compensation.1 The loss is not only expensive in dollars; the institutional knowledge and the unfinished projects that your employees leave behind can derail your short- and long-term goals, and replacing lost talent requires time and effort that can affect even the most determined small business owners.
Yet staffing shortages are not simply a drain on time and energy. Employee turnover can have a tangible impact on your working capital and the long-term financial health of your business. When business owners are focused on replacing their employees, they may have fewer opportunities to execute the critical day-to-day operations that directly affect their cash flow and less capacity to carry out the cash management functions that are so crucial to their businesses.
With staff turnover being a potential threat to the financial stability of your business, an employee retention strategy is important in the best of times. However, the U.S. economy is currently gripped by a labor shortage and businesses across the country are struggling to meet staffing needs. Recent survey data suggests that as many as 65% of employees are currently looking for a new job.2 With workers leaving their positions at record rates for more money, more flexibility, and new opportunities, adjusting to the economic- and pandemic-fueled uncertainty and the shifting priorities of your employees will be key for success in holding onto your staff in the new year.
Establishing an effective retention strategy takes time and effort, and pandemic-related developments in the workforce require businesses to be creative in their approach to keeping their talent. But understanding these emerging trends in the job market and making an effort to connect with existing employees can be good for your business’s bottom-line. If you are a small business owner experiencing staffing difficulties, read on to learn about the current employment environment and find strategies for successfully retaining your staff.
How Does a Labor Shortage Affect Small Businesses?
Currently, businesses of all sizes are feeling the effects of a nationwide labor shortage. A labor shortage occurs when the pool of appropriately experienced and qualified personnel is insufficient for the current demand in the job market. In short, there are currently more job openings than there are qualified workers to fill them, and many businesses are experiencing difficulties filling crucial vacancies.
For small businesses, labor shortages can be especially difficult. Small businesses typically do not have much in the way of excess capacity; when stretched thin, workers (up to and including the owner) are forced to take on extra duties. Small business owners experiencing a labor crunch can see their productivity stifled, their growth plans limited, and their ability to meet consumer demand diminished. With social restrictions being lifted across the country and greater demand for small business goods and services, understaffed companies may experience production backlogs, lost sales, angry customers, and even closure. It is thus unsurprising that a recent survey from the National Federation of Independent Business (NFIB) reported the current labor shortage as the top problem facing small business owners.3
The latest NFIB study reports 42% of small business owners have jobs they cannot fill.4 Of those:
- More than 80% report a loss of sales due to the labor shortage5
- 60% report a labor shortage as the reason jobs go unfilled
- 20% characterize labor shortage as critical to business operations
- 19% experience serious losses
What Can Small Business Owners Do to Retain Talent During a Labor Shortage?
Prioritizing employee retention is a great first step for businesses seeking to mitigate the impact of the labor shortage. In addition to keeping valuable experience in house, holding onto your employees allows you to bypass altogether the difficulties of the hiring market.
But maintaining your workforce in the current labor environment carries its own challenges. The pandemic has driven workers to re-evaluate their personal and professional goals. With this great reassessment of career and lifestyle priorities, retention strategies that worked pre-pandemic may no longer be effective today. Small business leaders must recognize this and look for new ways adapt.
A recent Digital.com survey revealed people who resigned their positions in the last six months left to6:
- Seek better pay and benefits (44%)
- Focus on their health (42%)
- Find a job they’re more passionate about (41%)
- Find indefinite remote work (37%)
To that end, here are seven tips for improving staff retention during a labor shortage:
- Recognize that retaining employees begins with recruiting. Choosing the right candidates in the application and screening process before you interview anyone is critical for long-term employee retention. Have clear company values and look for candidates who align with your business’s mission. Look for longevity in resumes and seek out candidates with a demonstrated capacity for teamwork and loyalty.
- Be flexible on location. Studies show many jobs can be done remotely as well or sometimes better than if an employee is on-site.7 Recent global research from McKinsey suggests most people aren’t interested in returning to a full-time in-person workplace.8 Communicate with your employees, be open to establishing new policies around remote work for your business moving forward, and talk with your bank about strategies to ensure that your workers can execute critical financial functions securely from their homes.
- Be flexible with hours and roles. Small business owners who can build trust with their staff can afford to be flexible about when employees work – as long as the work gets done. Think about looking beyond the typical 9-5 model and explore non-traditional roles and hours. (Just make sure you are working within the Fair Labor Standards Act rules.9)
- Change how you measure success. Re-evaluate job descriptions and conditions for success. Make sure you don’t just tell employees how to do a job but define what success looks like for every aspect of each position.
- Prioritize ongoing education and offer clear paths to development. Millennials and Generation Z crave career and professional development. Small businesses can increase worker retention by enhancing their employees’ knowledge and skills through education and training.
- Give employees opportunities to engage. Prioritize feedback from your employees and practice engaging management styles to foster innovation. Coordinate volunteer opportunities to highlight your environmental and social governance (ESG) profile and plan company outings that allow your employees to engage outside the workplace.
- Prioritize physical and mental health. The pandemic put a spotlight on physical and mental health. Focus on your employees’ well-being by partnering with local health and wellness agencies, coordinating lunch walks or exercise sessions, and offering access to resources like an employee assistance program (EAP). An EAP is a volunteer, employer-sponsored program that helps employees navigate stressful life circumstances.
It will take some time and effort to solve the broader labor shortage issue. But taking steps now to improve retention efforts as part of your recruiting strategy can give you a leg up on the competition for talent. And maintaining adequate staffing levels will ensure that your business is able to meet customer demand, maintain product and service quality, and continue to bring in new sales.
Contact your Senior Relationship Banker or get in touch with Santander Bank today to discuss more strategies for supporting your financial well-being and accelerating your business recovery.
1 Center for American Progress. “There Are Significant Business Costs to Replacing Employees,” Heather Boushey and Sarah Jane Glynn. Accessed November 5, 2021.
2 PwC. “PwC US Pulse Survey: Next in Work.” Accessed November 8, 2021.
3 NFIB. “Small Business Economic Trends, May 2021 Survey.” Accessed November 8, 2021.
4 NFIB. “NFIB Members on Why They Can’t Find Qualified Employees: Record-high number of owners report that they cannot fill open positions.” Accessed November 8, 2021.
5 NFIB. “COVID-19 Impact on Small Business: Part 3, Small Employers Are in Crisis With Half Saying They’ll Have to Shut Down in Less than 2 Months Without Help.” Accessed November 8, 2021.
6 CISION PRWeb. “Digital.com Survey Finds 32% of People Quit Their Jobs During the Pandemic to Start a Business.” Accessed November 8, 2021.
7 Gartner. “Digital Workers Say Flexibility Is Key to Their Productivity.” Accessed November 8, 2021.
8 McKinsey & Company. “What employees are saying about the future of remote work.” Accessed November 8, 2021.
9 U.S. Department of Labor Wage and Hour Division. “Handy Reference Guide to the Fair Labor Standards Act.” Accessed November 8, 2021.
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