Good hires are key to the success of any company. This is true for mom-and-pop shops, startups, and small businesses... as well as Fortune 500 companies. But recruiting the right employee can be tough. Small businesses with limited time and resources need to be smart about recruiting new talent and make each new hire count.
Here are considerations to efficiently recruit the best talent in the industry.
All too often, small businesses start listing positions and interviewing before they truly know what or who they are looking for. To hire the right employee the first time, take a step back and ask yourself these questions:
As you post the job and interview candidates, having a clear job description will help you hire the best candidate for the position.
Consider how much time you need from an employee. Do you need full-time or part-time? A contractor or consultant? An intern?
If you’re like many small business owners, you worry about the cost of hiring and the return on your investment. As with every investment, consider: monthly cash flow, monthly profit, expected additional revenue, payroll costs, monthly taxes and benefits, and additional overhead costs.
Getting enough qualified candidates in the door requires more than just putting up a “we’re hiring” sign.
However, knowing how to spend valuable time and resources can be challenging. Recruiting doesn’t have to be expensive or time-consuming, but you do want to cast a wide net to find the most well-qualified candidates.
Retention Ideas for Small Businesses
For a business to thrive in today’s economy, finding and retaining the best employees is key. This is especially true for small businesses competing with larger companies, and larger budgets, for top talent.
Happy Employees Help Businesses Thrive
Frequent voluntary turnover has a negative impact on employee morale, productivity, and company revenue. Recruiting and training a new employee requires staff time and money.
Some studies (such as SHMR) predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a manager making $40,000 a year, that's $20,000 to $30,000 in recruiting and training expenses.
But others predict the cost is even more - that losing a salaried employee can cost as much as 2x their annual salary, especially for a high-earner or executive level employee.
So how can a small business keep their employees from jumping ship? As our workforce becomes increasingly mobile, a well-thought out employee retention strategy becomes just as important as recruitment (if not more).
Here are seven tips for small business employee retention.
1. Understand Why Employee Retention Matters
Employee turnover costs small businesses time and money. Turnover disrupts the flow of a functioning workforce. When an employee leaves there can be a significant knowledge gap left, creating more work as the remaining team members pick up the pieces.
Recruiting and training a new employee requires staff time and money. Every time a business replaces a salaried employee, it costs on average 6 to 9 months in salary. For a manager making $40,000 a year, that's $20,000 to $30,000 in recruiting and training expenses, along with other intangibles.
While some turnover is inevitable, having an intentional employee retention strategy in place mitigates the turnover, and its costs, for a small business.
2. Benchmark Your Employee Retention Rate
Do you know your current employee retention rate? Before you start thinking about formal employee retention activities, calculate your employee retention rate and track it periodically, such as quarterly or bi-annually.
The calculation is simple. Divide the number of employees who left during a period by the total number of employees at the end of a period to get the percentage. According to industry standards, 85% or higher is considered a healthy employee retention rate.
3. Use Retention Strategies, Not Guesswork
There are several theories in employee retention strategies. Here's a sample of four common theories:
Positive Organizational Behavior is defined by Fred Luthans as "the study and application of positively-oriented human resource strengths and psychological capacities that can be measured, developed, and effectively managed for performance improvement in today’s workplace"
Valence, in Victor Vroom's Expectancy Theory, is the extent to which an employee's goals match the company's goals. The more aligned these are, the higher the employee retention rate.
Abraham Maslow's Hierarchy of Needs theorizes that companies should first take care of an employee's basic needs, such as job security, payment, and health benefits, and then advance to bigger aspirations, like his or her place in the company.
How important is it that employees feel they are being treated fairly? According to John Stacey Abrams' Equity Theory, if a worker feels he is getting what he considers to be fair for the job he is doing in return, he will be happy and remain in the position.
4. Don't Assume Employees Are Happy
One of the worst mistakes a small business can make is to assume that, because an employee is still there, he or she is happy.
Schedule regular, one-on-one reviews with employees. These review meetings serve as a forum where the employee can receive constructive feedback.
Feedback is important. Even the most productive employees should be given feedback as a part of the retention strategy. Studies show employees not only want acknowledgment for work done well, but also want constructive criticism and routine review of goals and expectations. This makes an employee feel valued and helps keep morale high.
Conduct regular, formal evaluations. Employee evaluations are also a good time to get feedback from employees on what will make them happy. With a retention strategy, always keep a balance between what the employees want and what's best for the business.
5. Health Benefits Are a Key Part of Employee Retention
Health benefits are a vital part of an employee's compensation package, and thus an important strategy for employee retention.
Work with an insurance agent or broker to evaluate your small business health insurance options including private exchange and individual health insurance premium reimbursement.
If your business can't afford a group health insurance plan, or cannot meet minimum participation requirements, work with your broker to design a premium reimbursement plan. Premium reimbursement allows your business to provide employees healthcare allowances for their individual health insurance policies. This is an alternative to an employer-sponsored group health insurance plan.
6. Provide Different Benefits for Different Employees
Turnover of certain employees may be more costly than others, thus it is common to provide different levels of benefits to different classes of employees. This is routinely done by major corporations. For example, sales managers are compensated differently than customer service representatives.
Because health benefits are such an important part of compensation and retention, why not provide health benefits that vary by class of employee? Small businesses can do this with premium reimbursement arrangements.
As there are no minimum or maximum contribution requirements with premium reimbursement, a small business can design their health benefits plan to fulfill their exact recruiting and retention needs.
7. Conduct Exit Interviews
Exit interviews provide businesses valuable information on the reasons employees seek employment elsewhere.
Develop an exit interview survey that asks for feedback on the work environment, employee benefits, areas for improvement, training, supervision, and workload.
Evaluate the exit interview surveys and incorporate the feedback into your small business’s employee retention strategies.
Additional Reading to Help Small Businesses
The Simple Guide to Small Business Health Insurance
Building a successful business is hard work. Navigating small business health insurance, however, doesn’t have to be. While each small business has its own unique goals and challenges when it comes to finding health insurance, the good news is there are new opportunities for affordable health insurance. Wondering where to start? Read more.
Employee Retention - The Real Cost of Losing an Employee
For businesses to thrive in today’s economy, finding and retaining the best employees is important. This is especially true for small businesses and nonprofits competing with larger businesses, and larger budgets, for top talent. Read more.
FAQ: Does My Small Business Have to Provide Health Insurance?
As a small business owner, you may be asking, “Do I have to provide health insurance to employees?" No business has to offer health insurance. However, the Affordable Care Act includes a mandate for certain large employers (with over 50 full time equivalent employees) to either offer qualified and affordable health benefits, or pay a tax penalty. Read more.
Small Business Health Insurance Options for 2015
The cost of group health insurance is becoming unsustainable for small businesses, startups, and small non-profit organizations. Since offering healthcare is a crucial part of employee recruiting and retention, dropping healthcare benefits altogether is not a feasible option for most small employers. Read more.
Startups Don't Have to Forgo Health Insurance - 5 Tips for Finding Affordable Options
Many startup entrepreneurs feel daunted by the task of taking full responsibility for health insurance for themselves and their employees. This article provides tips for finding affordable options. Read more.
How to Calculate HR Employee Retention Rates
This article provides an overview of how to calculate HR employee retention rates, why employee retention strategies matter, and a best practices checklist for employee retention. Read more.
Employee Retention - How to Keep Millennials Motivated and Happy
What are Millennials looking for in a job? And, how can small businesses adapt their employee retention strategies to retain younger employees? Read more.