Broker Check

Addressing the Increasing Rate of Employee Turnover

| August 19, 2021

Managing turnover to retain high quality employees is one of the most challenging issuing facing businesses. The latest report from the Bureau of Labor Statics shows that the average employee tenure is just 4.1 years, which is a 10% decrease from 2010 and a 25% decrease from 2020. Data from the Society of Human Resource Management (SHRM) shows the declining rate of employee tenure  is creating compounding negative effects on a business’s  resulting in lower levels of profitability AND sustainability.  The true cost of ignoring a business’s employee tenure rate is underestimated and campaigns to solve the matter are rare and undervalued.

According to Leigh Branham, one of the Human Resources industry’s most well know employee engagement and retainment experts, the cost of losing an employee can range from 25 percent to 200 percent of that employee’s salary. He cites the following examples of turnover costs in his book Keeping the People Who Keep You in Business:

  • Recruitment of replacements
  • Administrative hiring costs
  • Lost productivity associated with the time between the loss of employees and hiring of replacements
  • Lost productivity due to a new employee  training and reaching full productive potential
  • Lost productivity associated with coworkers  assisting new employees
  • Costs of training
  • Costs associated with the employee’s lack of motivation prior to leaving
  • Sometimes, the costs of trade secrets and proprietary information shared by the employee who leaves
  • Public relations costs

Retention rates can be enhanced by applying effective human resource management practices. While a lot of employees hold value in a good work/life balance or their company’s corporate social responsibility initiatives, some form of compensation or career development opportunities tend to have stronger effects on employee retention relative to others. This could be in the form of higher wages for employees, however, these methods  are costly and can put small and medium size businesses at a particular disadvantage.

We’ve found that a more effective way to improve employee retention is by offering your employees a more robust benefits package/offering. According to the SHRM 83% of employees would take less pay for better benefits and 1/3rd of employees are currently seeking new employment due to benefits.

The solution we have begun to use is a Payroll Tax Reduction Plan. A PTR Plan can fund the desired benefits entirely with tax credits  resulting in no net cost to the employee while providing a net gain for the company.

The company will realizes a tax savings by reducing their FICA tax burden. The enhanced benefits offering has proven to reduce employee turnover, and surprisingly, major medical premiums as well. Most businesses currently offering a major medical plan with 25 or more employees are eligible for this type of plan.

Highlighted Benefits of a PTR Plan:

·       On average employer’s reduce their payroll tax burden by over 15%

·       Employee retention is estimated to increase by 59%

·       Employees receive tax credits to fund additional benefits

·       On average employee benefits quadruple and their net pay DOES NOT change

·       Out of pocket medical costs for employees are greatly reduced or eliminated

·       Increasing average tenure improves the ROI on company payroll expenses

Jesse Somdahl is a Senior Account Executive at Finance For Thought and can be reached through our office on our website.

Edited by: Dan Nuwash