The Turnover Takeover: How Tech Can Be a Differentiator for PEOs and SMBs

While a new year has begun, some of last year’s workforce-related problems haven’t exactly turned over a new leaf if you know what we mean. That includes turnover, which can be a challenge for any company. 

We see it in health care. We see in the hospitality industry. We see it in the airline industry. We see it throughout the supply chain. Of course, we also see it in large tech companies, too, despite the sizable layoffs we’ve witnessed in the past few months.

Even as the Great Resignation/Great Reshuffle—or “the Great Reprioritization” as PrismHR President of HRO Tim Pratte calls it—continues to linger during uncertain economic times and the era of so-called “quiet quitting,” many companies are still facing staffing shortages. That’s despite an unemployment rate below 4%. 

So what’s going on? The leisure and hospitality industry, among many others relying on people needing to work on-site, has been negatively affected by more people finding remote and hybrid-working opportunities during the pandemic. Also, it’s worth noting that about half of U.S. adults 55 and older say they are retired. That’s despite the fact that full Social Security benefits don’t kick in until at least age 66 for people in today’s workforce.

As you see, it’s a complicated time for employees and employers alike.

Since 48% of U.S. workers are employed by the 99% of U.S. companies that fall into the small and medium-sized business (SMB) category, turnover can be especially difficult for smaller organizations that feel bottom-line hits much quicker than their larger counterparts. By the way, SMB turnover affects Professional Employer Organizations (PEOs), too, since PEOs provide services to some 173,000 companies that collectively employ 4 million people.  

As we’ll see, software and technology can be a key differentiator when it comes to talent recruitment and retention to help slow the turnover takeover taking place right now.

“Technology can level the playing field for small businesses,” Pratte says. “SMBs are at a distinct disadvantage without the necessary tech to navigate the Great Reprioritization.”

Like a Broken Record

Employee turnover is costly, of course, but you already knew that. 

So how do you quantify turnover? That’s the million-dollar question or perhaps the “thousands of dollars” inquiry depending on the size of the company.

When Work Institute sent us its latest turnover report, we were intrigued to see their estimates on how much turnover really does cost.

According to the institute, which is a consulting organization focused on employee engagement and retention, turnover costs as a percentage of annual wages can run the gamut. 

That said, especially since LPs and record players are back in style, there is a number you should keep repeating to yourself like a broken record: 33. As the Work Institute states, employee turnover costs companies on average 33% of the leaving worker’s salary to find a replacement. That’s from direct costs such as recruiting, background checks, training new people, etc. Also factored into that number are the indirect costs, which are a little trickier to calculate, but can include loss of productivity, manager interview time, poor customer service, training, etc.

So having to fill a position for an employee making $50,000 per year would cost a company nearly $17,000 on average to replace that worker. And if you had 50 work-site employees making $50,000 on average with a 20% turnover rate, you’d have to spend $165,000 a year alone on finding replacements for those workers. Those numbers can add up fast and turn a bottom line over in the wrong direction because you’re spending your budget in areas that aren’t helping your business grow. 

“When faced with employee turnover challenges,” the institute wrote in its report, “one of the first objectives in developing a retention strategy should be calculating the costs of turnover. This simple exercise often reveals hundreds if not millions of dollars that are impeding profitability in organizations. This exercise will also allow a clear path to quantifying return on investment for any investments utilized to lower costs of turnover in an organization.”

Calculate your potential turnover costs.

Why employees leave an organization is always a difficult question to answer because, of course, there could be many factors. 

Seeking “greener” pastures has undoubtedly been the most common reason employees moved on historically, but while people still change jobs seeking higher salaries and better benefits, they also want an employee experience that works for them. 

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In a Pew Research Center survey released in 2022, 63% of the U.S. workers surveyed cited pay as a reason why they left a position. But the same percentage of people cited “no opportunities for advancement.” More than half (57%) said they “felt disrespected at work” while 45% said there was “not enough flexibility to choose when to put in hours.” 

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In an early January LinkedIn poll about employer New Year’s resolutions, PrismHR found that almost half (47%) of respondents thought “elevating the employee experience” was tops on their list for 2023 with “increasing management effectiveness” coming in second with 29%. “Improving change management” and “other” came in third with a combined 24%.

Building a better workplace culture to elevate the employee experience is important. That could take the form of added work schedule flexibility, spot bonuses, hybrid or remote work possibilities and paid time off, among other things.

But if the idea of lowering turnover costs and improving engagement whets your appetite, then adding HR technology to the menu should not be overlooked as a key ingredient in satisfying any employee-related motivation initiatives to help SMBs compete.  

How Does Tech Help?

An integrated tech platform gives employees access to a host of benefits and tools that are commonly found in larger organizations.

Talent Management software, for example, is designed to help recruit and onboard new employees and keep them engaged through a structured performance management process. A Society for Human Resource Management (SHRM) study from a few years ago found that a majority of employees (69%) were likely to stay with a company for three years following a great onboarding experience. Additionally, a strong onboarding experience led to 50% higher productivity from new hires. 

And remember that term “quiet quitting” that has been getting a lot of attention lately? That’s directly tied to employee disengagement, which is a key part of the employee turnover equation. As part of its workplace engagement study, Gallup listed the key drivers of employee engagement as:

• Purpose
• Development
• A caring manager
• Ongoing conversations
• A focus on strengths

In essence, that’s performance management in a nutshell.

A solution that helps align employee performance with organizational goals while increasing engagement and motivation is an essential tool to boost engagement.

“It has been my experience that small organizations want their employees to grow professionally and stay for the long term,” says Michele Lindsay, PrismHR’s director of talent management solutions. “Too often SMBs become a training ground for good employees before they move on to bigger organizations. A Performance Management system can help overcome this by providing ongoing conversations about opportunities and a focus on development while tying an individual’s goals to broader company objectives. Talking about performance in positive, meaningful ways increases the engagement of employees at all levels.” 

Lindsay adds that, “an engaged employee is a productive employee.”

Additionally, who would complain about having the opportunity to learn new skills as part of an integrated, easy-to-use HR platform with lots of choice benefit options to choose from? 

That could include unique offerings like Earned Wage Access, where employees can get the money they need when they need it without having to wait for a traditional payday, or even pet insurance as a key differentiator. 

There’s no doubt today’s workplace is as complex as it has ever been. Keeping your best workers or helping to keep your clients’ best workers in place is not just a goal but a necessity in order to compete in today’s economy. With a boost from tech, you can help prevent the turnover takeover from taking over your business and help your clients do the same.

James Tehrani is PrismHR’s digital content marketing manager. He is an award-winning writer based in the Chicago area.