There are several indexes used to track the overall health of the economy and help business owners understand the trends they see locally. These relate to consumer trends, the stock market, and employment.
The government also releases data related to employee behavior. The U.S Bureau of Labor Statistics also releases monthly data on the country’s “quit rate,” or the rate at which people voluntarily quit their jobs. The quit rate has historically flown under the radar as Congress and local municipalities alike focus on unemployment numbers as the main barometer of economic health. However, as a small business owner, the quit rate might have more of an impact on your operations – and your employees – than you realize.
Understanding the Quit Rate
The quit rate refers to employees who leave companies of their own accord as opposed to team members who are laid off or fired. The BLS tracks the number of people who quit their jobs each month in the thousands and issues a quit rate, or the number of quits as a percent of total employment.
In times of economic uncertainty, quit rates drop. Employees don’t feel like they can easily get work elsewhere in their field, which is why stay with their employer. If you have ever heard someone say, “I’m just lucky to have a job in this economy,” then you know that they are likely contributing to the low quit rate.
As the economy improves, quit rates increase. In 2010, during the height of the last recession, 22 million employees quit their jobs. This number rose steadily until 2018, where 40 million people quit according to the Society of Human Resource Management. As economic conditions improved, employees felt safer entering the job market again.
In 2019, the quit rate hit an all-time high from when the BLS started tracking it in 2000. Gallup reported that 2.3% of employees quit their jobs last year. Then the COVID-19 pandemic hit. In April 2020, the national quit rate dropped to 1.4%. No one wants to quit their job when the United States is experiencing the highest unemployment rates since the Great Depression.
How Does a High Quit Rate Affect Small Businesses?
As a small business owner, you might not be immediately affected by small changes in the quit rate. After all, you don’t operate a large enterprise with tens of thousands of workers. Who cares if general turnover rates are lightly higher or lower? Believe it or not, the quit rate can actually have a much larger impact on your business in the long run.
When you lose an employee, it takes a few months to return to normal operating levels. As a rule of thumb, it costs 33% of an employee’s salary to replace them. If you pay someone $45,000 per year, then you stand to lose $15,000 when they quit. These expenses come in a variety of hidden costs to your business:
- You lose the operational knowledge that your quality employees had about your business, its processes, and people.
- You spend money recruiting, interviewing, and onboarding new team members.
- Other employees have to pick up the slack of the unfilled position. There are also drops in productivity while the new team member gets fully trained.
- New hires know there is high demand in the market for workers, so they can negotiate higher salaries and better benefits.
These expenses can snowball if more employees leave after the first one. A good employee could be the reason that other workers stay at your company. When that team member leaves, others might follow, confident that they can find work soon with a strong economy.
A Low Quit Rate Isn’t Good for Your Business Either
If a high quit rate means your best employees are at risk of leaving and hiring is harder, then a low quit rate is a good thing, right? Not necessarily. When bad employees stick around, they can drag down the whole department with them. Your bad employees will only do as much as it takes to get by and stay employed.
Even good employees can turn bad if they are disengaged. These are team members who feel like they don’t have opportunities for professional development or aren’t able to contribute meaningfully to the organization. The same Gallup poll that reported the record-high quit rate also found that 67% of employees felt disengaged at work.
Focus on Employee Engagement
As a small business owner, you can’t sweat over the minor changes in the quit rate – you already have more than enough things to worry about. However, you can focus on employee engagement and company culture.
Are you giving your high-achieving employees enough training opportunities and room for growth? Do you have a positive work environment that makes good people want to stick around?
Focusing on these questions will engage your best workers and make them want to stay. Coincidentally, these practices will also help you identify poor-quality employees and disengaged staff members.
You don’t have to be affected by big-picture economic trends, but it helps to know that if the quit rate is high and your employees seem to be going through a revolving door, then you may need to evaluate your company’s management practices. But, Dekkoi is one of those few HVAC companies that lead by example, when it comes to employing efficient and ethical management practices.