Reducing Labor Costs Through Employee Retention
January 17, 2025
By Andrea Beth Levy, CPA, CFE, CGMA, MBA
According to the Q3 2024 Bureau of Labor Statistics employment cost index report, compensation and benefit costs for workers have increased close to 9% over the past 24 months. Labor costs are typically the largest employer costs incurred during the year. Finance professionals around the globe are noticing one similar trend; the cost of labor is rising. How can we solve this problem?
One (often overlooked) way to combat the rising costs of labor is to slow the pace of employee turnover. According to a Gallup article, a conservative cost estimate of replacing one individual may range from one-half to two times an employee's salary. For example, "a 100-person organization that provides an average salary of $50,000 could have turnover and replacement costs of approximately $660,000 to $2.6 million per year." This is a costly issue with a large financial impact.
According to a recent Gallup study, 52% of voluntary departing employees say their manager or organization could have done something to prevent them from leaving their job. The most regrettable and costly turnover is losing your reliable achievers, your critical thinkers and efficient problem solvers. Let's discover a few reasons why employees voluntarily quit, then offer solutions to manage this problem.
Based on my research, key reasons for employee turnover include employee burnout, poor communication with leadership and lack of career growth.
Burnout
Burnout can occur for a variety of reasons. Managers may not be clear about the quantity of tasks an employee should perform, the expectations of the deliverables and the speed at which the tasks should be performed. Unclear expectations of the role can lead to employee burnout. According to a recent Time article, one main reason employees leave their jobs is because of consecutive difficult tasks without time for reprieve. Completing one difficult task is not the issue. Workers are facing a breaking point when consistently provided hard tasks without breaks.
Without time to refresh and reset, employees feel consistent pressure to perform. ln addition, managers may create an environment where refreshing and resetting is against the corporate culture. Over time, the constant high-stakes pressure may create a corporate culture heavily weighted in fear. When we react to fear, it is easy to take on more work than we can perform because we're afraid of saying no to a colleague or boss. l recall a supervisor who would calculate the volume of work our team could accomplish, then add 25% to 30% more work to the annual team project goal. This sequence of events resulted in high team burnout and employee turnover.
One solution to this issue includes analyzing the current workload and adopting a different way of project delegation. Instead of consistently assigning difficult tasks one after the other, consider breaking them up by including one easy task for every two difficult tasks. This is called "task sequencing." Managers can immediately reduce turnover by re-ordering the worker's tasks, or "task sequencing." This will allow team members to refresh after achieving important goals.
Communication
The second common reason for employee turnover includes poor communication with employees and leadership. This can range from bitter office politics to micromanagement and personal insults. An ineffective leader who consistently falls short on communication can leave employees guessing, and employees are expected to become mind-readers and future tellers. Leaders who are unresponsive and unreliable can leave their employees struggling for clarity.
What's the antidote? Set clear expectations on deadlines, projects and important milestones. Be available to answer questions. Help employees obtain necessary data from leaders in higher ranks and invite your team to important stakeholder meetings. Be respectful of employees even if you disagree with their point of view. ln addition, develop service level agreements between your internal team and key stakeholders. Service level agreements determine the expected turnaround time to respond and answer. Employees are then responsive but not reactive. For example, during operating business hours, instant messages should be replied to within two hours and emails should be replied to within eight hours. This allows the team clear expectations on response times.
Career Growth
Advancing career-minded employees requires an attentive manager. Keeping employees engaged while developing their critical-thinking skills and solutions oriented mindset can be difficult when faced with a packed schedule. Where should managers start?
Listen to employees and their work interests and long-term goals. Allow employees to attend training that aligns with their work interests. Provide employees with a clear path to the next title or steppingstone.
Ensure requirements for promotion are transparent, substantive and objective. Consider developing a mentoring program at your company or sponsoring employees to attend a leadership program. Years ago, I had the opportunity to send employees to the leadership growth alliance program with the ASCPA. The experience provided them with a cohort of peers to collaborate and learn alongside, and their new network provided support for years to come.
As finance professionals, we're constantly looking for ways to reduce costs and streamline efficiencies. Focusing on employee retention has a positive impact on reducing labor costs and increasing the bottom line. Listed in the column below are proactive management tips to mitigate potential reasons for employees leaving.
| POTENTIAL REASON FOR EMPLOYEE TURNOVER | PROACTIVE MANAGEMENT TIPS |
|---|---|
| Burnout |
|
| Leadership Communications |
|
| fdsCareer Growth |
|