3 Reasons Small-Business Employees Leave—and How to Keep More of Them

A study suggests that putting thought into hiring and the way you bring new employees on board could save your dance store or studio serious money.

Once staff have been with you for a year, they’re more likely to stay. Getty Images

Employee turnover at small businesses is common, expensive (Work Institute estimates “each lost employee conservatively costs 33 percent of the employee’s base pay”) and preventable. “Isolating the reasons good employees leave…can help business owners take concrete steps to reduce turnover,” according to Gusto, which administers the payrolls and benefits of some 100,000 small businesses where it has studied turnover rates.

Among all the companies Gusto studied, the average business has a 32 percent turnover per year, either because employees choose to leave or are asked to. But other factors, as we’ll see, can make that even higher. It’s a problem worth focusing on. Small dance stores or studios working on slim margins can least afford the expense and time to replace staff who leave. If a business has 15 employees earning $35,000 each, a 32 percent turnover rate would cost the company more than $50,000 a year. 

While no business can bring turnover down to zero, by understanding its causes you can reduce it—or keep it from rising. Gusto has identified three main reasons employees leave small businesses—and suggests some fixes for businesses to consider.

Reason 1: Pay

Turnover rates are greatly affected by pay—up to a point. If an employee is making the current federal minimum wage of $7.25 an hour, there’s a whopping 70 percent chance of that person leaving within the first year, the study found. As wages rise, the turnover rate goes down, until about $25/hour when more pay becomes less of a contributor to turnover. Many states, of course, have higher minimum wages than the federal level, so the turnover rate will be lower as a result. At $15/hour, the study found, the average turnover rate goes down to 41 percent from 70 percent. And businesses like local dance retailers often pay more than the minimum wage in order to get the expertise they need in their sales assistants and pointe shoe fitters.

The Fix: Revisit your compensation package, suggests Gusto. Not every small business can afford to pay all its employees more, but to create a sustainable business, you need a compensation plan: Start with yourself as a benchmark, because paying yourself a reasonable and meaningful salary will give you a sound context for budgeting the overall staff roles and costs of your studio or store (factoring in the turnover costs of the lowest wages). Competitive research will also help you figure out if you’re an appealing employer in your community. 

Reason 2: Tenure

The greatest turnover is during an employee’s first year, Gusto found. Nearly half of new hires leave a business within their first year. That drops in year two, and by year three, it’s down to 32 percent. This speaks to the importance of wise hiring and getting an employee off to the right start.

The Fix: Have a meaningful program to bring new employees on board that goes beyond having the new recruit fill in a bunch of government forms and handing them your company handbook. (Not that handbooks are bad—they are useful to orient someone to your mission and what’s expected of them.) Use a checklist for employee orientation, suggests Gusto, to make sure a new staffer has all the information she or he needs to get off to a quick start. Consider assigning a peer to mentor the new employee. And be sure to personalize this training, using any insights you learned about someone during your hiring interviews, either from conversations with them or their references. “If a person learns by doing, give them a project to start right away,” suggests Gusto. Remember, too, that onboarding doesn’t last just a day or two. Be sure to check in frequently, especially during that crucial first year, to set the person up for success. 

Reason 3: Management responsibilities

Managers—employees who have direct reports—are less likely to leave. “Even after controlling for factors like salary and tenure, people who manage others are still more likely to stay,” writes Matthew Castillon, data scientist at Gusto. “One theory is that senior managers are usually more invested in the team and the future of the business—which can make it harder to leave.”

The Fix: Of course, not every employee can or should be a manager, but creating possibilities for career or even personal growth and ownership of a job will be positive for your company. Even for the smallest businesses, regular performance reviews can give a staff member concrete next steps to grow into more responsibilities. Asking someone to manage an intern or a project or a process from start to finish will not only help high-potential employees develop their sense of “owning” a job and their leadership talents, it will also give you, as a business owner, welcome relief and backup as you focus on your job: leading the company to success.