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The Higher Cost of Hiring: Rethinking Employee Retention

March 4, 2016 • 6 mins read

Ahmad El-Najjar

Policy and Communications

If you own or manage a business, odds are pretty good that you’re not doing it alone—even though it might feel like that 90 percent of the time. The reality is, you’ve got people on whom you rely and who rely on you—and all of you rely on the success of your business. The key to so much of a business’s success is hiring the right people, and it’s often an enormous challenge, one that can be both frequent…and very expensive, if you’re not thinking about employee retention.

If you’re looking to cut down on high turnover, we’ve got a few ways—some familiar and some new—of getting hiring costs under control. First though, let’s look at what employee turnover really costs, because, no matter how you slice it, it’s a significant operating cost for any small business owner.

Frequent: The annual turnover rate for all retail employees, measured at the end of the first quarter in 2015, was over 47 percent in California, over 48 percent in Washington, and nearly 56 percent in New York. The leisure industry had the highest national turnover during that period at a rate of over 68 percent. As recently as 2013, the national annual turnover rate for part-time retail workers jumped to 74.9 percent

Expensive: A 2012 study by the Center for American Progress found that replacing a retail employee being paid $10/hour costs on average $3,328, including the process of hiring them and training them. Of course, this cost goes up in cities with higher minimum wage laws, like San Francisco and Seattle, where in just a few years that cost will soar to almost $5,000.

But if the retailers among you think you have it bad, you might want to reserve some sympathy for restaurant owners. According to, a website that matches restaurant employees with jobs, an average restaurant hires two new employees each month, mostly part-time. If we assume an $8/hour average U.S. wage, that puts the cost of staffing a restaurant at almost $12,000 per year. Again, these costs have the potential to almost double in cities with higher wages. Hiring for “back-of-house” employees who get paid $15/hour could start costing restaurant owners in such cities almost $24,000 in coming years. 

hiring employee retention

These numbers are scary to any small business owner already operating at the boundary of a narrow profit margin. While there aren’t many ways of making the process of hiring new employees cheaper, rethinking employee retention has the potential to save you a lot of money.

If you’re like most retailers and restaurateurs, there aren’t many perks for your staff, except, perhaps, a fun place to work. For a variety of reasons, it’s hard for small business owners to offer things like retirement plans, health benefits, or even promotional opportunities, traditional tactics for employee retention. And when it comes to benefits and incentives, like everything in your business, you need to think about how what you do affects the bottom line.

The bottom line, of course, is whether or not it’s really more expensive to offer some benefits than to keep pouring money into the seemingly endless cycle of hiring staff, losing them, and hiring new staff. It might turn out that being a generous employer who offers benefits is actually cheaper in the long run than being an employer with constant worker turnover. Thankfully, there are a lot of options out there for owners looking to incentivize staff.

Retirement Benefits

Retirement planning is extremely important for all of us, but for most retailers and restaurateurs, setting up a plan for employees is daunting, given the cost and the number of plans to choose from. However, there are options that could be cheaper than your employment cycle. According to Townsquared Seattle member Kirsten Curry, President of Leading Retirement Solutions, there are some affordable retirement plans for small businesses. And, she says, there are a lot of incentives to set up a 401(k) plan for your staff, employee retention being one of them. 

“In general,” says Curry, “we recommend a 401(k) plan for a smaller business looking to set up a retirement plan for the first time.” Despite the fact that SEP and SIMPLE IRAs are marketed as cheaper and simpler, Curry notes that small businesses often prefer 401(k)s because they offer greater flexibility and larger contribution options.

Health Care

Most small businesses likely have fewer than 50 employees, which is the Affordable Care Act’s current minimum for employer-mandated health insurance. Although you may not be required to provide insurance to your staff, you can still offer them a carrot (or two) for investing their time and hard work in your business.

taking care of employees improve retention

To get an idea of the total cost, and to make sure you’ll be in compliance with the Affordable Care Act (ACA), you’ll want to speak with a qualified health care broker, as well as explore your state’s health care plans under the ACA. Chances are high that, by offering some health insurance, you might not only save money but also provide an incentive that will attract the right employees and boost your employee retention.

But, health insurance isn’t the only way to provide health benefits. Many local health care providers are now exploring a la carte services, as well as membership fees for basic medical, dental, and vision coverage. Optometrist Dr. Will Pentecost, a Townsquared Seattle member operating in the Capitol Hill neighborhood, opened Eye-Eye Care with the challenges of affordable care in mind. Dr. Will, as his patients call him, understands that the financial outlay for an eye exam or pair of glasses can sometimes be a barrier to ocular health.

To help more people get the vision care they need, Eye-Eye Care offers a membership plan of $10 per month to its patients. The plan includes a yearly exam and 30 percent off frames and lenses. Employers can sometimes partner with providers like Dr. Will to cover their staff’s membership fees, thus offering access to basic health care. A retailer with three staff members, for example, would pay about $360 a year to provide Eye-Eye Care membership. That’s a lot cheaper than losing and then replacing even one of those workers!

Providing paid sick days to employees is another way to demonstrate you care about your employees’ health, while offering them an important measure of stability when they or a family member gets sick.

Finally, when it comes to benefits and incentives designed to increase employee retention, here’s the simplest one: offering structured raises based on performance and seniority. While it may seem like you can’t afford raises or a bonus plan, it’s a no-brainer that offering employees something to work toward can make a job more valuable to them. Here’s the thing, depending on your average turnover, when you do the math, you may find that giving an employee a raise every year will turn out to be more cost effective than having to fill that employee’s place two to five times a year. A structured raise or bonus plan could be a win-win for you and your staff.

Sharing is Caring

hiring waitstaff retaining good employees

Now, we get into some uncharted territory: sharing employees. Retailers and restaurants often need to fill a scheduling hole that may only amount to 10 or 20 hours a week. Finding reliable staff for so few hours can be a real challenge. What if employers worked together to offer a desirable candidate what amounts to a full-time schedule, with the hours spread across different local businesses? This is something that Townsquared members in NYC’s East Village are trying out.

The East Village is known for, among other things, its great retail boutiques and the variety of dining and nightlife. Given the number of retailers and restaurateurs in the area, there’s always a shortage of great employees needed to fill those smaller schedules. In search of a solution, Townsquared members have been talking about ways to share staff and reduce their individual turnover burdens. The approach is still in its infancy and the group will doubtless encounter some challenges, but this kind of cooperation is truly community at its best, good for employers and employees.

The most important facet of employee sharing is pay. If you’re going to work with another local business around staffing, be sure that you are on the same page regarding pay rates. There is nothing more demoralizing for an employee, or more likely to lead to resentment, than being paid different wages to do the same work.

Another challenge to be aware of, as always, is competition. If you have exclusive supplier or vendor relationships, you may not want to have an employee with access to that information working for another business servicing the exact same clientele. So, be mindful of the types of businesses with whom you want to partner. If you’re a sneaker boutique, find a clothing boutique to work with. If you’re a nightlife bar, find a brunch restaurant. The options and choices for partnerships are as myriad and diverse as small businesses themselves.

The best part of a local employee-sharing partnership is that it is a real benefit for an employee who needs the stability of full-time employment and doesn’t have to bounce all over town at a series of part-time gigs to make ends meet. Employees will be grateful to know that, while you may not be able to offer them full-time hours now, you are actively working with other local businesses to ensure they get the hours they need to survive. That’s a great employee retention strategy. Not only are you looking out for your employees, but you’re also forming the kinds of personal and business relationships that create a strong local community.

Go Forth and Retain!

Hiring isn’t easy. Losing staff isn’t easy. Running a business definitely isn’t easy. But, there are a lot of creative ways to succeed at employee retention, at a lower cost than turnover—and also come out as the best

la casita nyc


boss your employees have ever had. If you have any creative ideas for employee retention and reducing turnover, share them with your Townsquared community!

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