Long ReadApr 25 2022

How businesses can tackle the great resignation

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How businesses can tackle the great resignation
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UK businesses have certainly not enjoyed an easy ride throughout the previous two years.

From the pressures of the Covid-19 pandemic to inflation reaching a 30-year high of 7 per cent and national insurance hikes, there has been an endless stream of financial pressure imposed on business leaders.

And unfortunately adding to such pressure is ‘the great resignation’. This began as a US phenomenon, although it is now being observed across UK businesses. Indeed, vacancies in the UK are at the highest level in 50 years, with almost a quarter (24 per cent) of workers planning to change jobs within three to six months.

Staff resignations are an unavoidable element of working life, however the current rate of resignations could be a cause for concern amongst business leaders.

 Despite the UK having multiple vacancies, businesses are experiencing a shortage of potential candidates.

The process of sourcing, recruiting and onboarding a new recruit can be a costly and resource-intensive process. So, several resignations within a short period of time cause a great deal of pressure on business owners.

As such, it is vital that business owners understand the true cost of staff resignations and, perhaps more importantly, reduce the chances of several resignations taking place without imposing any additional financial burdens on the business. 

Understanding the cost of resignations

When considering the cost of replacing an employee following their resignation, it is important to acknowledge that it will vary from organisation to organisation – it will depend on the salary and seniority of the individual. However, some studies have developed a template formula to help organisations.

A recent study from the Society of Human Resource Management asserts that the cost of replacing an employee can cost a business an average of six to nine months of their salary. For example, replacing a middle manager earning £40,000 a year would cost an organisation £20,000.

That said, some experts argue that the above calculations underestimate the costs of hiring an employee, potentially overlooking costs associated with recruitment such as the value of the time required from the business owner or senior members of staff when it comes to training and onboarding the new recruit.

 Employees face a new set of challenges and anxieties, which will certainly have an impact on their job satisfaction.

Particularly in the current economic environment, one would assume that replacing staff could come at an even greater cost. Indeed, widespread reports and insights from recruiters have indicated that, despite the UK having multiple vacancies, businesses are experiencing a shortage of potential candidates. This suggests that the cost of replacing staff could be even greater than some organisations first assumed.

Of course, business owners cannot force employees to remain in their current role. In most cases it is likely that the employee in question will simply be ready for a change and to pursue the next point of their career.

That said, throughout recent years there are indications that employees are not just ‘ready for a change’ – other factors could be driving their decision to switch jobs.

Driving factors for employees

Prior to the pandemic, many businesses assumed that workplace benefits such as gym membership, free food, or casual Fridays were enough to keep members of staff satisfied in their current role. And indeed, this strategy may have been successful prior to the Covid-19 pandemic.

Today, however, the needs of employees have become far more nuanced. Employees face a new set of challenges and anxieties, which will certainly have an impact on their job satisfaction and overall wellness. And, perhaps unsurprisingly, they revolve around their personal finances.

From skyrocketing inflation and soaring energy prices to endless market volatility, it appears household finances are being placed under unprecedented pressure. Indeed, a recent Mintago survey among 1,212 UK adults in full time employment found almost a quarter (23 per cent) of respondents claim that concerns about their financial situation is having a negative impact on their job performance.

Such figures indicate that finances could play a leading role in their decision to move jobs. This is perhaps to be expected, given that many employees are currently feeling that they have less money to spend and save.

Of course, it may not be possible for all businesses, which are also feeling a great deal of financial pressure due to inflation, national insurance hikes, and rising energy prices to commit to raising the salary of all members of staff. However, there could be other cost-effective ways they could help their staff to address their financial concerns, and consequently, improve their retention rates.

An active role in finances

Of course, it is the role of any financial adviser to help their business-owning clients to aid the financial management of their organisations – they would be forgiven for assuming employee wellbeing does not fall into their remit. That said, there are financial mechanisms and tools that could improve the financial stability of an organisation, while improving staff retention rates.

If, as some research suggests, employees are increasingly concerned about their finances, surely it is within the interest of business leaders to help their employees better understand and manage their financial situation.

Advisers should therefore make business-owning clients aware of the various options within which they could do this. A strong starting point would be to help employees better understand their workplace pension.

 There will be a plethora of complex issues that prompt an individual’s decision to switch jobs.

And there are tools available to help their clients achieve this, which will give them access to all the information necessary to help them make informed decisions about their finances.

In doing so, they would be able to explore pension options such as the government-backed salary sacrifice pension scheme, an option that will help employees to save more for retirement while enabling an advisers’ business-owning client to benefit from a smaller national insurance tax bill.

Such recommendations could ultimately help employees to feel more in control of their finances, and consequently more satisfied in their current role. As a result, business owners will save money and resources, which would have otherwise been spent on filling vacancies.

The great resignation should not be oversimplified. Indeed, there will be a plethora of complex issues that prompt an individual’s decision to switch jobs. However, it is important to acknowledge that finances – particularly within the current economic context – will be a factor for many.

It is the duty of advisers to help their business-owning clients understand the various ways in which they can help employees to better understand and take control of their finances. 

Doing so would certainly mark a positive step to improving job retention, and consequently improving the financial position of their clients.

Chieu Cao is chief executive of financial wellbeing platform Mintago