Causes and Effects of High Employee Turnover – Why They Quit

Many businesses suffer the effects of high employee turnover in today’s fast-paced and competitive business environment. While some level of employee turnover- the rate at which employees leave a company and are replaced by new ones, is expected in any business, high rates can be detrimental to a business’s bottom line, productivity, and morale.

Small businesses, in particular, are susceptible to high turnover rates, as they often lack the resources and stability of larger corporations. This can be a major issue for small businesses that rely heavily on their workforce to deliver high-quality products or services to their customers.

Therefore, it is essential for small business owners to understand the reasons behind high employee turnover rates and implement strategies to mitigate them.

This is because when employees leave, it can be costly to hire and train new employees, disrupt team dynamics, and impact productivity.

Reasons Why Employees Leave

Employees rarely leave for a single reason. There is usually a combination of two or more reasons that trigger their departure. Here are 8 common reasons for high employee turnover in small businesses that are the root cause of 4 distinct employee exit triggers.

Employee Expectations Cause the Effects of High Employee Turnover

  • Not the right fit for the role: The employee should never have been hired in the first place! Unfortunately, desperation, poor job descriptions, and poor hiring and onboarding processes are the culprits for this, and unless they are improved, will continue to bring in candidates that are not a good fit.  
  • A structured work environment: Employees to work in an organized environment where all the necessary tools and documents for the business are readily available and easy to find. Hardly any employee wants to work where processes are not streamlined, or there is business chaos.
  • Limited opportunities for career advancement: Typically, small businesses have far fewer opportunities for career growth and promotion than larger corporations. This can be discouraging for employees who are looking for opportunities to advance in their careers and develop new skills.
  • Inadequate compensation and benefits: Many small businesses may struggle to offer competitive compensation and benefits packages compared to larger companies especially during economic downturns. This can make it difficult to attract and retain top talent.
  • Poor company culture: If a small business does not have well-defined or established company cultures based on vision, mission, and values, this can lead to a lack of engagement and dissatisfaction among employees.

Leadership Ineffectiveness and Poor Policies

  • Ineffective leadership: A lack of experienced and effective leadership can contribute to low employee morale, confusion about company goals, and poor top-down and lateral communication. Failing to delegate tasks to competent hired hands or poorly doing so can be a major sticking point for some employees.
  • Work-life balance issues: If there is an expectation of working long hours on a regular basis that prioritizes work over personal life, this can lead to burnout and higher turnover rates.
  • Limited resources: Small businesses may have limited resources to invest in employee retention strategies, making it challenging to compete with larger companies for top talent.
  • Lack of training and development: Without adequate training and personal development programs, employees may feel undervalued and unsupported in their roles, leading to a higher turnover rate.

By understanding these factors, small business owners can take steps to mitigate employee turnover and create a positive and supportive workplace culture that encourages employee engagement and loyalty.

Poor Management and Leadership

Poor management and leadership are significant contributors to employee turnover in small businesses. When employees are poorly managed, they may feel undervalued and unappreciated, leading to job dissatisfaction and disengagement.

This can ultimately result in employees leaving the organization.

Examples of poor leadership practices can include micromanaging, favoritism, lack of transparency, lack of delegation opportunities, and failure to provide support or recognition. These practices can lead to decreased morale, job satisfaction, and productivity.

PRACTICAL TIP: Effective leadership is essential in retaining employees. Good leaders provide clear expectations, communicate effectively, offer support, and feedback, and create a positive work culture that encourages growth and development.

They also prioritize employee well-being and recognize the value of their contributions to the business.

Effects of High Employee Turnover
Toxic Environment

Toxic Work Environment

A toxic work environment is one of the primary contributors to employee turnover in small businesses.

A work environment can be considered toxic when employees are subjected to negative behaviors’ such as harassment, bullying, or discrimination.

A toxic work environment can cause employees to feel demotivated, stressed, and unhappy, leading them to seek employment elsewhere.

Examples of toxic work environments in small businesses include a lack of communication and transparency, micromanagement, favoritism, and a lack of support from management.

PRACTICAL TIP: Fostering a positive work culture is important to retaining employees in small businesses. A positive work culture includes open communication, supportive management, and a focus on employee well-being.

Inadequate Compensation and Benefits

Compensation and benefits play a central role in employee retention. Employees who feel they are not being adequately compensated for their work or who lack essential benefits may seek employment opportunities elsewhere.

Common compensation and benefits-related issues in small businesses can include low salaries, inadequate health insurance coverage, and lack of retirement benefits. These issues can lead to decreased morale, job satisfaction, and loyalty.

PRATICAL TIP: Conduct regular market research to ensure salaries and benefits are competitive with industry standards and aim to be competitive.

Lack of Employee Engagement and Recognition

Employee engagement refers to how well employees are invested in their work and committed to achieving company goals. Lack of employee engagement is a significant cause of employee turnover in small businesses.

When employees feel disengaged, they may become disinterested in their work, leading to decreased productivity and job satisfaction.

Reasons for low employee engagement can include inadequate training, lack of communication and feedback, unclear expectations, and a lack of opportunities for professional growth.

It is essential for small business owners to identify these factors and take steps to address them.

PRACTICAL TIP: One way to improve employee engagement is through providing recognition. Employees who feel valued and appreciated are more likely to be engaged in their work and committed to the success of the business.

Recognizing employees for their hard work and contributions can boost morale and increase motivation.

Limited Growth and Advancement Opportunities

Employees often leave small businesses due to limited growth and advancement opportunities. When employees feel there is no room for career advancement or professional growth within a company, they may seek employment elsewhere.

Examples of limited career growth paths in small businesses include a lack of training and development programs, limited job openings, promotion based on favoritism, and limited opportunities for promotion or career advancement.

PRACTICAL TIP: Offering career development opportunities are crucial to retaining employees in small businesses. This can include training and educational programs, mentorship opportunities, and creating clear career paths for each employee.

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Conclusion – The Implications of High Employee Turnover

The causes and effects of high employee turnover in small businesses are multifaceted and interrelated. Lack of employee engagement and recognition, poor management and leadership, inadequate compensation and benefits, limited growth and advancement opportunities, and toxic work environments are some of the primary factors that contribute to high employee turnover rates.

Addressing these issues requires a concerted approach that includes implementing strategies to boost employee engagement and recognition, improving management and leadership practices, offering competitive compensation and benefits packages, creating growth and advancement opportunities for employees, and fostering a positive work culture.

Small business owners who take action to address these causes of employee turnover can improve their chances of retaining their employees and building a loyal and dedicated workforce.

By investing in employees and creating a supportive and fulfilling work environment, small businesses can not only reduce turnover but also improve their overall performance and success.

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Forbes (2022) Employee Turnover Rate: Definition & Calculation

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