Employee Retention Strategies for Small Businesses

As a small business owner, you may worry you'll never be able to offer the kind of world-class incentives that spur talent acquisition and employee retention at larger companies. But if you're willing to do the work, you can still design an enticing and effective benefits program.

Many small businesses struggle to offer benefits on par with those of larger companies, which have more experience and a deeper well of resources. But there are employee retention strategies you can use to compete with your larger counterparts for top-tier talent. It takes a willingness to get creative with the perks you offer, the right partner to assist you in budgeting for those offerings and a desire to set your business apart.

Why are employee benefits important?

When thinking about employee retention strategies, you likely understand the impact of offering solid benefits. According to the Employee Benefit Research Institute, nine out of 10 small business owners who offer a retirement plan say they do so to foster a positive attitude and boost employee performance.

"The number one reason businesses come to us to start a retirement plan is to attract and retain [talent]," says Brian Sherwood, vice president and Institutional Service Group consultant at First Citizens.

Most employees appreciate having access to benefits like a 401(k) or other retirement plan, as well as medical insurance and wellness and health incentive programs. According to employee research from Gitnux, 80% say they'd opt for more benefits over a salary increase, while 78% say generous benefits would make them more likely to stay with their current employer.

Investing in an employee benefits package can help lead to considerable savings. Some experts estimate that the cost to replace an employee who leaves may be as much as half to two times their salary. By keeping employees happy, engaged and pleased with their benefits package, your business could potentially save thousands of dollars in the long term.

How to improve employee retention

You may not know where to start when it comes to crafting the right benefits package. Benefits can seem both costly and confusing, and many small business owners wonder whether their employees or prospective employees will even want what they're looking to provide. Here are a few things to consider.

Experiment with options

A recent MetLife survey found that 70% of employees say they'd be more likely to remain loyal to their current employer if their benefit offerings were more customizable. The takeaway? Choice in benefits can make a big difference.

The best way to help ensure success is by aiming for a variety of options, says Melissa Tillman, senior vice president and Senior Director Benefits at First Citizens. "It's important to recognize that different benefits are more important for different groups," she explains. "If an organization can offer choice, that can be really helpful."

Research shows that Gen Z employees desire more wellness-oriented health benefits like wearable devices and fitness apps, while millennials are more interested in affordable health insurance coverage. Small business medical benefits that feature varied health and wellness programs may offer attractive options for both groups.

Fitness incentives often require a minimal investment to establish but may pay off tremendously in reduced healthcare costs. These engagement programs—which can involve health-related challenges like quitting smoking or keeping up with preventive care—help cultivate a healthier staff and set a benefits portfolio apart from the rest.

Many millennials and Gen Zers carry significant student debt, making employer-sponsored student loan repayment assistance especially enticing. While the cost of this benefit may be higher than others, it could still be worth exploring—especially if you're having difficulty recruiting or retaining these workers.

Pay for benefits that matter

It can also be difficult to figure out how your small business can afford to provide desirable benefits. Tillman believes it's about making your resources stretch as far as possible while also thinking strategically.

"It's looking at the dollars an organization has to spend and determining how to provide the best offerings and as much choice as possible," she says.

There are many benefits that won't have a big impact on your budget either. Fun engagement activities and small incentives—like a gift card to a local restaurant to reward outstanding work, tickets to sporting events or employee-of-the-month initiatives—can go a long way toward creating the collegial, encouraging atmosphere many small businesses like to foster.

And they matter greatly to employees, 56% of whom say they prioritize perks over salary when considering a job offer, according to Gitnux.

The new workforce wish list

Crafting a strong benefits package requires knowing what appeals to the working public—and it starts with flexibility. In the post-pandemic years, this has become the buzzword among forward-thinking organizations and a top criterion for job searchers. Flexible hours and hybrid work arrangements are particularly attractive to today's employees, especially when you're trying to support women in your business.

In fact, Gitnux data shows that companies offering flexible working conditions experience a 12% lower turnover rate. Another benefit that's persuasive to employees is access to courses that assist with career advancement. A staggering 94% of employees say they'd stay longer at their current job if their organization invested in their professional development.

As Sherwood says, it's all about knowing both what your employees want and what your organization can provide. "There are several different layers of the onion to peel back as far as not only what's available and what's affordable," Sherwood explains, "but also what that particular business needs to keep their people around and keep them happy."

The bottom line

While there are some challenges to competing with the marketplace on benefits, there are also creative solutions. Securing an experienced financial partner for employee benefits can be a valuable asset to start. A strong financial partner—like a bank you trust with a track record of working closely with small businesses—can help advise the selection process, offer guidance on compliance issues and assist with logistics, ultimately helping you create a competitive package of benefits while keeping costs down.

The sooner your small business gets its benefits-related ducks in a row, the sooner you're likely to see a positive return on investment in talent acquisition and retention.