Staff Retention During a Recession: How are Small Businesses Weathering the Storm?

person looking at receipts of staff business expenses

With fears of an impending recession, we know from our first-hand research that there is an increase in employees looking to jump ship, and are on the hunt for job security. After all, it’s no surprise that the global economy has taken a severe hit due to COVID-19, inflation, and the surge in gas prices rooted in the Ukraine War.

As an employer, the band-aid solution may seem like an attractive option, digging for gaps in your budget and throwing money at the problem in the form of higher wages. However, this will have you running into two fundamental problems. First, given the gloomy business environment rooted in the Fed’s hiking up interest rates to cool down inflation, it’s likely that you won’t be able to crunch the numbers to give pay rises. Secondly, and more importantly, as employees strategize their next career move, they’re no longer just thinking about money.

According to a McKinsey global research report, the proportion of employees who would consider quitting without a new job offer is 60%, which tells us that employees no longer decide to stay because of money, but it is rather based on the entirety of their experience.

This may translate into questions like: ‘Do I actually like my boss?’ and ‘Do I enjoy coming into work?’. In the best case scenario, the answer to both would be a resounding ‘yes'. However, considering the uncertainty clouding businesses at the moment, if you’re unsure about what your employees would say, it’s time to start thinking about your game plan to ensure you have a tight-knit team.

Although that sounds slightly daunting, we’ve spoken to numerous small businesses and collected data to give you a clearer picture of what you can do to retain your staff organically. From work culture to greater transparency, there’s plenty of tools at your disposal to build a recession-proof employee retention business.

Staff Retention Statistics 2022 – What's Going On?

What does the labor market currently look like, and what should you be aware of as you’re sketching out your business retention strategy? Here is what we found:

  • According to the US Bureau of Labor Statistics, 4.25 million people quit their jobs in January 2022, up from 3.3 million in 2021
  • The US total annual employee turnover will likely jump by nearly 20% from the pre-pandemic annual average of 31.9 million employees quitting their jobs to 37.4 million quitting in 2022
  • More than 40% of US workers are currently actively seeking a new job or plan to do so soon – that’s twice the rate in 2019
  • 14% of senior executives identify a recession among the most pressing concerns today, which is up slightly from early 2022 (9%)
  • Over the next year, 86% of global CEOs anticipate a recession to hit, with 71% predicting it will impact company earnings by up to 10%
  • According to a study conducted by Visier Insights, which uses more than 9 million anonymized employee records from more than 4,000 global companies, resignation rates are the highest among employees aged 30-45
Did You Know?

There is a little-known tax credit you might be eligible for if you retained your employees through periods of 2020 and 2021. This is the Employee Retention Credit (ERC), which refunds you a percentage of wages paid throughout the pandemic. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer. Although it might not sound like a lot, it’s definitely not a quantity to brush aside.

We’ve also found a recurring trend in statistics where there is a mismatch between the expectations of employers and employees, which is, in part, driving employees to look for other jobs. We know that:

  • According to the Achievers Workforce Institute’s 2021 Engagement and Retention Report, the top reasons employees would stay in their current job include:
    • Work-life balance (23%)
    • Recognition (21%)
    • Compensation (19%)
    • Satisfactory working relationship with their manager (19%)
  • From a survey of more than 3,500 employees, Gartner found that half believe remote working is still stigmatized at their organizations, while 70% believe on-site workers are more likely to be promoted and paid more compared to remote workers
  • 52% of employees report that flexible work policies will impact whether they choose to stay at their organizations
  • A LinkedIn Learning Workplace Learning Report found that employees at companies with high internal mobility typically stay almost as twice as long as employees at companies with low internal mobility
  • 25% of workers say they’d leave a role for better compensation, 21% also reported that better benefits are important

Although these are lots of numbers and percentages, focusing on the overall trend we see that there is a need to transition from an office-centric to a human-centric work design. What does this look like in practice? We spoke with small business owners to find out.

How Are Small Businesses Weathering the Staff Retention Dilemma?

Flexibility. Work culture. Transparency. Benefits. These were the key trends that kept popping up in conversations with small businesses. In other words, it’s all about: organically motivating staff to stay by reassuring them about job security, ensuring they are immersed in a healthy work environment that keeps tangible barriers between work and home life, and providing opportunity for growth.

Small Businesses on Staff Retention Strategies

Focus on developing a welcoming workplace culture that prioritizes employee retention if you want to keep employees during a recession. If workers feel valued for their efforts, they will be more loyal. Make sure you acknowledge employees’ contributions and provide them rewards, regardless of how modest they may seem. In addition, having a strong internal communication plan is a crucial component of staff retention. Likewise, providing work-from-home options, flexible scheduling, encouraging a work-life balance, and lowering employee burnout are all crucial methods for keeping staff. (sic)

Matt Gilman, Founder and CEO
SMB Compass - October 2022
Small Businesses on Staff Retention Strategies

As the economy continues to fluctuate, businesses find it more challenging to retain their employees. This is especially true in the real estate industry, where employees have many other options when it comes to finding new employment. With that being said, our company has made it a priority to offer competitive compensation packages and benefits packages to our staff.

We also provide opportunities for career advancement within the company and encourage our team members to pursue further education and certification programs. The biggest challenge we’ve faced with implementing these measures is that we don’t have a large enough budget to offer all these benefits at once. We have had to start small and work our way up over time. (sic)

Shaun Martin, CEO
Cash For Houses - October 2022
Small Businesses on Staff Retention Strategies

We are paying more heed to internal hiring versus external hiring. One of the best predictions of employee attrition anywhere is the lack of growth and development opportunities within the company they are currently working for. Many people don’t want a dead-end job, and that’s one of the reasons why counter-offers remain attractive even to those who already hold reasonable employment. You need to give them sufficient reason to stay in terms of money, benefits, a healthy workplace, and most importantly, room to grow career-wise without having to seek greener pastures outside the fence. (sic)

Seb Montoya, Co-Founder
M&A Community - October 2022

Sherbet Donkey Media – A Staff Retention Story

Among the myriad of small businesses that are trialing creative methods to retain their staff during a recession, Sherbet Donkey Media has stood out as a model answer because of its impressive and robust growth. Expert Market spoke with Lucy Hurst, the Managing Director, who has overseen the company’s growth from four to 35 employees in just the last 16 months.

In aiming to understand this success story, Lucy placed work culture and proactive recruitment as the star ingredient of the fertilizer that drives Sherbet Donkey Media’s impressive growth. She says, “[the company] provides a fun workplace, but we still get the work done.  Our employees aren’t numbers to us, our employees are like a second family”.  In addition, Hurst adds, “People are looking for job security at the moment, and I think that new employees, as soon as they come in, they can see this company is going places and they see it growing.”

She also told us that transparency in communication has been paramount. As part of the proactive recruitment strategy, Lucy noted that prospective employees are encouraged to message current employees on LinkedIn to obtain an unfiltered impression of what working at Sherbet Donkey Media is like.

“Our employees aren't numbers to us, our employees are like a second family”

lucy hurst

Work culture, however, can be exceptionally hard to construct and turn into a driving motivator that employees lean on when they’re wondering whether they should stay or go. So how do you make work culture feel tangible beyond that poetic mission statement you wrote on your company’s website? Lucy told Expert Market that, at Sherbet Donkey Media, they “encourage everybody to work as a team, to build each other up, and always encourage progression” and, through a couple of giggles, revealed that “the director and myself hate the word boss” because they consider themselves to be on the same level as their employees. This very down-to-earth attitude at work that erases the lines that delineate a workplace hierarchy seem to be the key to motivating employees to come into work with a sense of belonging that works magic for retention.

When pondering on what other small businesses seem to be getting wrong when approaching staff retention strategies, Lucy told Expert Market that “other agencies don’t reward soon enough” and that at Sherbet Donkey Media “we reward based on progression, based on what people bring to the team, and we do it in a timely manner”. She also emphasized that “budgets are getting tighter, but your staff is the lifeblood of your business – those are the things that you need to take care of, and you need to nurture”.

It's Not All About Tightening Your Belt – Next Steps to Retain Your Staff

Recessions are always stressful periods for employers and employees and, in the midst of all the uncertainty, it’s easy to panic and implement strategies that completely misunderstand the needs of your staff. Based on our conversations with small businesses, we know that flexibility, transparency, opportunities for growth, and work culture are at the heart of preventing your workforce from going through waves of uncontrollable turnovers. In short, these are some steps you can take:

  • Build a staircase that promotes internal mobility: Offering lots of opportunities for career progression within your company is a robust way of mitigating employee attrition. It also lets your employees know that their effort and time is both acknowledged and rewarded.
  • Keep things light and fun through a tangible work culture: Departing from the assumption your employees are in the office from nine to five, five days a week, you’re all spending lots of time around each other. Building a sense of community through a light-hearted work culture will make coming into office more than just a palatable routine.
  • Don’t be old-fashioned and allow flexible working: Costs and time related to commuting come straight out of employee’s wallets, which burdens them with unnecessary stress. Being more flexible when it comes to work arrangements allows employees to better navigate stress and squeeze in more time in their days for well-being activities, cutting burnout at the roots.
  • Your company’s progress shouldn’t be a state secret: Honesty is an incredibly important medicine when trying to ease the anxiety of your employees during a recession. There is no need to patronize your employees – they will appreciate having a clear picture of what is going on, especially if you’re transparent about the solutions being implemented to make sure everyone can keep their jobs.

While a lot of these strategies are not necessarily monetary, you can still consider them as an invaluable investment in your business’s long-term stability. Things like work culture and promoting internal progression are concepts that can far outlive recessions, and they can positively fuel the everyday routine of your employees. It's also worth noting that the cost of hiring new employees could exceed the monetary value of the perks you offer, actually making it more cost-effective to offer perks in order to retain staff. It’s all about nurturing organic ways of encouraging – rather than forcing – your staff to stay. If you can nail it down, you’ll thrive through recessions and beyond.

Written by:
Fernanda is a Mexican-born Expert Market writer, specialising in providing in-depth insights about business software to help businesses of all shapes and sizes thrive. From VoIP systems to project management software, she’s passionate about helping businesses find the tools and methods that will help give them an edge over their competitors. Fernanda has ample journalistic experience, having written for a multitude of online magazines about topics ranging from Latin American politics to cryptocurrency.