With employee turnover climbing for small businesses, more employers are taking steps to boost retention and see employee benefits as a key to their success, according to new survey results.
Looking back one year after the start of COVID-19, business owners are reflecting on the biggest challenges they faced and how they might continue to overcome them, as the nation moves toward recovery, the Principal Financial Group explains in the seventh installment of its Principal Business Owner Insights survey.
Those challenges include employee turnover and retention. The firm’s latest polling of more than 1,000 small business owners with less than 500 employees revealed a 20% jump in employee turnover during the past 12 months, compared with 15% two years ago and 11% in 2015. Among those surveyed, 97% of owners believe the pandemic affected the turnover.
Consequently, business owners say the top two goals of offering an employee benefits package are affordability (50%) and the ability to attract and retain employees (42%). Additionally, a larger share (58%) now believe that employee benefits also help improve workforce productivity.
Overall Priorities
When asked to rank their overall business priorities, business protection was found to be the most important, yet only half of respondents indicated that they have a plan. Among those who have a plan in place, key person life insurance (60%) and disability insurance (44%) are the most popular.
Employer-sponsored health and wellness solutions registered as the second most important priority. Comprehensive health insurance remains the most common solution (67%), while employee assistance programs (EAPs) are also showing growth, with 33% of owners indicating that they offer one.
While qualified retirement plans registered at number five on the priority list, 401(k) plans remain the most popular, with 57% of small business owners indicating that they offer one. Meanwhile, employee stock ownership plans (ESOPs) jumped from 7% to 17% in the last two years.
Overall, the top five business priorities and the percentage of businesses that have a plan are:
1. Business protection (50%)
2. Health and wellness solutions (67%)
3. Income protection (40%)
4. Business succession planning (60%)
5. Qualified retirement plans (59%)
Supplemental key employee benefits also ranked in the top 10 for priorities. Disability income was the most common (35%), followed by deferred compensation (27%) and executive bonus plans (26%).
Key Employees and Legacy Planning
The survey also reveals that the number of key employees per organization has increased since 2010 (23%), with significantly more owners saying they have four or more in 2021 (35%). Additionally, more than half of business owners (55%) would like to reward their key employees with additional benefits. In businesses with 50 or more employees, 75% view additional benefits as critical for key employees.
As for business ownership and succession planning, Principal notes that of the small businesses responding, 66% report that they are family-owned, and of those family businesses, just over half are first-generation owners. Wills remain the most popular wealth transfer approach (57%), but family trusts, family limited partnerships and irrevocable life insurance trusts are examples of other strategies that continue to be used.
However, Principal notes that 32% of those with a business succession plan haven’t reviewed it in more than two years.
Using a Financial Professional
Nearly three-quarters of business owners (73%) are using a financial professional to help with the financial curveballs thrown their way over the last year. Principal notes that this is more than any other year the firm has conducted its survey. By comparison, in 2015, slightly more than half (54%) of business owners said they worked with a financial professional. When looking for a financial professional, owners prioritize expertise (63%) and cost (62%).
“Financial professionals and the advice they can offer will be critical given the significant new legislation and programs offered to businesses this past year as a result of the pandemic,” says Mark West, national vice president of business solutions for Principal. “We’re seeing increased engagement from the businesses we serve via our business solutions team as employers navigate the economic impacts of COVID-19 along with relief programs rolled out to assist them.”
The survey was conducted by Dynata and included 1,011 online interviews conducted between Jan. 1-22, 2021, with results weighted based on the number of employees and annual sales.
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