The United States is in the midst of an unprecedentedly tight labor market, with both the job-quitting rate and the number of job openings across the economy at elevated levels, and workers are using this opportunity to explore new career options or seek jobs with better pay or flexibility. Platform data from Gusto, the payroll and HR platform serving over 200,000 small and medium-sized businesses, offers insights into how both business owners and workers are navigating The Great Resignation – or what may be more accurately termed The Great Renegotiation. This data report demonstrates the importance that employees have placed on both financial benefits such as retirement plans and on medical benefits such as health insurance. The returns of offering benefits can often outweigh the costs by serving as a crucial tool in helping owners navigate this tight labor market.
- Quit Rate Remains at an Elevated Level in March: Among workers on Gusto’s platform, quit rates appear to be settling at levels just slightly above those seen before The Great Resignation. The quit rate stood at 3.7% in January, before falling to 3.1% in February – only slightly higher than the 2.9% seen in February 2021. Projecting Gusto’s data through the first three weeks of March to the whole month, the quit rate among all workers is on track to rise to 3.6%, again just slightly above March 2021’s level of 3.4%.
- The Great Resignation or The Great Renegotiation? Gusto data shows that, during The Great Resignation, workers have largely not been leaving the workforce altogether, but have been leveraging this tight labor market to switch jobs within their current industry. Throughout this time, quits have been highest in the personal services sectors—such as Facilities (5.1% in March 2022), Food & Beverage (4.5%), and Accommodations (4.3%). But these are exactly the same industries that have been seeing the largest hiring rates, suggesting that workers are largely switching jobs for a position with higher pay, better benefits, or other desirable characteristics.
- Firms With Retirement Benefits are Less Likely to See Workers Quit: Across both Personal Services and Professional Services, firms offering retirement benefits (401k or Individual Retirement Account (IRA)) have experienced a greater ability to retain talent. In Personal Services, firms offering retirement benefits have experienced employee quit rates that are 25% lower than firms without such benefits, while monthly quit rates are 14% lower in Professional Services. The returns of offering these benefits, in terms of reduced employee turnover, can far outweigh their low costs.
- Medical Benefits Also Prevent Quits: Among firms in Personal Services, businesses that offer health insurance benefits saw worker quit rates that were 9% lower than firms that did not offer health insurance – and this gap was widest during the onset of the pandemic, when demand for health care was greatest.
Quit Rates Through Mid-March
First, Figure 1 plots the percent of workers voluntarily terminated (the “quit rate”) among companies using Gusto’s platform, by month, from January 2020 through March 2022. The quit rate stood at 3.7% in January, before falling to 3.1% in February – only slightly higher than the 2.9% seen in February 2021. Through the first three weeks of March 2022, the quit rate among all workers is on track to rise to 3.6%, again just slightly above March 2021’s level of 3.4%. This trend suggests that worker quit rates are likely to remain elevated in the coming months, but not reach new highs seen earlier in The Great Resignation.
Figure 1: Quits Rate, All Workers
The Great Renegotiation
As worker quit rates remain at historically high levels, it is natural to ask where these workers are going – are they leaving the workforce altogether, switching jobs within industries, or taking this time to switch careers across industries altogether. Gusto data shows that the story of The Great Resignation could be more accurately termed The Great Renegotiation, as workers have mostly been moving jobs within the same industries. Figure 2 presents worker quit rates by industry over the prior four months (December 2021 through the first three weeks of March 2022). Over the past several months, the highest quit rates have been seen among firms in Facilities (5.1%), Food & Beverage (4.5%), and Accommodations (4.3%) in March 2022.
Figure 3 plots the hiring rate over the past four months across industries, which shows that exactly the three industries with the highest quit rates over the prior four months (December 2021 through the first three weeks of March 2022) also saw the largest hiring rates: Facilities (7.2%), Food & Beverage (6.6%), and Accommodations (6.5%). This data suggests that, rather than an outflow of workers from Personal Services sectors to Professional Services jobs or out of work altogether, we are seeing a great amount of churn in the labor market, where workers are job-switching within industries to positions with better compensation or greater flexibility.
Figure 2: Quit Rate (%) by Industry, Prior 4 Months
Figure 3: Hire Rate (%) by Industry, Prior 4 Months
How Health and Financial Benefits Can Prevent Employee Churn
As workers exert their leverage in this tight labor market, employers have been working hard to attract and retain talent – from raising wages, to offering one-time spot bonuses, to allowing employees to work flexible schedules or offering other benefits. Here we explore the role of two specific types of benefits – retirement plans and health insurance – in reducing employee turnover. In looking at each type of benefit, we divide firms by those in Personal Services and Professional Services, to account for baseline differences in the prevalence of benefits and the baseline employee turnover in these two sectors.
Figures 4 and 5 plot employee quit rates across firms that do and do not offer retirement plans, such as 401ks or IRAs, for Personal Services firms (Figure 4) and Professional Services firms (Figure 5) separately. Across both sectors, firms offering retirement plans experienced consistently lower quit rates over the past two years. In Personal Services, quit rates among firms that offered retirement benefits averaged 4.2% each month, compared to 5.5% among firms that did not offer retirement benefits. This difference in quit rates of 1.3 percentage points means that each month, firms offering retirement plans experienced quit rates 24% lower than firms that did not.
In Professional Services, quit rates among firms that offered retirement benefits averaged 2.2% each month, compared to an average of 2.5% among firms that did not offer retirement benefits – meaning businesses offering retirement benefits experienced a 12% lower monthly quit rate compared to firms that did not.
Figure 4: Quit Rates, by Companies That Do And Do Not Offer Retirement Plans: Personal Services
Figure 5: Quit Rates, by Companies That Do And Do Not Offer Retirement Plans: Professional Services
Looking at Health Insurance offerings, Figure 6 plots quit rates across firms in Personal Services who do and do not offer health insurance benefits to their employees. Over the past two years, firms that do offer health insurance have averaged quit rates of 4.9% monthly, compared to 5.4% among firms that do not – a reduction in likelihood of quitting in any given month of 9%. Interestingly, this gap was widest at the beginning of this pandemic, reaching 1.2 percentage points in June and July of 2020, and this gap began to widen once again in August and September of 2021, amid the emergence of the Delta variant – demonstrating that workers in these customer-facing industries continue to put their health considerations at the forefront of their career decisions, and employers who care for their employees’ health reap rewards in better worker retention. Figure 7 plots these quit rates for Professional Services firms, which did not see a meaningful difference across firms that do and do not offer health insurance. It is likely that this lack of a difference in Professional Services is due to the fact that health insurance is a more “standard” benefit in those jobs, whereas health insurance benefits in Personal Services are more rare (and valued), so a worker in these industries would be more likely to switch jobs to a position that offered such a benefit.
Figure 6: Quit Rates, by Companies That Do And Do Not Offer Health Insurance: Personal Services
Figure 7: Quit Rates, by Companies That Do And Do Not Offer Health Insurance: Professional Services
Amid The Great Resignation, business owners have struggled to attract and retain talent, but many have hesitated to offer benefits, due to their actual or perceived costs. However, these considerations must be balanced against the costliness of recruiting new employees after a worker has left, particularly in this tight labor market. The estimated cost of replacing an employee can range from one half to two times his or her salary. Data from this report shows that the returns of offering benefits, in terms of avoiding these large recruitment costs, can outweigh the direct costs of these benefits to the employer.
For instance, looking at retirement benefits in Personal Services, Gusto data shows that employers offering retirement benefits averaged worker quit rates 1.3 percentage points lower each month than those that did not – or 15.6% for 12 months. That means that the company offering retirement benefits saw (25 employees * 15.6% lower rate of quitting =) 3.9 fewer workers leave during the year. If that average employee makes $30,000 per year, it would cost the employer conservatively $58,500 to replace them (half of each worker’s salary * 3.9 workers). On the other hand, the BLS estimates that retirement benefits cost 3.5% of a worker’s salary to the employer. Offering retirement benefits to all 25 employees would then cost the employer (25 employees * $30,000 salary * 3.5% of salary =) $26,250 for the year. Thus, by offering retirement benefits the employer spends $26,250 directly, but saves an estimated $58,500 by reducing employee turnover – a return more than twice the employer’s investment.
Throughout this pandemic, workers have placed a renewed focus on their physical and financial health, and they have been switching jobs to companies that take care of them in these ways. This data report shows that offering employee benefits can provide real and significant returns in reducing employee turnover, which can be costly and time-consuming, providing business owners with a solution to the current hiring squeeze.