Small Businesses Show High Employee Retention

Washington, DC, August 10, 2007--American small-business owners, challenged to locate workers during today's tight labor market, are emphasizing employee retention.

According to a National Federation of Independent Business Small-Business Poll released Friday on unemployment compensation, nearly half of all small businesses, 49%, had no employee turnover during the past 12 months.

Quitting a job is the most frequent reason employees leave a small business, the study determined, yet 59% of small employers had no workers voluntarily depart during the same period. Another 13% had only one willing departure. Over those months, nearly three-fourths, 73%, fired no one, and 87% were not forced to lay anyone off for economic reasons.

Among those who did fire one or more workers, 22% did so in response to unsafe work practices; 2% took the action to deal with some form of harassment.

Twenty-two percent of all small firms – 41% of those that had an employee leave for any reason – were the object of unemployment claims.

But owners of small firms are no shrinking violets when it comes to challenging unemployment claims they think are unjustified: 53% said they did not think the last claim filed against them was justified, and 51%  took formal action to oppose the claim.

More than three-fourths, 78%, presented their challenges in writing and about one in 10 took the effort to appear, or send a designate, to the hearing. Five percent brought in lawyers to represent them.

Slightly more than half said they challenged an unemployment claim when a worker was fired for cause. The second most common reason for bringing a challenge, 36% noted, was that an employee voluntarily quit. Seven in 10 made no challenge to claims they felt were justified.

Small-business owners are woefully uninformed about the Federal Unemployment Tax Act payments they are required to make, according to the poll. Two-thirds could not or would not estimate the amount of FUTA taxes they pay per employee each year, and about half admitted that they had no general idea about how those levies were calculated.

They do, however, take action that either directly or indirectly minimizes their experience-based FUTA payments. For example, 59% of small employers annually verified their unemployment compensation accounts to ensure accuracy; 36 % got resignation letters from workers who left voluntarily; 59% examined each claim whether challenged or not, and 67% kept records of events or circumstances concerning employee termination.

"Typically, larger small firms have explicitly written employment policies that are available to employees, but in smaller businesses the employer is usually available to answer questions,” said William J. Dennis, NFIB's senior research fellow.

Still, more than half, 56%, have one or more policies in writing.

The study concluded that while small employers do hold the idea that their actions matter in unemployment compensation outcomes and take some steps to reduce their liability, they could benefit by broader and more frequent action.