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The Unexpected Connection Between Payroll and Employee Retention

Kathryn Aragon

Content Manager at Wagepoint
Kathryn Aragon is an award-winning content strategist, copywriter, and author. As Wagepoint's Content Manager, she's dedicated to sharing helpful strategies that simplify payroll and business management.

Think payroll is just about paying your workers? Although most people see payroll as a transactional affair—payment for a job performed—it’s actually more important that that. Payroll can actually have a much broader impact on your business’s overall health, driving employee morale, productivity, and even turnover rates.

The key is to understand the unexpected connection between payroll and your workers’ job satisfaction. Once you do, not only will it help you understand a major cause of employee dissatisfaction, you’ll also have some solid ideas about how to combat it.

We take a look at your employees, your payroll, and how you can help them play nice together—so you can focus on growing your business instead of replacing the next worker who quits.

How Paycheck Errors Directly Impact Employee Retention

According to Work Institute’s 2017 Retention Report, turnover can cost as much as 33% of a worker’s annual salary. With a number like that, too much turnover will obviously eat into your profits.

And the bad news is that just one payroll mistake can drive off good employees. Or maybe the worse news is that they’re all but expecting you to make that mistake. About half of the US workforce (82 million workers) report that they’ve experienced a problem with their paycheck. And when they’re seeing headlines about employers stealing from workers’ paychecks with illegal deductions, they go on high alert.

The issue isn’t just employee-employer distrust, though:

  • More than a third of US workers (65 million) admit they find their pay stubs hard to read. How can they be sure there isn’t a mistake when they don’t know what all the numbers mean?  
  • A quarter of workers (24%) will look for a new job after just one paycheck mistake.
  • Only about a quarter (26%) of workers say they would turn to their manager, supervisor, or boss for help fixing a mistake if they found one.
  • Nearly half of US workers (45%) say they would feel more engaged with their job if their employer helped them understand the impact of taxes and deductions on their overall earnings.

How to Make Sure Payroll Issues Don’t Affect Your Company

As an employer, there’s a lot you can do to ensure these issues don’t impact your workers. For instance, since a lot of turnover stems from payroll mistakes, you only need to be sure your payroll process minimizes mistakes.

And since 45% of workers would appreciate help understand their pay stubs, taxes, and deductions, you can boost morale by sitting down with them to answer their questions. Seriously, it’s that easy.

Writers at Harvard Business Review agree. They’ve found that workers’ “intent to leave” decreases when they’re happy with their pay, and they recommend clear, down-to-earth conversations: 

Clearly, having transparent and honest conversations with employees is a no-cost way to improve engagement. But for many businesses, it represents a challenge because it means adopting a whole new mindset around pay.

Talk to Your Employees About Their Paystubs

If your employees struggle to understand their pay stub, this infographic by Wagepoint should help. It breaks down each part of the pay stub and explains what’s going in and what’s coming out of the paycheck:

When you sit down to talk to employees, keep in mind:

  • Simple is best. Your employees aren’t HR experts (and don’t want to be). Give the simplest answers possible using everyday language.
  • Be fully transparent. When employees feel they don’t have all they information they need, they become frustrated and dissatisfied. (And be prepared to discuss your pay rates compared to industry averages. Many workers assume they’re being paid less than they’re worth.)
  • Encourage questions. Regardless of how thoroughly you explain things, your workers will likely have their own questions. Be patient as they ask for clarity. Take as much time as necessary to clear things up for them.
  • Keep the door open. Encourage workers to come to you any time they have a question. That’s going to build trust and engagement, which will minimize any thoughts about looking for another job.

Happy Employees Are Informed Employees

We don’t typically associate employee satisfaction with understanding pay stubs. But your workers don’t always understand the numbers and the acronyms behind them. As it turns out, keeping them engaged and happy is as simple as answering their questions.

If that’s all it takes to reduce employee turnover, it’s a no-brainer.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Kathryn Aragon

Content Manager at Wagepoint
Kathryn Aragon is an award-winning content strategist, copywriter, and author. As Wagepoint's Content Manager, she's dedicated to sharing helpful strategies that simplify payroll and business management.

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