Topic:

How to Retain Workers without a Non-Compete

May 31, 2024
How to Retain Workers without a Non-Compete

The recent Federal Trade Commission’s (FTC’s) final rule banning non-compete agreements for workers, subject to certain limitations, has sent waves through companies big and small that have often used non-compete agreements to help restrict workers’ mobility from jumping ship to competing companies.

If the FTC’s rule goes into effect as currently written (with the rule now expected to take effect in September, if not enjoined by litigation), it will generally prohibit new non-compete agreements and render existing non-compete agreements with workers unenforceable, with exceptions. 

While lawsuits are contesting this rule, if the rule goes into effect as published, this rule may make it far easier for your best and brightest talent to become your biggest competitor’s best and brightest—an alarming scenario for smaller businesses that are already competing with larger organizations for talent.

Employees in states that don’t already limit non-competes would   have more freedom to move between employers within the same industry, which can help increase competition for talent. And employers who used them may no longer be able to rely on non-compete clauses to help retain top performers, which could lead to increased turnover, especially in high-skill sectors. That is, of course, if you don’t get creative in keeping them.

Retaining employees is essential for helping to optimize your HR costs

In addition to lost productivity and employee morale, there can be a real impact on turnover costs to replace your employees who leave for what they think are greener pastures with competitors.

According to the Society for Human Resource Management (SHRM), the average cost to hire a new employee is $4,700, and the average cost of onboarding is $4,100. However, the total cost to hire an employee can be as large as three to four times the position's annual wage.

So, besides offering more competitive pay (the FTC estimates the non-compete rule will result in a $524 pay boost for the average worker), what can you do to help retain your workers who may be wooed by competitors if you can’t rely on most existing non-compete agreements? For many workers, benefits can be a differentiating factor. A 2023 study showed that more than half of the employees are somewhat likely to accept a new job with lower pay but with more generous benefit offerings.

Offering workers better benefits can significantly help reduce attrition by addressing their needs and improving job satisfaction. Here are some top ways:

  1. Enhanced Job Satisfaction: Providing benefits such as broad health insurance, retirement plans, and paid time off can enhance overall job satisfaction. When employees feel supported by you and have access to resources that contribute to their well-being, they are more likely to feel valued and committed to their job.
  2. Increased Employee Loyalty: Offering benefits can foster a sense of loyalty among employees. When workers feel that you care about their long-term financial- and personal well-being, they are more likely to remain with the company rather than seeking opportunities elsewhere. This loyalty can help lower turnover rates and reduce costs associated with hiring and training new employees.
  3. Attract Top Talent: Remember, a lack of non-compete agreements works two ways. Competitive benefit packages can attract top talent to your company. In a competitive job market, businesses that offer comprehensive benefits stand out as desirable employers. By providing attractive benefits, your company can draw skilled individuals who are seeking opportunities for growth and stability from others in your industry.

Overall, offering workers benefits demonstrates a commitment to employee well-being, fosters loyalty, and helps to attract and retain top talent, all of which can contribute to reducing attrition at a small business.

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