The cost of replacing an employee is one of the most underestimated threats to a company’s success. Earlier this year, I was researching and writing an article about the key causes of work dissatisfaction. This usually leads to disengagement and, ultimately, resignation.
The most expensive resource in a company is, of course, the people that work there which is a no-brainer, right?
It’s one of those things that everyone knows, but not everyone really understands what it means.
While it takes time, money, and effort to acquire a new employee, replacing an experienced worker drives those expenses over the roof.
How much does it cost to replace an employee?
But why, you could wonder.
There are always two types of expenses associated with a worker: direct and indirect.
The direct ones include:
- recruiting costs: advertising, tools, job posts, agencies, attending job fairs (can be from 15 to 40% of the yearly salary)
- hiring costs: time/effort to screen resumes, conduct interviews, and perform background checks. (can add up to 15-30% of an employee’s salary)
- training costs: time/resources needed to onboard and train the new employee, which can take anywhere from a few weeks to several months (costs can be 10-50% of an employee’s salary)
Indirect costs – these are the ones you should start considering:
- lost productivity: how much does the company not earn, while the vacancy is not filled which can turn into a missed deadline or even a lost project that can cost millions in some cases (these are not isolated cases)
- decreased morale: losing a valued employee can have a negative impact on the morale within the team which can result in lower productivity, absenteeism, and job dissatisfaction
- burnout and quitting: if someone does 2 jobs until you find that replacement, you might lose the second person if this drags on – so it’s a double cost to you
- negative impact on customer relationships: in plain words, people work with people, and you can end up losing key clients (think of the time you stopped going to a bar because your favorite bartender or waitress left the place – you can actually go bust)
Depending on the level of the person, the time it takes to fill the position, and the expense of training the new recruit, the total cost of replacing an employee can be anywhere from 50% to 200% of their yearly income. Not to mention the potential for losing important customers or the entire project.
For any company to achieve success and become known as the “Best place to work,” it must prioritize the development of a positive workplace culture.
In the next article, I’ll discuss the common reasons why employees quit their employment and what may be done to prevent them.
