The Costs of Replacing an Employee

Many businesses that don’t have unlimited resources are hesitant to hire new employees because there are many hidden costs associated with adding additional team members.

Simply put, it can be quite expensive to hire new employees. Here are the kinds of costs — hidden and otherwise — that businesses can expect to pay when they grow their team or try to replace an outgoing employee:

1. Advertising

To train an employee, you first have to hire them. Odds are your company will have to spend some cash to attract applicants when positions open up. For example, LinkedIn charges $195 for a 30-day job listing. Depending on how many jobs boards you target, these fees can add up — and quickly. And don’t forget you’ll also have to incur the costs associated with the time it takes for employees to post job ads. Even if you use technology to weed through applicants, your recruiters will also have to spend time narrowing down the field.

2. Onboarding

Once you’ve hired someone, you’ll have to go through the employee onboarding process to get that individual acquainted with their new surroundings. Managers and coworkers will have to spend time training the new hire to make sure they are on the same page and understand what’s expected of them. HR has to spend time making sure the new employee’s benefits are all squared away, which costs the company as well.

3. Salary and benefits

The actual financial costs tied to hiring a new employee include more than just salary expenses. Companies pay health insurance benefits and 401k matching, among other perks. They have to cover payroll taxes and pay workers’ comp and unemployment insurance. There are also other smaller costs incurred, like buying coffee for the communal machine. All told, this means an employee with a $50,000 salary may end up costing as much as $70,000 each year, according to Investopedia.

4. Errors

Because new employees aren’t experts at their jobs, they’re bound to make mistakes. Clients and customers may be understanding for the most part. But you never know whether a new hire dropping the ball could be enough to convince one of your clients to stop doing business with you altogether. For example, maybe your outgoing employee worked directly with a client and they had a great relationship for over two years. That worker leaves, and there is a noticeable dip in quality. Who knows whether a client will decide to stick around if there are other options available?

5. Lost productivity

New hires can’t step into the shoes of outgoing employees overnight. It takes time for them to get up to speed with their new job. There’s a learning curve here. According to this Quora thread, it may take as long as a year for a new employee to become a fully productive member of the team. In the interim, companies incur costs associated with a dip in productivity and the lost knowledge of the outgoing worker.

6. Reduced engagement

In our 2015 Employee Engagement Report, we found out that the number one thing workers like about their jobs is their colleagues. So it follows that at least one of your workers will probably be pretty bummed out when their best friend at work decides to take another job. This, in turn, can result in reduced engagement while that employee is forced to help train their buddy’s replacement. It may only be a matter of time before that individual decides to jump ship too.

Since hiring new workers is an expensive undertaking, businesses would be wise to focus on improving their employee retention stats. 

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