What is the true cost of replacing an Employee?

What is the true cost of replacing an Employee? - Centric HR

It can be expensive to replace employees at the best of times, but have you ever stopped to realise what the true cost of replacing an employee is? In this article we outline how much it costs to replace an employee, including some costs that you might not have considered. Keep reading to learn more about the true cost of replacing an employee. 

How much does it cost to replace an employee?

It is estimated that to replace a salaried employee it can cost, on average, between 6-9 months’ salary. This covers recruitment costs, training expenses relating to the new employee, and salary.

  • For high-turnover, low-paying jobs, expect to pay around 16% of the employees salary to replace them.
  • For mid-range positions, expect to pay around 20% of the employee’s salary to replace them.
  • For executive positions, expect to pay up to 213% of the employee’s salary to replace them.

Businesses should also expect costs due to downtime between employees, and whilst the new employee gets up to speed. 

Check out our page on Attraction and Retention for specific figures relating to turnover costs. 

Why does it cost so much to replace an employee?

Replacing employees can become quite expensive, depending on the level that the old employee worked at, their salary, and how good they were at their job. There are a number of other factors that impact how much it costs to replace an employee, but it generally boils down to recruitment costs, salary, and role downtime. 

Recruitment and advertising costs

When replacing an employee you have to decide whether to handle recruitment in-house or use a recruitment agency. Either way this will cost you, but using a recruitment agency will not eat into your precious time as much. 

Handling recruitment in-house means that someone on your time has to spend hours upon hours of their time reading and reviewing applications, contacting applications, interviewing candidates and, again, contacting applicants. 

You also need to consider advertising fees on job boards, which can become very expensive, very quickly. 

Meanwhile, recruitment agencies tend to charge between 15%-20% of a successful candidate’s first annual salary. This cost will fluctuate depending on the role being filled. For example, the cost of hiring a director of a company will differ greatly from hiring an entry level position. 

Salary

Just because your old employee was paid a particular salary doesn’t mean your new employee will demand the same salary. Expect for this figure to differ based on the candidate’s education, experience, and character – some candidates will be more confident than others in asking for more money.

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Role downtime & training costs

This is a big cost when replacing an employee, especially if they were good at their job. There could be a long period of time where nobody performs the tasks associated with the role, or where other employees have to pick up the slack, resulting in overworked, burned out staff. 

Once a new employee has been hired, you also need to factor in any training costs, and how long it will take them to not only pick up the new role, to be able to perform tasks at the required level. Some estimate that this can take between 6 months and a year, depending on the role. 

Legal expenses

Legal expenses probably won’t be required for every employee that is being replaced, however if an employee was wrongfully terminated, or they have reason to believe that they were wronged, you could end up with some unexpected legal costs on top of the aforementioned turnover costs. 

How to retain good employees

If you want to avoid the high cost of replacing employees, consider creating an effective employee retention strategy. To form an effective retention strategy, consider the following:

  • Flexibility
  • Rewards
  • Career development and satisfaction
  • Good relationships and mutual respect

You can learn more about how to keep your best employees from leaving in our recent blog. 

Attraction and retention services with Centric HR

Centric HR are experienced HR consultants that can help you to manage costs associated with attraction and retention. Get in touch with us today for a free health check, or to get started with external HR support from the experts.

 

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Newman Marketing

Newman Marketing