Uncovering the Real Cost of Hiring & Firing

Hiring and firing employees is an unpleasant reality for all business owners. Poor performance, conflicting interests, or company policy violations will force your hand. If your recruitment process isn’t dialed in, you’ll have to make these decisions more often than expected, but whatever the case, hiring and firing is still a normal part of business.

In this article, we’ll seek to uncover the real costs of hiring and firing employees.

The Cost of Firing

Firing an employee is one of the toughest decisions you’ll face running a business, especially if the employee has been part of the team for years. It’s hard to not think about the financial hardship that will be incurred and livelihood that will be impacted. But at the end of the day, if someone needs to be fired it’s probably for good reason.

Severance

The biggest cost to think about right away is severance, a mandatory payment to departing employees based on the length of their tenure and salary. In rare cases an employee will be exempt from receiving severance, but otherwise the firing company will have to fork over a reasonable sum.

Morale

Another big cost that can’t be immediately measured in dollars is cents is the impact on company morale. If the employee has been around for a while or was well-liked, this will have a lasting impact on your people. In a case where the employee was extremely well liked or had been around forever, their firing may even cause others to leave too. On the flip side, the firing of a bad apple could be widely welcomed across the company, impacting morale in a positive way.

At the very least, a departing staff member leaves a hole, which usually means others will be required to fill it until a replacement is brought in. If everyone has more work to do, low morale could also lead to lower productivity as everyone struggles to pick up the slack.

Other Costs

Aside from severance and the intangible risks of decreased morale and lower productivity, there are some minor costs to consider. Whenever there are people coming in or out, human resources and payroll expenses will be incurred. If the company already has an HR department, they’ll be tied up for a while. but if not, that means someone will have to step away from their regular operations to deal with the sending off of an employee.

The Cost of Hiring

Building out your team and hiring more people is exciting. But there are plenty of costs to consider. The benchmark is 1.2 to 1.4 times an employee’s salary, but there are so many circumstances and variables at play to lean on any kind of expectations. But if your hiring process is flawed and too many bad hires are made, it could end up costing the business far more than what’s ‘normal’.

The formula is fairly simple. The cost per hire (CPH) is all of your external recruiting costs plus the internal costs divided by the number of hires. Let’s take a closer look at some of those costs.

Hard Costs

The hard costs are easy to quantify, and will typically be included in a hiring budget.

Talent Acquisition

One of the biggest costs will be talent acquisition. Quality recruiters that know your industry come at a price, but the cost of making the wrong hire or fumbling around for months trying to get it done internally will be far more costly. The standard cost of a recruiter is 15% to 25% of the employee’s base salary, but a number of factors could impact the real number.

If a company chooses not to hire a recruiting agency, the costs of talent acquisition will be a bit more spread out. The company could pay for access to premium job boards, social media ads, HR software and apps, and more.

Onboarding

Once you’ve made a hiring decision, there are more costs to think about. New employees will need some kind of welcome kit, and likely some new equipment. Plus for a more comprehensive idea of what it takes to hire, companies will also want to factor in wages, benefits, perks and taxes.

Soft Costs

The soft costs are much more difficult to quantify. But it’s these soft costs that can quickly balloon out of control and end up costing the business far more than that 1.2 to 1.4 times an employee’s salary number.

Managerial Time

To start, there’s the managerial time spent working with a recruiter (or recruiting yourself), interviewing, and training. It will be difficult – if not impossible, to calculate the cost of everyone’s time put into the process of hiring someone new.

Productivity

That managerial time is just one aspect of the soft costs a business will incur. Where things will really start to add up is the indirect spending of company resources. When the new hire is adjusting to the learning curve, countless hours of other employees will be spent helping out and picking up the slack. That knowledge transfer will take serious time. During this period, productivity will not be humming along at the pace it once was. During onboarding, training, and even beyond, companies should expect disruption to dynamics, productivity, and team synergy.

 

At the end of the day, the cost of hiring the wrong people is almost immeasurable. The real question is, are you willing to do what it takes to hire the best? What could the future of your business look like with true all-star players added to the team?

STRIVE Recruitment has been a key player in the recruiting industry since 2008, with a focus on roles in Accounting & Finance, Corporate Administration, and Manufacturing & Operations. We can help you find your next all-star player. Contact us today about our permanent, temporary, and executive recruitment services.

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