Though the actual costs of firing employees are somewhat hidden, they definitely exist. Employee turnover is expensive and can set your company back a few months financially, depending on the size of your staff.

So, what keeps these employee turnover costs hidden? They don’t show up in your profit and loss statement and can’t be found in your financial forecast plan. Sure, it might cost to post a job listing on a job board or hire a recruiter to search for a new candidate, but how much does it really cost your company when you fire someone?

Here are 5 things you “pay” for when you let an employee go:

1. Loss of productivity

That person you just let go? Who is going to do their work now? Chances are, no one. While you can easily spread out the workload of one employee to the rest of your staff, some things are likely going to slip through the cracks. This lowered output does not do your company any favors and could cost you happy clients.

2. Your remaining staff is overworked

When more tasks are piled onto another employee, quality and work performance often plummet and employees can quickly become resentful. The longer you keep a position vacant, the harder it will be to keep your current employees happy with their own jobs if they continue to do the work of two. This could mean you end up with more than one vacant position, which will cost your company much more than you anticipated.

3. Loss of an experienced employee

While there are plenty of qualified people who could fill your newly vacant position, none of them possess knowledge about the company’s history, clients, culture and all the other nuances of the business. Knowing and understanding company traditions and employee’s quirks can only come with time and you cannot buy that time back from the person you let go. It is important to determine whether or not the historical experience of the employee in question is worth the cost of keeping them, or if it is less expensive to train someone to do the work the way you want it done.

4. Training costs

Small businesses often suffer financially while training a new employee. They typically don’t have the bandwidth to do the job of the vacant position along with their own while the next person gets up to speed. Every task that the new employee does during the training process must be reviewed, usually with feedback needed, which costs the company time that cannot go toward client or business development efforts.  Typically during training and on-boarding, your company is paying two people to do the same job.

5. Interview costs

As a small business, you’re most likely not enlisting the help of an expensive recruiting firm to find your next best talent. Instead, you’re taking the time, a lot of time, out of your busy schedule to interview potential new hires. This requires a LOT of energy and takes you, and other employees away from their daily job duties. That either means that the regular daily business tasks won’t be done in a timely manner, or your company may have to pay substantial overtime costs in order to take care of your clients.

So, how does this add up… monetarily speaking?

Though these are rough calculations (and vary from state to state), you can use this as an estimate on the amount of money your company will lose when you are in the process of hiring an employee:

  • Entry-level employees: it costs 30% – 50% of their annual salary

  • Mid-level employees: it can cost upwards of 150% of their annual salary

  • High-level and specialized employees: it can cost a staggering 400% of their annual salary

It will always cost your business less to retain than to replace. Perhaps your company could start taking employee turnover rates into annual budget considerations? Or, perhaps it’s time for your company to take another look at how it handles the culture, benefits, compensation and employee development so that more employees remain happy with their jobs?

Given the high cost of employee turnover, it can seem like a huge financial gamble to let an employee go. However, if an employee is consistently under-performing, has low morale in the workplace and isn’t willing to be a part of the company team or culture, they are likely costing you more than a new hire. Is your bad hire costing you money? Something we plan to explore next month!


Financial Optics serves entrepreneurs with an empowering finance division so they can focus on innovation and creating value for their clients. We believe you can accomplish the business of your dreams a lot easier with a professional accountant on your team! Contact us by phone at (913) 649-1040 or click here to visit our Contact page.

Karlyn Borysenko, Zen Workspace