How much does it cost to resign an employee?

82% of companies don’t measure what they pay when an employee leaves the company. However, the cost of turnover is very significant.

82% of companies do not estimate what they pay when an employee leaves the company. The cost to replace an employee is significant.

Replacing an employee costs an average of 37.5% of their salary. In clear terms, it will cost you $15,000 to replace an employee earning the average salary ($40,000).

On average, replacing an employee costs 37.5% of their salary. In clear terms, it will cost you $15,000 to replace an employee earning the average salary ($40,000).

The expenses from the turnover cost calculator are an industry estimate based on your company’s parameters. The assumptions are described below.

EMPLOYEE’S DEPARTURE

1) Resignation and management

Several hours of work are lost when a departure is announced. The employee meets with his manager to inform him of his departure. The manager will then meet with his own manager and the entire team to announce the departure. The manager will also have to meet with the majority of his employees to reorganize the work plans to reassign the tasks of the departing employee.

You are then paying salaries while no value is being created in your company.

2) Knowledge transfer

You want to retain as much information as possible that the employee has. It takes several days for the departing employee to explain their knowledge, projects and contacts to their colleagues. Despite all the time invested in trying to retrieve all the information needed to keep the work going after the employee leaves, much information will be lost. Employees will waste time trying to figure out how their ex-colleague did all of his or her tasks.

3) Exit interview

You won’t let your employee leave without fully understanding their reasons for leaving… Would you dare?

A manager or HR will meet with the employee to understand what he/she liked and disliked about the company. Round table discussions will then be held with management to understand the situation and to see what can be improved to avoid further departures.

In order to understand the real reasons for the departure and to remove the bias of the interviewer, also use anonymous survey platforms like Amelio to make the employee feel confident to speak freely. This type of application will allow you to survey departing employees and get objective and neutral answers that a meeting with a manager would not raise. We all want to end on a high note, you never know if we’ll work together again!

4) Administrative processing (Human Resources)

Leaving involves a lot of paperwork on the part of human resources. The departing employee’s status must be completed in the payroll and benefits systems. Termination documentation must also be sent to the departing employee and the transfer of retirement accounts must be processed.

5) Overtime

If your company pays its employees at premium hourly rates after regular hours, the expense must be considered. The remaining employees will have to do their regular work in addition to the resigning employee’s workload. They will have to work overtime until a new employee is hired.

If you don’t pay overtime, there is still a significant cost. Overwork demotivates employees and they become less productive.

HIRING STAFF

6) Job posting

Posting the position on the different job platforms is rather expensive. Posting a job costs between $400 and $700 for each of the most popular platforms (Indeed, Workopolis, LinkedIn, Jobboom and Monster). Discounts may apply if you have several positions to fill per year.

Depending on your company size, you may need to post the position on your site, on multiple recruiting platforms and on LinkedIn to attract top talent to your company.

Add to that the HR processing time to prepare the job offer, the posting of the position, and the cost of recruitment agencies for companies using this service.

7) Application analysis

Allow a few hours for human resources and managers to analyze applications and screen candidates. There will also be several calls to potential candidates to interview them and answer their initial questions.

8) Interviews and selection

Several candidates will be interviewed by company representatives. Several calls will be made with the selected candidate. Finally, the job offer will also be prepared and documentation for the position will be sent.

9) Validation of references

It is better to take the time to validate references and complete the security screening than to make a bad hire! Costs are higher when you hire outside agencies.

ONBOARDING OF NEW EMPLOYEES

10) Administrative processing

The employee must be registered in all of the company’s administrative systems for payroll, HR documentation, group insurance enrolment and pension plans. Many companies will also explain the group plans and help them make their choices.

11) Training

Several days or weeks are allocated to the training of new employees. The more specific your systems and projects are, the longer it will take to train them. According to a study by the Association for Talent Development’s on a group of 340 companies, a new hire requires an average of 31.5 hours of training.

12) Productivity loss

No employee is effective from day one. It takes weeks or months before a new employee is self-sufficient and can perform their tasks at maximum productivity. The hours lost to inefficiency are added to the cost of replacing an employee. The poductivity curve ranges from 25% to 100% between weeks 1 and 20.

Consider this:
1. Your new employee will be slower than the previous one.
2. Every new job they do will have to be explained to them by a colleague.
3. He will make mistakes that can be costly to the company.
4. In the best case, his colleagues will check the work and will be able to correct the mistakes. But they will have wasted time redoing part of the work, thus a loss of productivity…

ADDITIONAL AND INDIRECT COSTS

There are many costs that cannot be included in the calculator as they vary greatly depending on the position. We list several below, so please take them into consideration when replacing an employee.

13) Opportunity cost

How much does it really cost to let an employee go? It all depends on the employee’s activities and contribution to the company. The employee was producing work that is no longer being done, or at least not all of it, because other employees already have obligations. Here are two simple examples to illustrate the opportunity cost:

1. The employee is a business manager. This one is very simple; business development decreases in his absence. Fewer new customers are approached and fewer contracts are signed. Not only are there fewer new prospects, but there are fewer ancillary sales on existing contracts. This is a direct decrease in revenue. Indirectly, the quality of the relationship with the company may decrease if the customer particularly liked the employee and was their primary point of contact.

2. The employee is an analyst. The impact on your revenue is just as important. Projects move more slowly. You have less time to prepare bids and clients who would have given you a contract may go elsewhere because of delays or because you could not be proactive enough. A client might have been ready for a service upgrade, but you didn’t present them with the resources you were missing…

14) Involuntary termination

If you terminate employees involuntarily, you will need to consider the cost of severance pay and continued group insurance.

15) Loss of customers and prospects

Non-competition agreements are very difficult to enforce. Even if you are successful, court costs may apply.

It is to be expected that you will lose loyal customers when a key employee leaves the company, especially for a sales or customer service employee. They will eventually contact all of their former customers when the non-compete period is over and you may lose revenue.

16) Customer dissatisfaction

Longer file processing times, inexperienced employees or a lack of continuity in a project are all negative effects of staff turnover. Ultimately, these problems diminish the quality of customer service and can damage your company’s reputation.

17) Uniforms

Add up the cost of the uniforms you offer to your employees.