Replacing Employees : The True Cost!

Replacing Employees : The True Cost!

Posted by AA on 18th May 2016

There’s a lot of misinformation out there surrounding the True Cost of Replacing Employees. Regardless of your company’s niche/industry, hiring new ‘replacement’ employees can place a serious burden on your finances. Unfortunately, many employers fail to acknowledge the true cost of this action. To help shed some light on this topic, we’re going to take a closer look at the associated costs of replacing an employee.

Overtime Pay

When an employee quits (or otherwise leaves the company), the company may have to foot the bill for additional overtime hours. The lost employee’s tasks and duties and handed over to the remaining workers, some of whom must work over the standard 40 hours per week; thus, it forces the company to pay them extra (usually time and a half).


Another cost associated with replacing lost employees is interviewing. As an employer, you must value your time and energy, both of which must go towards the interviewing new candidates to fill the employee’s position. You may luck out and find a well-qualified candidate on the first interview, or it could take a dozen more before you find a good fit for the position.


Training new employees isn’t cheap by any means. You’ll have to show them exactly how the job is performed, safety regulations to follow, best practices, etc. A standard training program usually lasts about 2 weeks, at which point the worker may then work on their own without a shadow watching their every move.

The Bottom Line

These are just a few of the many costs associated with replacing lost employees. Other costs may include lost knowledge, reduced morale and general recruitment. It’s important to step back and look at both the direct and indirect costs of replacing employees, as they both play a role in the total expense.

CBS News recently published an article suggesting the average cost of replacing an employee totals 20% of the person’s annual salary. Under this formula, a lost employee who was earning $50,000 per year would cost $10,000. Of course, this is a rough formula and should by no means be considered accurate.

Tips To Reduce The True Cost of Replacing Employees:

  • Offer performance incentives
  • Launch an employee-of-the-month program
  • Create a positive work environment
  • Encourage workers through appreciation and recognition
  • Offer flexible scheduling
  • Creating a team-oriented workplace
  • Offer competitive compensation