The Real Cost of Losing an Employee

Whatever your business, your team is one of your most valuable assets. Employing the right people and keeping them motivated, engaged and performing well is vital to any organisation’s success.

Unfortunately, some people will inevitably leave their jobs. Many of us will spend over 45 years of our lives working after all so we may want to move around a bit.¹ This can vary depending on industry and geographical regions ‒ and for some, it can be relatively easy to recruit and re-train new people. For others, however, where specialist skills and customer relationships are involved, it can impact on an organisation’s performance.

There are several ways losing an employee can cost a small business.

Employee Turnover Lowers Morale

The people within an organisation go a long way towards forming and then developing its company culture. A particularly senior or popular team member leaving can often impact the atmosphere and the morale of the team. If they’ve been unhappy for a while, this may have affected employee engagement without you knowing. While this isn’t always a tangible cost, it’s still a cost to the business. It’s been proven that happy employees are often more productive.²

You can try and reduce employee turnover and regain lost productivity through employee retention strategies. A good example would be providing clear career development opportunities and appealing reward packages, and not necessarily just increasing an employee's salary. Often, the cost of such programmes is lower than employee turnover costs.

Recruitment and Hiring Costs

Recruiting new employees through a hiring process will incur direct costs. If you’re going to advertise the role, you’ll need a budget set aside to book the space. A fee will be involved if you use an external recruitment consultant to source and shortlist candidates. New recruits will probably be looking to improve upon their previous salary, so they may ask for a slightly higher income than their predecessor so you could end up entering negotiations. Contracts will need an HR or legal eye cast over them, and there may be new benefits to organise, such as a company car. All of this can add up.

Stopgaps

Finding a replacement can also take time, especially if your departing team member was in a senior position. Their replacement could have an existing contract, notice period or gardening leave to complete before joining your team. Contractors and freelancers can be brought in to ensure the work is still managed while you’re finding a permanent replacement ‒ but their fees can be costly, and there may still be the need for some training.

Training Costs

Training is at the top of the list once the new employee arrives ‒ it’s rare for any candidate to fit any job specification completely. On average, it takes a new employee up to 28 weeks to become as effective as the person they’ve replaced. So training may need to be considered at the outset. Then for most professions, training should be factored into an employee’s career path. Any new candidate will need an induction of some sort ‒ and this is all time that needs to be allocated to another member of staff.

According to Oxford Economics and Unum research, if your employees earn over £25,000 a year, the average cost of them leaving and being replaced is over £30,000.³ Therefore, business owners need to try and prevent this happening wherever possible by being on top of their team’s progress and performance. This means keeping lines of communication open at all times. Understanding how much staff turnover costs your business is a vital part of budgeting as well as planning.

And while it can never be entirely prevented, looking at how it can impact your bottom line can prepare you better in the long-run. An online tool can help you calculate the financial impact on your business by looking at the costs you might incur before an employee’s departure. It also considers the costs involved in replacing that employee and getting your operation as efficient as possible.

For more information and to generate a bespoke report for your business, use our free Cost of Employee Turnover Calculator now.

Sources:

_{1. ons.gov.uk/employmentintheuk/february2024}

_{2. wellsteps.com/happy-employees-more-productive}

_{3 peninsulagrouplimited.com/end-of-employment/staff-turnover}