The High Cost of Firing an Employee

When it comes to pricey workplace blunders, few cost a company as much as firing an employee. Unfortunately, it's an all-too-common mistake. According to a recent CareerBuilder survey nearly three in four employers (74 percent) say they've hired the wrong person for a position.

While there’s no set-in-stone monetary cost to the company (varies by business’s policies, needs, size of company, location, and industry), it’s never cheap! Here are some costs to consider if you find yourself in the unfortunate position of having to fire an employee:

Replacement costs
If you need to replace the employee, LinkedIn roughly estimates hiring a replacement will cost the company:
• 30% – 50% of their annual salary for entry-level employee
• 150% or more of their annual salary for a mid-level employee
• 400% of their annual salary for high-level or specialized employee

Pay accrued time off
When you fire an employee, you’re required by law to provide them with their final paycheck, as well as any unused paid time off (i.e., vacation or sick pay).

COBRA insurance
Fired employees who would be left without health coverage are entitled to participate in the group health care plan offered by the company under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Although rules vary among states, costs associated with employees who opt to continue their health care insurance and any processing fees should be expected. More importantly, are the high fines incurred if you don’t offer COBRA. Make sure to educate yourself with the laws in your state. Learn more by reading the U.S. Department of Labor’s FAQs about COBRA.

Fill the position
A 2016 report from the Society for Human Resource Management (SHRM) found that the average expense to bring on a new worker is $4,129 and takes approximately 42 days to get the position filled.

Miscellaneous fees
Other items that might cost you when firing an employee include:
• Miscellaneous recruitment fees (advertisements, job boards, background and drug tests, interviewer’s time, etc.)
• Overtime for current employees to carry out the tasks of the fired employee, if required.
• Intangible fees such as lost productivity, low workplace morale, and possible lawsuits.

Each time you recruit, hire, onboard, and train a new employee, you spend thousands of dollars. Wouldn’t it be nice if employers and employees could test the water first, before making commitments? Wouldn’t it be nice to see how a person fits into your company’s culture or the department they’ll be working in before offering them the job?

That’s one of the advantages of hiring contingent workers. According to American Staffing more than one-third of temps were offered a permanent job and two-thirds accepted. If you are looking for that “gem of an employee” who does an exceptional job, is a good culture fit, and loves what they do, try GigWorx’s “try before you buy” approach.

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