The financial costs of firing an employee

Image by mohamed Hassan from Pixabay

By Henry Brown

When people talk about the cost of employee turnover, they are usually referring to a situation where an employee leaves for some reason. Maybe they have a new job offer or they are moving to a different area. Whatever the reason, it’s expensive to lose an employee and most businesses are aware of this. However, we don’t always consider the cost associated with firing an employee.

It’s assumed that firing employees is usually beneficial overall because people get fired when they are a hindrance to the business in some way. But what about the cost of firing someone? Regardless of the reason for letting an employee go, there is always a big cost involved. You need to consider that cost when making your decision because, in some cases, it’s better to attempt to find ways to improve an employee’s performance rather than just giving up on them. So, what is the true cost of firing an employee?

Loss of productivity

Losing an employee always leads to a drop in productivity and the rest of your team has to pick up the slack. However, businesses often assume that getting rid of an employee that isn’t particularly good at their job will only improve efficiency, so they don’t consider this cost. In rare cases, where the employee is particularly disruptive, this can be true. But in most cases, even though they’re not the most productive person in the world, they still contribute something to the office and their loss is still noticeable.

Unemployment benefit costs

When you get rid of an employee, they may file an unemployment claim against you, which can be very costly to your business. The more successful claims that are made against you, the higher your required contributions to unemployment will be in the future. In some cases, you can contest the claim, but this brings its own costs and may not be the best financial choice in the long term. You can use specialist software to calculate the unemployment cost and decide whether to challenge the claim or not. In some cases, you might find that it’s actually more cost effective to keep the employee on and look for ways to improve their performance instead of getting rid of them.

Hiring costs

This isn’t applicable in situations where you get rid of employees to downsize, but if you fire a difficult employee, you may need to replace them. It’s important that you find the best employees so you can avoid the same situation again in the future, but the hiring process is expensive. By the time you’ve advertised the job, been through all of the applications and then interviewed everybody, you’ve invested a lot of time and money that could have been saved if you didn’t fire the previous employee.

Training costs

Once you have found somebody to fill the vacant position, you then need to cover the cost of training them. Onboarding and training a new employee costs an average of $1,075, and until you can get them up to scratch, there is a big productivity cost too.

In some cases, if an employee is seriously damaging to the business, firing them is the best choice. However, it’s incredibly expensive to let somebody go, so you should always look for alternatives if possible.


Henry Brown is an online marketing executive. When he isn’t talking shop, he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.

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