When you’re an HR manager, you know this drill all too well: Sally walks into your office one day and deposits herself in a seat across from your desk with a sigh.
“Cassie,” she says to you, “Joe just gave his notice. We gotta get started on filling his position, like, yesterday.”
You nod. Because Joe is (was) an incredible performer, this is a big loss for the company. Not to mention, it means you’ll have to set aside some extra work to pull together all the resources and people needed to fill this position quickly.
Why quickly? It’s not just because Sally needs to fill the position, like, yesterday. It’s also because the overall impact to your company’s bottom line is such that you really need to take action right away – as Workable’s SVP Finance Craig DiForte describes in detail. Replacing an employee is a process, but the cost of replacing an employee makes it worse.
Consider these scary statistics, for instance:
According to SHRM, the average monetary impact of a hiring process was $4,425 in 2017. Think about it: when an employee leaves, is fired (that’s worse – see below), is promoted, or anything else that opens up a vacancy that needs to be filled, your business has to spend nearly five grand to fill that new position.
There are numerous costs associated here: advertising the new position, interviewing, background checks, skills assessments, and all of the work hours invested in each step of the hiring process. Not to mention, for every single day that passes, a business is losing the value that the previously filled position has brought to the bottom line, plus all the tangibles and intangibles of onboarding, getting them comfortable in their new position, getting others into a comfortable working relationship with the new hire – those metrics aren’t even taken into account here.
This, of course, depends on the role and skills of that position. Low-skilled positions are quicker to fill and are not as costly, while highly skilled positions customarily have a longer time to hire. And with the higher salaries and values that come with a higher skill set, the costs grow: the same study finds that the average cost of filling an executive position is $14,936.
Statistics show that time to fill can be as long as 94 days for highly skilled workers such as scientists and researchers. That’s a long time without someone who’s absolutely integral to your business operations and, ultimately, your bottom line. Skilled production positions in manufacturing can take an average of 70 days to fill. The list goes on. People don’t fill positions within a few days – that just doesn’t happen.
You may be saying: “Well, that’s just in manufacturing. I’m not in manufacturing, so I don’t have to worry about that.” Consider that you might be wrong. The average time to fill, globally, for a tech-based position is 62 days. The average time to hire a hospitality worker is nearly 21 days, with that number growing to 45 days for those in the finance sector.
That’s a long, long time for a vacancy. A long, long time to go without your head engineer, your master chef, or even your general accountant. For a smaller business, the effects can be debilitating.
14 calls and interviews
Globally, the average number of calls and interviews per tech role hire is 14. That’s 14 different times you’ve interviewed potential candidates before hiring one. That doesn’t even account for the cancellations and no-shows. Nor does it include the time and energy that has gone into organizing an interview with multiple parties – never mind with people in different locations – only to have it delayed again and again.
That’s a lot of logistical organizing on the part of everyone in the hiring team. Many frustrating hours are invested by the hiring manager who feels like they’re embroiled in an endless online dating losing game. A lot of questions from colleagues: “Any luck getting a replacement? Think we’ll have a new manager soon?” Add all that to your own lost work hours that could be invested in other HR things, and you get the idea of how that adds to the cost of replacing an employee.
One hundred million dollars
No one is perfect. Not even the candidate you’ve hired after a lengthy recruitment process in which they passed the skills assessment with flying colors, wowed hiring managers with their charisma during a number of in-person interviews, and presented a resume stacked with amazing academic and professional qualifications.
The reality is, bad hires happen, for a variety of reasons. Perhaps the job description wasn’t absolutely accurate. Maybe some crucial questions were omitted – like the candidate’s managerial and problem-solving capacities. Maybe they’re just really good at looking good, but not that great at actually doing the job.
So… you get rid of that underperformer and fill the position with, hopefully, a better performer. Forget the costs associated with the recruitment process: consider the costs associated with a bad hire. It’s pretty high; like $840,000 high. Let’s maximize the scariness of this: Zappos CEO Tony Hsieh famously said in an interview that the cost of bad hires had dinged his company to the tune of $100 million. That’s the kind of money that most companies don’t even see in their lifetimes.
Imagine if you had hired the right person instead of the wrong person for the job. The only cost of replacing an employee, then, would be the first statistic in this list: ballpark $5,000 for the whole thing.
Yes, those five question marks are intentional, for good reason. You could take all the rulers and measuring devices in the world, but you still wouldn’t be able to accurately measure some of the consequences of a job vacancy. We’re talking about the overall impact a vacancy can have on your remaining staff.
Consider: when someone like Joe leaves, and it takes 94 days to replace him, that’s three months where your colleagues in the office are left wondering what’s going to happen. That’s three months of your colleagues picking up the extra work or rushing to fill the power vacuum left behind by Joe, potentially fostering a toxic work environment. Three months of potential overwork, leading to sick days, burnout, disillusion and low staff morale – which has the compounding effect of leading to other departures.
Look at Brenda, for instance, who had been working alongside Joe for years, but now was asked by Sally to pick up Joe’s work “just for a while, until we get someone new”. Wait a minute, Brenda thinks, why am I not being considered for Joe’s job? Plus, she has been assured time and time again by both Sally and HR – yes, that’s you – that the position will be filled very quickly. And now, she’s entering her third month of all that extra work without extra pay, and she’s getting fed up and feeling like her company doesn’t value her contributions.
So, ultimately, Brenda puts in her notice. Sally walks into your office again, and plops herself into the well-worn seat across from you. “Cassie, I’m in a bit of a pickle here. Brenda’s going to the competition.”
Now you have to find someone to replace Brenda, on top of all the efforts you’re trying to put into finding a replacement for Joe.
That’s going to be expensive. You need to fine-tune your process – not only to speed up time to fill, but also to find good candidates who will stay loyal to your company in the long run – in short, reducing employee turnover. That calls in a whole new set of challenges: onboarding, employee engagement, employee retention, learning & development, on-the-job training, etc. And all the while keeping your leaky staff ship afloat.
What are you going to do? Consider Workable’s recruiting software, for starters. Whenever you’re in a bind, wanting to find qualified candidates fast and evaluate them effectively, there’s a Workable feature to support you, from our range of sourcing options, including targeted job advertising campaigns and built-in interview scorecards. And if you want to make the business case to your boss, we’ve got you covered too. Your company – colleagues, bosses, and bottom line all together – will thank you for it.
Bora Kim, Workable’s Corporate Strategy Analyst until 2019, contributed to this report.
Frequently asked questions
How much does it cost to replace employees?
The Society for Human Resource Management (SHRM) reported that on average, it costs a company 6 to 9 months of an employee's salary just for them to be replaced.
How do you calculate the cost of a new employee?
When you're trying to budget for a new employee, the formula most commonly used (and an accurate estimate if your bases match) is between 1.25-1.4 times their base salary.
Why is replacing employees expensive?
The cost of employee turnover is incredibly high because organizations have to pay direct exit costs when ex-employees leave and additional wages for new hires.