The Real Cost of Termination

Consider the facts: by current estimates, the cost of a company terminating an employee is equal to six months of that person’s salary. If you terminate someone making $50,000, then by this standard your company will have lost nearly $25,000 by the time the entire process is finished. However, this doesn’t even begin to look at a number of other costly factors involved with the termination process.

The Other Costs of Termination

First, acknowledging that someone is performing below the acceptable line means they have probably been there for a while. So there will likely be at least some loss from the salary paid to the employee even before his or her poor performance was acknowledged.

Next, consider the cost incurred as supervisors or managers take time out of their day to work with the employee and to coach him or her back up to the acceptable range of performance. This probably doesn’t happen just once…

If the employee still doesn’t "get it,” the organization will probably make at least one or more attempts to rehabilitate him or her before setting in motion the actual termination process. Whether this time period spans one week or one year, the dual costs of manager time and employee time spent working through the issue will accrue.

We haven’t even touched on the reality that whatever business relationships, accounts, and clients this employee was responsible for have probably fallen through the cracks during this time. This may even affect the company's bottom line, giving any business owner nightmares for weeks (or longer).

And what about the disconnect within the team, and the time spent by co-workers wondering what's going on with the employee? If the employee was a member of any team working on budgets, projects, or large client accounts, then there will be sense of lagging here as well. The cost of the lack of productivity extends well beyond just the problem employee, affecting everyone on the team.

Finally, upon termination the company and, specifically, the manager, must spend the resources to find, hire, train, and mentor a new employee to fill the position. There may be no way to accurately measure this expense, but any leader that has been in this position understands the costs involved and probably cowers at the prospects.

In the end, the monetary losses due to the termination of a poorly performing employee can add up quickly. But it's the toll taken on the client, the team, and the manager that really hurts the organization. Bottom line: put some real thought into who you hire and take advantage of the best employee evaluation tools out there!

For tips to effectively train your people and streamline your organization, and for other solutions to your staffing challenges, visit http://www.traininginabox.com/. Sign up for our free newsletter at http://www.quicktrainingsolutions.com/to make your HR training and development life easier. Corey Nielsen designs and delivers innovative and effective training solutions for businesses through NTG, his business development and training company.

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