Cost of Keeping Employees vs. Hiring New Employees [Infographic]

Author: Matthew Gates
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A few decades ago, most companies saw their employees as an investment in the company, and the employee loyalty to the company was great. Employees had incentives to stay from being offered health care plans, bonuses, and pensions. Employees who remained with the company were given seniority and well respected. After many, many years of remaining with the company, having helped make it profitable and build it up, these employees were seen as family to the company, long after their retirement from the company.

The company would offer care packages and the great mostly-extinct pension plan, which would kick in and help alongside social security, ensuring that older retired workers would no longer have to work and could retire peacefully. It seemed almost too good to be true. Fast forward to the present and the majority of companies offer low wages, no health care, and no pension plans. Any companies that did exist with that pension plan are far and few - and there are just a few now-retired people who experience this joy of a pension, though most have either lost the pension due to company failure or companies revising their pensions plans to alleviate the burden of having to support non-working retired employees.

Companies now see every employee as a just a replaceable worker and never an asset to the company. Many employees no longer have instilled in them a sense of loyalty to the company, and those that do, are met with the company who is disloyal to the employee, often laying them off or offering them no incentives.

The Corporations that invest in their employees and see them as long-term assets instead of just temporary workers and keep them for their working lifetime may find there are many more benefits than just laying them off, letting them go, and hiring new employees for cheaper wages.

Here is an infographic to further discuss the benefits.

Cost of Keeping Employees vs. Hiring New Employees Infographic

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PRO- Why Retaining Current Employees is Cheaper than Hiring New Ones -CON

When productivity takes a dive, it can be tempting to fantasize about hiring a whole new team to bring the fire back to your office.

However, research shows that in many cases, it is actually much less expensive to retrain current employees than to replace them with new hires.

Below, we explore the associated costs of both strategies and explain why retraining is typical the better way to go.

THE DIRECT COSTS OF TRAINING A NEW HIRE Studies show that the direct cost of replacing an employee can reach as high as 50 to 60 percent of their annual salary.

These costs include the following:

Costs of Letting a Current Employee Go:

- HR staff time for exit interview, payroll, administration, etc.

- Manager's time for retention attempts and exit interview

- Accrued paid time off

- Temporary coverage costs including contingent employee, overtime for remaining employees, etc.


Costs of On-Boarding a New Hire:

- New hire's compensation

- Hiring inducements, including signing bonuses, relocation reimbursement, and perks

- Hiring manager's time

- Orientation program time and materials

- HR staff induction costs including payroll, benefits enrollment, etc. However, direct costs are only one part of the eventual bill.

When you add in the associated costs of employee replacement, the total can often ballon to 90 to 200 percent of their annual salary.



- Delays in production and customer service

- Lost clients that would have been acquired if the employee had stayed

- Stiffer compensation as employee moves to a rival company or forms own business

- Others leave to join lost employee at their new organization

- Disruptions to team work



- Formal training, including instruction time and materials

- On-the-job training including supervisor and employee time

- Mentoring the new employee

- Socialization, including other employees' time and travel costs

- Productivity loss as the new hire masters the job


Rehiring is No Small Expense Research estimate that turnover costs represent: 12% of pre-tax income for the average company. 40% of pre-tax income for the companies in the 75th percentile of employee turnover.

Conversely, retraining existing employees only costs your business training expenses.


HOW TO KEEP TRAINING COSTS DOWN Because you will be paying these expenses either way, it is often less expensive to take this route.

The following are some suggestions to keep these training expenses as low as possible.

- Utilize Free Training Resources: Free educational resources such as MIT OpenCourseWare can provide excellent training materials for your employees.

- Use Online Learning Management Systems: Eliminate travel expenses and instructor salaries by conducting your training online via learning management software.

- Use Inside Trainers: If you have internal employees who are experts in a particular subject, allow them to train employees in that skill set.


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Matthew Gates is a freelance web designer and currently runs Confessions of the Professions.

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Tags: benefitscompaniescompanyconfessioncorporationsemployeeemployeesfailurefamilyincentivesinfographicinvestinvestmentloyaltyretirementsocial-securityworkers
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