March 29, 2016

What It Really Costs To Fire And Replace An Employee

By Paul Bieber

You have an employee, let’s call him Dave. Your foreman, Sam, wants to let him go because he broke an insulating glass unit on the job today. It happened to be the last corner unit on a large job, and you’ll have to wait on a replacement unit and getting a final check. Not a pretty situation.

Currently, there is one heck of a shortage of qualified glaziers. In case you missed Lyle Hill’s blog yesterday, he wrote that 70 percent of  construction companies in the U.S. are have a hard time finding qualified people, even with higher raises and benefits.

Back to Dave—you trust Sam, so Dave has to go. Dave is a well-liked kid… he is just not hitting a home run every day.

Dave has been with you for six months, so you decide to give him two weeks’ severance and carry his benefits for three months. That is generous, but nonetheless you feel it is right.

So, let’s see what firing Dave really costs, and then look at some other options. Here’s my assumptions: Dave makes $16/hour, and his benefits cost $1,200 per month ($2.80/hour). Sam makes $28/hour, and $1,200 in benefits, as do your office staff. The staff earns an average $12/hour. We put your cost in as $0 per hour for this exercise.

  • Discussion with Sam                       .5 hr.                $15.40
  • Discussion with Dave                       .5 hr.                   9.40
  • 2 weeks’ severance                           80 hrs.             1504.00
  • 3 months of medical                                                3600.00
  • Staff time to prepare ads                   3.0 hrs.               44.40
  • Ads placed online and in papers                               935.00
  • Staff time answering calls                 6.0 hrs.               88.80
  • Interviews by Sam                            6.0 hrs.              184.80
  • Interviews by you:                                  Cost not included
  • You hire Bill at $21.00/hr., with benefits after 30 days
  • Bill’s first week in the shop               40.hrs            840.00
  • Bill’s 2nd and 3rd week training in the field            1680.00

OK, you get the drift. Total cost so far is                     $8901.80

With new safety gear, admin time checking driver’s license, I-9, setting up payroll, the meet and greet non-productive time, and of course, a new coffee cup, let’s round this up to $9,500. I have not included, FICA, state taxes or workers’ comp because each state is different, but it is probably 25 percent more, on average, bringing the total cost to $11,875.

If you received only a few resumes, none of which looked good, you have to go through the advertising and interview time again.

If you received many resumes, good for you!

$11,875 to hire a replacement. Let’s say you spent an extra week training Dave, with you for two days and Sam for three days, that would cost you $1571.20. You and everyone in the company like Dave, and as good, young talent, you thought you could mold him to be a productive member of your team.

So maybe he needs two, or even three weeks. You do the math.

Half of all new hires don’t make it 90 days, so start over. And keep spending.

It is time to look at your in-house training program, or your interview and hire process, or to work with Sam to help him train his people. It does take a while to train a good field installer, especially in commercial work.

Enough. Training is better, less expensive, and people-friendly. Think about it. Do it.

P.S. One week until opening day. Oh, how wonderful.