What is the True Cost of Replacing an Employee? A Guide for Employers

Replacing employees can be costly, time-consuming, and disruptive. For employers, understanding the full impact of turnover is essential, not just salary costs, but recruitment, training, downtime, and even potential legal risks.

In this guide, we break down the true cost of replacing an employee and highlight strategies to reduce turnover, retain top talent, and protect your business.

How Much Does It Really Cost to Replace an Employee?

It’s estimated that replacing a salaried employee can cost between 6–9 months’ salary, depending on the role. This includes:

1. Recruitment costs (advertising, agency fees, HR time)
2. Salary and benefits for the new employee
3. Training and onboarding costs
4. Productivity lost during downtime

For high-turnover, low-paying roles, replacement costs are around 16% of salary. Mid-range roles may cost 20% of salary, while executive-level positions can cost up to 213% of salary.

Downtime and reduced productivity are often overlooked but can be significant, especially if key employees leave unexpectedly.

Check out our page on Attraction and Retention for specific figures relating to turnover costs. 

Why Employee Replacement is So Expensive

Several factors contribute to the cost of replacing employees:

1. Recruitment and Advertising Costs

You can handle recruitment in-house or use an agency:

• In-house recruitment requires time from managers or HR staff to review CVs, schedule interviews, and manage candidates.
• Recruitment agencies usually charge 15–20% of the new hire’s annual salary, with fees varying by role.

Advertising on job boards and professional networks also adds up, particularly for specialist or senior roles.

2. Salary Differences

Your new hire’s salary may differ from your previous employee’s, depending on their experience, skills, and negotiation. Budgeting for these variations is critical.

3. Role Downtime and Training

Replacing a skilled employee often means a period of lost productivity:

• Other team members may cover additional tasks, leading to stress or burnout
• New hires require training and onboarding to reach full efficiency, which can take 6–12 months depending on the role

Downtime can be the hidden cost that significantly affects your business.

4. Legal and Compliance Risks

If a redundancy or dismissal is mishandled, employers may face legal claims or tribunal fees. Ensuring contracts, policies, and processes are compliant is essential to reduce risk.

How Employers Can Reduce Replacement Costs

Investing in retention strategies is often more cost-effective than constant recruitment. Consider:

1. Flexibility: Offering hybrid work or adaptable schedules
2. Recognition and rewards: Incentivise and motivate employees
3. Career development: Training, progression, and skill development opportunities
4. Culture and relationships: Encourage mutual respect and engagement

Even small improvements in retention can save thousands of pounds per employee annually.

You can learn more about how to keep your best employees from leaving.

Centric HR Can Help You Retain and Attract Talent

At Centric HR, we work with small and medium-sized businesses to minimise the costs of turnover by creating effective HR strategies:

• Attraction and retention planning
• HR audits to identify potential gaps
• Employee engagement and development initiatives
• Policy and contract support to reduce legal risk

Protect your business and retain your best employees. Contact Centric HR today for a free health check or tailored HR support.