In popular culture, especially on TV, the firing of employees is often portrayed as a decision that is easily reached (and sometimes it is). However, making the decision to fire an employee is usually not easy, nor should it be. Legal considerations and the rehiring process can make it a costly decision. Before you have that conversation with an employee, or fire someone in the heat of the moment, weigh the impact of the termination.
In a fictional, perfect world, every employee would be a perfect match for his or her position in both skill and passion. But the real world is both imperfect and ever-changing and it's up to you to reassess your business' needs along the way. Sometimes that means reassessing your employees, as well. Here are some costs associated with firing, and some reasons why keeping an employee may be the best thing to do.
Financial Costs Associated With Termination
1. Unemployment claims
In an effort to reduce the cost of unemployment claims, some companies try to force an employee out before having to make that judgment call, but this is rarely an advisable move. It can alienate both current and former workers, lead to lawsuits, and prevent you from bringing an employee back on board. At the end of the day, this tactic may be more costly than terminating the employee.
2. Legal issues
Aside from wrongful termination, other lawsuits may arise upon an employee's termination. Management may want to consult a business attorney before making that call to ensure every step of the termination process is carried out both ethically and legally.
Unless you are consolidating and must reduce your staff, take into account the cost of the recruitment and hiring processes involved in rehiring. Turnover can ultimately cost thousands of dollars above and beyond replacing a salary, meaning every company should strategically evaluate terminations.
4. Indirect costs
During a period of turnover, you may experience other costs associated with terminating an employee. Firing someone may be very difficult for your team. Regardless of the reason for termination, management needs to be prepared to handle the aftermath in the work environment. Low morale, general confusion, decreased productivity, and an increased strain on the remaining team are all concerns that can directly impact your bottom line immediately following a termination.
Alternatives to Terminating an Employee
Terminating an employee should generally be a company's last resort. It will be emotional, financially costly, and may cause setbacks to the company's goals. In some cases, there are ways to address a problem employee without the pains of termination.
For employees struggling to perform well in a department, think about other areas of your company in which they might be a better fit. Providing an employee the option of reassignment may help. Understand the strengths and weaknesses of your employees so you can place them where they will best serve your company. This move may also serve as a morale booster to other employees who may not be happy in their positions, or who simply appreciate a company that looks after its workers.
Other employees may need additional training to strengthen their abilities. External training may seem costly at first, but when compared with the cost of turnover, it could be a viable solution. Always offer your employees every opportunity you can to improve their performance before making the decision to terminate.
Decreasing the Cost of Turnover
You may think terminated employees are out of the picture, but termination does not have to mean the end of a business relationship. Rehiring an old employee can be much more cost-effective than hiring a new recruit. You may find rehired employees remedy their performance issues over time. Old employees also already know your company policies and culture and may even help improve morale.
If you do need to sever the ties between your company and an employee, keep the conversation as professional as possible. Give distinct reasons for the dismissal and avoid letting emotions interfere with the process. Consider all of the costs and try to keep an open mind during the termination process.