When a new employee leaves a company within the first year, it can have a significant impact on the...
In the first of our series of blog posts associated with the costs of a bad hire, we look at the terms typically applied in an employee’s contract and how they can have an adverse effect on a business when someone leaves within the first 12 months of employment.
This needs little explanation however, you need to consider the weeks, months (or year) the bad-hire had been with the company, as bad-hires often have higher than average levels of sickness and other absences. In addition, further costs can be accrued surrounding severance packages, HMRC contributions, bonuses and benefits. Naturally, these costs are higher the more senior the position the departing candidate holds.
The following constitutes the potential costs typically incurred based on the terms applied to a typical employee's contract:
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Average Leadership Salary
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Employer National Insurance rates
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Minimum Employer Pension rates
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Severance Package and Redundancy
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Notice Period and Garden leave
1. Average Leadership Salary (UK) £71,850.73
The first, and potentially largest, unrecoverable salary cost incurred is the total salary that the hire has taken out of the business during their time in situ. The salary refers to the total amount that an employee has earned, before deductions have been applied. It may include earnings for overtime, bonuses, shift work, and holiday pay, etc.
2. Employer National Insurance rates 13.8%
The next factor to consider and cost incurred is Employer National Insurance. Employers pay Employer's National Insurance contributions on their employees' earnings and benefits at 13.8%.
3. Minimum Employer Pension rates at 3%
Thirdly we have Employer Pension rates. Employer contributions are payments employers make into an employee’s pension at a minimum of 3% although, this is often much higher in large or high performing companies.
Let our FREE bad hire calculator do the maths for you here
4. Severance Package and Redundancy
Statutory redundancy payments depend on an employee's contract and length of service, as well as the reasons for dismissal. These can sometimes be an even more significant outlay that the total salary. And, a severance payment can be a larger package, including redundancy pay and any other employee payments, such as benefits and bonuses.
5. Notice Period and Garden leave
Garden leave (or gardening leave) is when an employer tells an employee not to work either part or all of their notice period. This could be because the employer does not want the employee to have access to sensitive or confidential information they could use in a new job.
Closing thoughts…
There are many considerations when it comes to unrecoverable salary. You can never be 100% certain that a candidate will stay long-term in your business however, you can take measures to mitigate that risk.
