No one wants to start off the new year with an employee termination, and while it’s not as common as a voluntary quit, it does happen. In October 2023, 1.6 million employees were either discharged or laid off (compared to 3.6 million who quit), according to the US Bureau of Labor Statistics. But sometimes terminations are necessary, like when an employee isn’t a good fit and keeping him or her on would only hurt your business. The problem is terminations are rarely easy and a bad termination can cost you in a number of ways.
How Bad Terminations Can Cost You
Letting an employee go is never easy but a termination can easily go from bad to worse, costing you time, money and company good will.
Negative Employee Behavior
Employees don’t normally appreciate getting fired and they could make a fuss when they’re told by their manager and/or human resources that they’re being terminated. It’s an uncomfortable situation for everyone involved, but the terminated employee might create a scene, destroy property or even steal company data before they officially walk out the door. According to one study, one in four employees say they stole data when leaving a company. For construction companies, this could mean proprietary client information like current and past bids, seriously damaging your ability to competitively bid on new projects.
Disruption to Other Employees
Terminating one employee affects your entire team. Your remaining employees must pick up the slack, and they could also feel insecure about their own employment – both of which can lead to lower workplace morale and a lack of engagement – and engagement matters. According to Gallup, engaged employees make it a point to show up to work and do more work — highly engaged business units realize an 81% difference in absenteeism and a 14% difference in productivity.
Violating Legal Requirements
Hard costs exist when terminating an employee, including writing checks for final pay and any existing PTO. Failure to do so could result in fines should the employee file a lawsuit to get what he or she is owed. It’s important to note that your company might not be legally required to pay out PTO. There is no federal statute regarding PTO but there are 24 states with existing laws regarding the payment of PTO accrual, the majority of which are dictated by existing company PTO policies. So, if you don’t state there is a PTO payout in your employee handbook, you’re not required to pay outgoing employees for unused vacation.
Cost of Onboarding and Training a New Employee
While retaining employees is always more economical, sometimes terminations are simply necessary, especially if the employee has conduct or policy violations or continually underperforms. Nonetheless, it will still cost you to hire, onboard and train a new employee to take their place. It is estimated that it costs about $4,000 to hire a new employee. These costs include posting a job description, attending a job fair, doing a background check, administrative and training costs.
While nearly every state, except Montana, has at-will employment, meaning either the employer or the employee can terminate the employment relationship for any legal reason with or without cause, with or without notice, and at any time, an employer cannot fire a worker for reasons that would violate the US Equal Employment Opportunity Commission (EEOC). The EEOC protects workers from discrimination including for medical reasons or in regard to race, gender, sexual orientation, disability, national origin, religion, pregnancy or retaliation for sexual harassment claims.
How to Avoid a Bad Termination
Use Your Employee Handbook
Clarifying your termination policies in your company handbook can help you avoid a bad termination all together. Your employee handbook is the ideal place to cover all the legalities of HR, helping to ensure you don’t get caught in a loophole when a termination needs to happen. Use a legal service like Arcoro’s partner, myHRcounsel, to make sure your manual completely and thoroughly covers:
- Equal Opportunity Employment
- Americans with Disabilities Act
- Handling Complaints
- Conflicts of Interest
- Confidential Information
- Employment At Will
- Employment Classification
- Workplace Violence Prevention
Aside from state and federal laws, your employee handbook should contain certain elements and/or clauses that will help protect you from litigation but also set standards and expectations for your employees. This includes:
- A solid at-will employment statement to avoid creating an employment contract with your employees
- A statement that policies found within the employee handbook may be modified at any time with or without notice to employees
- An acknowledgment page that the employee signs either electronically or physically that is stored in the personnel file
It also helps to simply hire a better employee using HR technology.
Use HR Technology
An Applicant Tracking System (ATS) saves time and money by streamlining the application process, like automatically posting job descriptions to multiple job boards, and also help you source candidates by creating a talent pool by storing past applicant information, reducing recruitment costs. But it can set filters so only qualified candidates can submit an application for specific positions, like when a certification or license is required. Thus, unqualified candidates are automatically weeded out, saving your team from manually sorting candidates.
Onboarding software that works with an ATS continues to streamline the process via automated efficiencies, like:
- Sending communications to new hires with helpful information including logins, schedules and training. Send state and federal forms and an employee handbook for review and digital signature even before workers start their first day.
- Creating a self-service hub for your new hire with to access all helpful information easily available. Integrate with any internal/external technology including other HR automated solutions, payroll, and ERP systems to share data instantly.
- Alerting HR administrators of new employee actions, allowing them to approve and move the person forward in the process.
- Storing all important documents in a secure, cloud-based system, giving employers the ability to access them anytime.
- Setting up ongoing training and development for the new employee to become more accustomed to their role more quickly.
With HR software’s ability to automate some of the most time-consuming processes, investing in one will improve your candidate pool while reducing your future hiring and onboarding costs.
Arcoro’s ATS and Onboarding solutions are 100% paperless, cloud-based and have easy-to-use features that benefit both managers and employees.