What Is the Cost of Vacant Positions for Companies?

Farah Van Vugt
Director, Professional Talent Acquisition | AURAY Talent

In the business world, an unfilled position in an organization represents much more than an empty chair. It can lead to significant costs that can approach 20% of the worker’s annual compensation and as much as 213% in certain circumstances.

It’s essential to understand the real cost of a vacant position in your organization, so you can optimize your recruitment and retention strategies accordingly. However, quantifying the cost of an absence is not limited to a percentage of total compensation or the position level. Among the potential overall costs to an organization, we need to consider the impact of the individual on human, operational and strategic levels, by way of example. Vacancies inevitably affect employee morale, through the extra workload involved or the change in work dynamics, with a direct impact on mobilization, efficiency, meeting deadlines, customer satisfaction and so on.

This issue is a repercussion that organizations often forget to calculate, but which has a major impact on performance and results.
According to a study by the Canadian Federation of Independent Business (CFIB), the contracts and sales that Canadian SMEs had to refuse or postpone during the past year due to labor shortages represent a profit shortfall of over $38 billion.

So what should you take into account when calculating the cost of a vacant position?

Tangible costs

Non-producing salary:

• Analyze the employee’s salary. This includes their base salary, employee benefits, bonuses and any other benefits.
• Calculate the daily, weekly and monthly cost of the non-producing salary. Multiply the daily, weekly or monthly salary by the number of days, weeks or months during which the position has been vacant. This will give you the non-producing salary for the period in question.

Recruitment costs:

• Fees for posting job offers. This includes advertising costs for vacant positions, the costs associated with job fairs and expenses related to online recruitment tools.
• Time spent by resources throughout the recruitment process. The time spent preparing job postings, preselecting and interviewing candidates is a critical component that must be taken into account.
• Agency fees for the use of recruitment experts. If you need to outsource your process, the associated costs will need to be considered.

Training costs:

• Training a new employee. The costs associated with training and integrating new employees can be high.
• Loss of productivity during the adaptation period. The length of time it takes a new employee to become fully autonomous varies depending on the role, the complexity of tasks, the scope of their experience and other factors. However, an average adaptation period ranges from a few weeks to several months.

Intangible costs

Loss of productivity:

• Production and service delivery are impacted. This can decrease productivity since the tasks related to the position are not fully completed.
• Project delays and errors attributable to understaffing. This can result in lost contracts and clients, for example.
• Operations maintenance costs. This includes overtime and additional costs incurred to offset the employee absence.

Team morale and motivation:

• Team morale is impacted. Low morale can lead to a higher rate of absence from work due to either physical or mental health issues, which can result in additional costs for replacing absent employees or a loss of productivity. In some cases, this could lead to further resignations.
• Identify the signs of work overload and stress. This is a very important aspect in implementing efficient solutions and includes recognizing employee achievements, fostering a work/life balance and open communication, and proactively resolving morale and motivation issues.

The importance of strategic workforce planning

Introducing strategic workforce planning is a crucial step that can reduce both financial and human impacts and thereby ensure efficient operational continuity. Below are a few simple steps that allow you to include this process in your global planning.

1. Analyze market trends

Review market growth reports in your industry over the past few years in order to identify growth rates, expanding market segments and forecasts. This will allow you to anticipate fluctuations in labour demand and plan your strategies accordingly.

2. Plan for employee retirement and your future needs

A comprehensive analysis of your organization’s demographic trends and objectives is essential to predicting employee retirement and growth and labour needs. The following steps are key to efficiently conducting this analysis:

• Internal demographic analysis: Assess the average age of your employees, the staff turnover rate and planned retirements in your organization;
• Evaluate growth needs: Evaluate your organization’s growth objectives to determine future labour needs and take into account expansion projects, the development of new products and services, new markets, etc.;
• Comparative analysis: Compare the retirement projections with growth needs to identify potential labour shortfalls. This will allow you to define any necessary corrective action such as anticipated recruitment, internal training and other proactive measures;
• Human resource planning: Use this information to develop a strategic human resource management plan which includes initiatives such as targeted recruitment, training and skills growth, succession planning and optimizing remuneration and employee benefit policies.

In short, a vacant position in an organization can lead to significant financial consequences that include both tangible and intangible costs. Strategic human resource planning is therefore an important factor in anticipating and mitigating these impacts. When you’re able to determine the potential costs, you can adopt the most appropriate strategy for your situation. In certain cases, you may even choose to team up with a human resource professional. When organizations partner with an expert, they can benefit from leading-edge expertise to reduce their costs associated with vacant positions and ensure sustainable growth and optimal performance.

Published May 10, 2024.