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Terminating an employee—already one of the more complex and uncomfortable responsibilities of running a business—can also be costly in both obvious and less visible ways.
From legal risks to the impact on morale and productivity, understanding the full cost of firing an employee helps employers make more informed decisions and avoid unnecessary expenses.
It’s a common misconception that any termination perceived as “unfair” automatically qualifies as wrongful termination—but that’s not entirely accurate.
Kansas and Missouri are “at-will” employment states, meaning employers can terminate an employee at any time, for any reason, as long as that reason is not discriminatory, retaliatory, or otherwise illegal.
However, multiple state and federal laws protect employees from wrongful termination. Failing to comply can result in costly legal claims and reputational damage.
Ensuring that termination decisions are well-documented, consistent, and compliant with employment laws significantly reduces the risk of legal action—and the high costs that come with it.
According to the Department of Labor, employers are not required to provide severance pay unless it is outlined in company policy or an employment agreement.
That said, many organizations choose to offer severance—often one to two weeks of pay, or more for long-tenured employees—to ease the transition.
In some cases, severance can also help reduce the likelihood of disputes or legal claims, making it a strategic decision rather than just a financial one.
In many cases, terminated employees are eligible for unemployment benefits unless the termination was due to misconduct.
While unemployment benefits are paid from a state-managed pool, claims can still affect your business over time. Specifically, they may increase your unemployment insurance tax rate.
This means the cost of firing an employee isn’t always immediate—but it can show up later through higher payroll-related expenses.
RELATED: What Is At-Will Employment? >>
One of the most significant employee termination costs is replacing the individual.
Expenses can include:
Recent data highlights just how expensive turnover can be. According to the Society for Human Resource Management (SHRM), the cost to replace an employee can range from 50% to 200% of that employee’s annual salary, depending on the role and level of experience.
For example, replacing an employee earning $50,000 annually could cost anywhere from $25,000 to $100,000 or more when you factor in recruiting, training, and lost productivity.
This wide range reflects more than just hiring expenses—it includes the time it takes for a new employee to reach full productivity, the strain placed on existing team members, and the potential disruption to business operations.
To reduce these costs, employers should focus on structured hiring processes, proactive performance management, and long-term retention strategies.
Beyond direct expenses, there are several “soft costs” that can significantly impact your business.
When an employee leaves, productivity often declines—especially if the role is critical.
Work may be redistributed to other team members, slowing operations and increasing the risk of burnout. Cross-training employees or using temporary support can help minimize disruption.
Employee terminations can create uncertainty across your workforce.
Remaining employees may feel:
Handling terminations professionally—and communicating appropriately with your team—can help maintain trust and stability.
RELATED: Best Practices When Terminating a Remote Employee >>
While some situations require immediate termination, most allow time for a more strategic approach.
Before making a final decision:
Maintaining thorough documentation not only supports better decision-making but also protects your organization if a claim arises.
Letting an employee go can carry hidden expenses—lost productivity, recruitment and training costs, and the potential impact on team morale. Proactively investing in performance management, clear communication, and supportive employee relations can help you avoid those costs by resolving issues early and retaining valuable talent.
💼 Learn how Axcet’s Employee Relations Services can help your business strengthen retention strategies and reduce the high costs of turnover.
Written by
Jeanette Coleman, SPHR, SHRM-SCP, is the Director of Human Resources at Axcet HR Solutions, where she has contributed her expertise for over 21 years.
As a leader in the HR industry, she holds advanced certifications as a Senior Professional in Human Resources (SPHR) and SHRM-Senior Certified Professional (SHRM-SCP). Jeanette oversees HR strategy and operations, ensuring Axcet delivers exceptional HR services that help small and mid-sized businesses stay compliant and grow.
With a Master’s degree in Human Resource Management from Keller Graduate School and a Bachelor of Science in Business Administration from Kansas State University, Jeanette is well-equipped to lead and support clients in navigating complex HR challenges.
Throughout her 15-year tenure as Director of Human Resources, she has been instrumental in positioning Axcet as the Midwest’s largest and premier Professional Employer Organization (PEO). Her previous roles at Axcet include Director of Employee Benefits and Senior HR Consultant, where she gained extensive experience in HR outsourcing, payroll administration, and employee risk management.
Jeanette’s leadership reflects her deep commitment to helping businesses thrive through strategic, compliance-driven HR solutions. Through her writing, she shares insights on HR strategy, compliance, and best practices to help employers confidently manage their workforce.
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