Companies have been warned that the cost of redundancy is far more serious than firms would initially think, as the Chartered Institute of Personnel and Development’s has discovered that the cost of letting an employee go and then hiring someone else averages at £16,375.

The Institute is aware that many firms fall back to redundancy as the first weapon amid economic crisis, however the Institutes research how shown that using such a tool could be a devastatingly high expense for the firm.  Although the company may see costs fall after losing an employee, the firm will battle with high output when the economic crisis is resolved and the firm is trying to lift itself up, as the firm will have to spend unnecessary money on recruitment all over again.

In the same logic, companies across Britain will already be down by £5 billion by the end of March as 300,000 people will be made redundant.  Further more if the trend continues the damage to the sector could reach almost £20 billion throughout 2009.

The Institute’s chief economist, John Philpott, claims that redundancy is clearly the last step any firm should take.  “It is these people with their commitment, productivity and ability to add value who will ultimately keep individual businesses and the whole of the UK competitive, and put us in a strong position to recover from the downturn quickly,” he said.

“While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity,” continued Philpott.

However, the news comes at a time when many small businesses around the country are being forced to close their doors, and the Forum of Small Businesses has recently announced that one in twenty small firms could close through 2009.

Philpott went on to call out to business owner’s better judgement in this time of economic crisis, by saying, “We urge employers to plan for recovery by investing in and growing their people, rather than reducing their workforce. Employers should hold their nerve and focus on retaining talent and investing in the skills of their people.”

The British Chambers of Commerce has announced that we could be seeing unemployment figures of up to 3.1 million this year and in response to the announcement, the Institute has expressed the concerns that unemployment rates such as these are extremely tough on morale and motivation and can be classed as a serious threat.

There is some good news however, as Gordon Brown has recently announced that he will be creating a further 100,000 jobs to be made available, however compared to 3.1 million  unemployed workers in Britain, the effort is only skin deep.  Still, in such a financially difficult time, unemployment is something that simply cannot always be avoided and the Government must attempt to do everything it can to pull the country out of this crisis.

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