how much does outplacement cost?

When an HR manager is looking for an outplacement services provider, they aren't just buying a product or a service. They are looking for a care package to help employees selected for layoff to leave with pride, respect, and able to advance to a positive future. Whether they choose to acknowledge it or not, after layoffs or reductions in the workforce, a company has an ethical obligation to support affected employees through the process of exiting the business and in finding new jobs. Outplacement services help the transitioning workforce to find a role that is a good fit and to move on to new roles faster. 

When assessing outplacement costs, here are some considerations to keep in mind...

factors that influence outplacement cost

Outplacement costs vary depending on the services provided, the level of the employees impacted by the layoffs, and of course, the volume. Some companies offer a range of outplacement plans for different budgets. The variables to consider when evaluating the cost of outplacement include:

  • type of outplacement plans: outplacement service providers offer diverse levels of services to employees. For instance, basic outplacement plans offer minimal services like resume building, job search coaching, and cover letter development. They are more affordable since they don't provide specialized attention to individual employees. It may cost more if you are looking for a customized outplacement program that offers each employee individual support. However, employees benefit far more from the additional services. Executive outplacement programs also cost more since they offer advanced services to top-level workers in the company.
  • the number of employees: most outplacement service providers charge for their programs based on the number of employees impacted by the layoff. When you are laying off a large number of workers, you pay more. The services provided individually will increase or reduce the outplacement cost. The cost per person also varies depending on their seniority level. For instance, a junior employee requires less advanced outplacement support than senior-level workers.
  • duration of outplacement service: what is the duration of the outplacement support? Does the provider have term limits such as three months, after which services are terminated? If your outplacement provider offers a limited-term contract, you will only pay for that period. Offering unlimited support can be expensive if you intend to provide career transition support until all laid-off employees achieve their objectives. However, it provides a better outplacement package that adds value to employees' lives.
  • experience: when reviewing the outplacement cost, the provider's experience is important. For instance, are its placement numbers promising? Do they have trained coaches that can handle executive-level placement? An outplacement firm with a proven track record and experience may cost more but will provide exceptional outplacement services. The placement numbers also show their expertise in helping diverse employees find work. That means your outgoing employees will likely transition faster with an experienced service provider.
  • technology: what technology solutions are used by the outplacement service provider? Does your business support these solutions? Some services cost more since they leverage technology and e-learning resources to help transitioning employees. Other activities like online networking and virtual services may cost more, too, or may be included as part of an offer. 

When determining the outplacement cost, pay attention to the details. Affordable services may save your business some money, but the basic plans don't help employees complete their career transitions faster or more successfully. Some outplacement service providers also use online technology to lower overhead costs and offer more value for money, which is fine, but not okay if it isn’t clear at the point of purchase.

An organization laying off workers or reducing the workforce may be looking to cut costs and stay afloat. That means it may feel counterintuitive to spend money on outplacement costs. However, the cost of not providing outplacement could be much greater and measured in more ways than a line item on a financial statement that quarter. News about layoffs and redundancies make headlines, and company investors and senior stakeholders are usually keen to know how you treat your outgoing employees. Negative press is often caused by companies failing to offer support, or handling a delicate process like layoffs in a poor way, and also those scathing reviews on job boards and review sites. Hence, the cost of offering outplacement outweighs the financial consequences of negative reviews.

return on investment for outplacement costs

According to the Harvard Business Review, great employment assistance programs result in a return on investment for the organization. For instance, a well-designed employee wellness program has an ROI of $2.73 for every dollar used in the program. Employee assistance programs include outplacement services and stress management support during downsizing. The expenses spent on counseling, coaching, and work placements reduce animosity towards your business and minimize the chances of future lawsuits.

the cost of failing to offer outplacement services

A company isn't legally obligated to provide outplacement services. However, a redundancy support program shows that the organization cares for the emotional well-being of its workforce. When you don't pay attention to the needs of laid-off workers, they feel dismissed without dignity. Hence, they resent organizations for the severance of their employment contracts.

As well as the negative media responses you receive for layoffs, your reputation suffers a huge blow. While the layoffs could be valid, a poorly executed redundancy plan has devastating effects. When your organization shows up on the news for the wrong reasons, stakeholders always remember how you treated your employees. This weakens your employer's brand, and you will have difficulty attracting or retaining talent in the future.

Maintaining an employer brand is vital when hiring since 84 percent of job seekers check the company's reputation before applying for a job. Negative sentiments lead to poor outcomes when your company seeks employees for expansion. The reputational damage isn't the only blow your organization suffers. When critical comments discourage future hires, your company will have longer recruiting cycles, increasing expenses. Failing to fill key roles in the company also results in lost business opportunities.

During layoffs and redundancies, emotions are high. The animosity between you and your workers is elevated when you don't show regard for their welfare. Vengeful retaliation usually results in lawsuits for unfair dismissals, damaging a business financially.

the financial implications of redundancy

Tough financial times in organizations usually trigger layoffs and downsizing. Hence, minimizing business costs is a top priority for most businesses. When considering outplacement costs, HR managers should factor in unemployment benefits and the cost of lawsuits that accompany the mishandling of layoffs.

When laying-off an employee, you are obligated to offer a severance package that includes employee benefits and pay. A severance package comes with a sum of money that depends on the duration of employment. The company policy usually dictates the terms of the severance payment. Some allow lump sum payments or amounts paid out over a determined period.

Some severance packages include continuing healthcare or life insurance based on the employment contract and company policies. That means you might cover the cost of benefits until an employee secures another job or up to 18 months, for example, after the job loss. When you employ union workers, they are entitled to severance equivalent to the collective bargaining agreement.

Even after paying the severance packages – depending on where your business is located – you sometimes pay workers for the time out of work. You can minimize these expenses by paying for outplacement services. The quicker your former employees return to work, the sooner you stop paying unemployment benefits. Sound management of workforce reductions also reduces the long-term expenses of negative publicity. Lawsuits for wrongful termination may attract expensive penalties and compensation payments, including the lawyers' fees and administrative costs of these processes.

the cost of employee engagement and lost productivity

The way you treat laid-off employees has an impact on the rest of the company. If you handle the reduction in force well, it builds employee confidence in the company. However, failing to offer support leads to a loss of confidence in the company.

When a company downsizes, the remaining employees suffer survivor's syndrome, which has devastating impacts on the business. Some of the negative effects of workplace survivor syndrome include:

  • anger about the handling of the layoff process
  • feelings of guilt about keeping their jobs
  • fear of being laid off in the next phase of redundancies
  • frustration from the additional workload
  • loss of trust in the business

Survivor’s syndrome causes disastrous costs for businesses. The departure of some employees makes the remaining employees unhappy, especially in organizations with close-knit teams. A sense of unease and poor morale leads to reduced motivation. The remaining employees may be unwilling to do their jobs properly, resulting in low productivity. When a company is struggling, you need your workers to be at their best to increase productivity.

Uncertainty about the future makes employees resentful and withdrawn and reduces engagement. If the restructuring process is poorly handled, leading to a morale drop, you will experience lower employee engagement. Studies show that downsizing even 1 percent of your workforce can reduce employee engagement by 40 percent, followed by an increased voluntary turnover of 31 percent.

Demonstrating to your workforce that you have an outplacement service can reduce the effects of survivor's syndrome. It minimizes the fear of losing their jobs and helps them concentrate on their roles since they are confident that you will take care of the laid-off workers. A study by Gallup shows that highly engaged employees improved a company's revenue by 26 percent and productivity by 21 percent.

how to ensure your company gets value from outplacement

Outplacement service providers vary and offer different levels of support. When evaluating the value of outplacement services, consider the costs of not providing the service to laid-off workers. If you add up the financial implications of not providing outplacement service, you realize that your company benefits from offering support. However, to reap outplacement benefits, you should choose the right partner based on your business requirements.

Not all outplacement providers are equal. For instance, glowing metrics differentiate companies with a proven track record from others. When evaluating the costs, review each provider's performance data. Your employees will get more value from an outplacement service provider with a good reputation. Even if you pay premium rates, you get value for money since the job placement period is shortened.

While experienced outplacement service providers are usually the first choice, you should also consider the employees' needs. For instance, some new companies have better metrics in specific industries or fields and can offer better value for your employees.

When evaluating the quality of outplacement services, pay attention to the services the outplacement provider offers. If a provider has customizable options, you won't pay for services that are irrelevant to your company. If the services run for only a short term, they may not fit the recruitment cycles in particular fields, yielding a lower success rate. You should also ensure the outplacement program is relevant to your employee demographic for them to gain maximum support.

Outplacement costs can skyrocket. Hence, you should be attentive to the quality of service you receive. For instance, investing in career coaching that specializes in your industry isn't cheap, but employees gain more from the industry-specific experience of the coaches.

evaluating outplacement providers based on costs

Some outplacement service providers offer generalized support services like basic resume writing and job alerts. The outplacement costs for such services are low, making them attractive for a business that needs to save costs. However, since it doesn't provide enough value, you spend more dealing with the negative impacts of poor-quality service.

When evaluating the outplacement costs of high-end outplacement providers, check the services you are getting. A provider that offers comprehensive services charges more but provides more value. Most providers offer a package for a range of services, and any add-ons attract additional costs. The technological capability of the outplacement service provider may also influence how much you pay. Consider looking for another provider if the comprehensive service isn't sufficient for successful career transitions. You should also carefully consider outplacement providers that require retainer fees. You may not, in the end, require the services, but if the outplacement provider is on a retainer, you are obligated to pay.

If you are looking for additional resources on outplacement and career transition, explore the range of articles on our website. Here, you will find insight on outplacement, executive transition, career development, and more.

12 October 2022

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