The True Cost of a Bad Hire

Behind every tip, trick, and tool that today’s HR professional utilizes is a single motivating factor: avoiding a bad hire. There is so much effort and expense put into hiring, that the wrong decision does more than put you back at square one: it can have consequences that far outlast the employee’s departure. This is why the American Staffing Association, in the July/August 2016 issue of their magazine Staffing Success, reported:

“Research by ASA corporate partner Monster finds that most small business owners identify hiring the wrong person for a job as a risk to the company. In the survey of nearly 700 small business owners in the U.S., 89% of respondents said hiring the wrong person is a risk to the company; 51% said it is a major risk.”

The major risks take the form of damage that can often not be easily quantified, and sometimes can’t be easily remedied.

Cost of hiring + cost of firing

It’s not just the recruiting costs that are now doubled, but additional costs in the form of unemployment insurance (depending on the reason for the employee being let go) and COBRA mean that you will continue paying for the bad hire even after he or she is gone.

Wasted effort, lost productivity + overtime

The obvious costs of training will also double when you have to hire a replacement for a bad hire, but the fact is that many companies don’t let someone go right away when it’s determined they’re not right for the position they were hired for. Time will be spent on performance reviews and shifting the employee to other positions to try to make things work out. The result is a loss in productivity as the department (or departments) are adjusted to try to manage a poorly performing employee. You also risk paying increased overtime, as the reduced productivity doesn’t mean the work can wait, and you might find yourself with several costly and time-intensive mistakes to fix.

Decreased employee morale + potential loss of good employees

As the hiring manager, you are not the only one who is having a difficult time with this problem employee. Perhaps you’ve had complaints from others within the company… or perhaps they are complaining among themselves, which should be even more concerning. If you have an employee who is not pulling his or her weight, or who has a bad attitude with customers and / or coworkers, it is stressful to your other staff and you risk having them seek out greener pastures.

Upset customers + damage to your brand

Ensuring you have a comprehensive training program is key for any customer-facing role. Your employees need to have your expectations and visions spelled out for them, so they can best represent you to your customers. What you cannot teach, though, is a service mindset. A bad hire in this area can wreak havoc on your reputation. The Harvard Business Review reports that up to 80% of a company’s market value comes from “brand equity, intellectual capital, and goodwill, [meaning] organizations are especially vulnerable to anything that damages their reputation”. Depending on the role your bad hire is placed in, his or her impact on your reputation could be long-lasting.

Reduced revenue

Many of the risks above will contribute to decreased revenue, but obviously this could be exacerbated if the employee’s role is directly responsible for revenue generation.

So is it possible to avoid bad hires completely? Likely not, but they can be reduced substantially through thorough, unhurried recruitment policies that close as many HR gaps as possible. We offered several concrete strategies here and here. By far the most effective strategy for maximizing your recruitment dollars is to discard early on those candidates who, through scientifically designed and validated testing, have admitted to bringing counterproductive behaviors to the workplace, or who are not the right behavioral fit for the specific job you need filled. Take a look at our hiring assessments and then contact us with any questions. Investing in your recruitment process up front could end up saving you more than just the cost of hiring a replacement.[/vc_column_text][/vc_column][/vc_row]

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