If you work in hiring, there’s a good chance that at some point, you’ll make a less-than-perfect hire. But what does that mean for your company? Let’s break down what the true cost of a bad hire is and how you can minimize your risk going forward.
The US Department of Labor estimates that a bad hire will cost the company about 30% of that employee’s annual earnings. But many experts put that number much higher, rising to more than $200,000 for even a lower-level employee. The reason is that every step of the hiring process costs money. Recruiting, interviewing, and onboarding are all significant expenses—and you have to do them twice, once for the bad hire and again for their replacement. There’s also whatever salary you pay that person while going through the steps that lead to termination.
Productivity, Morale, and Reputational Damage
A straight economic look at bad hires doesn’t tell the whole story. Presumably, you hired someone because you needed them to do the work. If they’re not pulling their weight, the entire team has to cover for them. This leads to a drop in both productivity, job satisfaction and employee morale.
What are the costs of a loss of productivity? In simple terms, it means that you won’t make as much money on finished products. But it also puts you at risk of angering clients due to production delays. You may not get as many new projects, or existing clients may even decide to go elsewhere. If your productivity drops too far, you’re even at risk for lasting reputational damage.
Meanwhile, your employees will not be happy about the increased workload. In today’s tight labor market, they know that they have options. In extreme cases, one bad hire could cause a domino effect in which your best team members start leaving for other jobs. The cost of a bad hire is expansive.
Preventing Bad Hires
It would be impossible to prevent every single bad hiring decision. But you can take proactive steps to avoid the costs and reduce the risks of a bad hire.
- Improve your hiring process. Implement techniques that standardize the process and reduce unintentional bias. This will help to ensure that you hire solely based on merit, meaning that new hires are more likely to succeed. Maximize the steps you take hire and retain top talent.
- Make sure you’re competitive. You’re more likely to get a bad hire for a position that isn’t competitive with the local market. Are you paying enough? Offering the right benefits and perks? Do your job ads explain how your company stands out from the crowd?
- Utilize skills testing. Skills testing lets candidates prove that they know how to do the work. This will help narrow your talent pool to only the most qualified, and don’t forget about soft skills, not just technical.
- Work with a staffing agency. It’s tough out there, with lots of companies competing for top talent. A dedicated staffing agency knows where to find ideal candidates and how to recruit them. We’re also skilled matchmakers, with a knack for fitting just the right person into each role.
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