Did you know you can expect to spend between $25,000 and $50,000 for every bad hiring decision in your company?
It was a Careerbuilder survey originally conducted in 2011 that garnered interest in the high cost of a bad hire. Since that time, many organizations have reconsidered the way they approach the hiring process. It’s important that organizations are able to breakdown not just the regular costs of hiring new staff, but how they can lose additional money for anyone who doesn’t work out. Beyond the salary, every aspect of hiring, firing, and rehiring costs your business time and money.
Statistics, like those collected in this infographic, show that bad hires can account for a number of business challenges.
- 80% of turnover is due to a bad hire
- 60% of bad hires will negatively affect the performance of other team members
- 39% of businesses report a productivity decrease as a result of a bad hire
While 41% of businesses place the cost of a bad hire around $25,000, 1 in 4 companies lost over $50,000 in this process. These figures are not just made up of the salary and training for each new employee but the compounding cost of the recruiting process, starting over, and toll on your company’s productivity and reputation.
The statistics are staggering, but that doesn’t mean you have to be a victim. There are multiple ways to review candidates and try to make a more informed choice for an employee who will be productive, efficient, and a good fit with your corporate environment.
Risk vs. Reward
Today’s job market is competitive. It’s turned from an employer market into an employee market in recent years, though some businesses are still concerned about a lingering skills gap. Hiring is an expensive investment. It begins with recruiting and advertising and continues through the employee onboarding process and beyond. It’s not uncommon for managers to make hiring decisions based on gut instinct, but that can quickly backfire if the employee simply isn’t a good fit.
When what appears to be a good choice turns bad, the money you’ve already invested becomes wasted and is quickly compounded. We know that there is major cost in the recruiting process, but what does it all entail when viewed as a whole?
- Recruiter or HR salaries
- Recruitment advertising
- Potential relocation
- Employee training
- The basic costs of a replacement
- The negative impact on the team
- Incomplete projects and disruption in workflow
- Unhappy or lost customers
- Outplacement resources
- Weakened employer brand and reputation
- Potential for litigation fees
While some of these are excessive, they’re all potential risks for what seems like a simple hiring decision.
How to Avoid the High Cost of Bad Hires
The Impact of a Bad Hire
A bad hire never starts out that way. If they were, you wouldn’t have hired them to begin with. By the time you figure it out, based on behaviour or impact, it’s too late. When you breakdown the total cost of the list above, you can see how little things create a huge snowball effect in your business.
Let’s examine the impact on employee morale. They say one bad apple can spoil the whole bunch. When you make a bad hiring decision, it doesn’t just impact the individual. Other employees may become frustrated if they’re asked to take on extra duties when they see the new team member isn’t living up to expectations. They may start to take their workplace frustrations out on clients when they don’t even mean to. Many companies experience a mass exodus when a bad hiring decision isn’t rectified fast enough. It can take a long time for your company to recover from a bad reputation or to gain back the trust of your employees or even customers.
What Causes a Bad Hire?
According to the surveys done around bad hiring decisions, 38% of the companies that participated said it was a direct result of rushing to fill an open position. More than 10% said they didn’t conduct any background checks that might have raised red flags. Over 20% discovered that the employees didn’t live up to the expectations of their initial resume and interview.
Take the resume for example. Job seekers are encouraged to include accomplishments and necessary skills. But there is such pressure to find a job, they may embellish some of these skills beyond their real capabilities. Some can rise to the occasion and use this as an opportunity to prove they are capable of greatness within a nurturing company environment. But others may have just wanted the fastest route to a paycheck, which leads to problems in the workplace.
However, there are checks and balances that can be put in place. When you see how many companies admit to skipping the background check process, it’s easy to realize why bad hires happen. A quick phone call to a previous employer to determine why the candidate is no longer at that job could provide the necessary insight to make the best decision.
Employers also tend to hire based on gut feelings. We’ve all done it. You meet someone who reminds you of yourself and you feel like they may be a good fit, but don’t necessarily look beyond the surface. They may not end up fitting in with your current team and that friction causes undue tension that creates that ripple effect in productivity.
Signs of a Bad Hire
It doesn’t take long to recognize that a hiring decision may have been a bad one. The biggest fear is allowing yourself to admit that you made a mistake. Many managers will wait and hope things get better on their own, but sometimes the damage is difficult to repair. The cost just keeps adding up.
Red flags will begin to show up immediately. The original survey showed that:
- 63% of new employees couldn’t keep up with work after training
- 63% of new employees didn’t work well with the current team
- 48% were unable to meet deadlines
- 56% show immediate problems with attendance
Many of these issues overlapped, of course, meaning there were multiple red flags for every bad hire.
Now consider the flip side. Did you know that 28% of new employees quit before their first 90 days? Some of these are bad hires who were simply unable to catch on or feel comfortable in the workplace. Others reported that they felt like training or onboarding was lacking or that their expectations about the job was very different than the reality.
Hiring goes both ways. If you want someone to be a good hire you need to be just as part of the process as they are. And remember, an ounce of prevention is worth a pound of cure. By making a few small changes, you can avoid making a bad hiring decision.
How to Avoid a Bad Hire
There is good news, however. Companies can take some simple steps to avoid the negative consequences of bad hires.
The single most important step is to reevaluate your own hiring process. Start at the beginning and ask yourself these questions:
- How easy is it for qualified candidates to apply with your company?
- How do you screen resumes to select the best candidates?
- Is your interview process standardized so everyone is asked the same questions and evaluated on the same level?
- Do you employ behavioural questions to get a better understanding of how candidates react to real situations?
- Do you complete the necessary reference and background checks?
- Do you have an onboarding program that makes new employees comfortable in your workplace?
- Can you pair them with experienced employees to provide mentorship on the job?
Just a few simple steps will help you ensure that every hire you make is qualified and a great fit for your office culture and environment.
HireHive is recruiting software to make the hiring process easier. Talk to us about how our system can help you find and hire the very best candidates for your company.