HR Question:

My boss is pushing me to fill a position and to just get someone in the door as quickly as possible. How can I help him understand that fast is not the best approach and there is a cost of a bad hire?

HR Answer:

Nothing talks better than money! The data surrounding the cost of a “bad hire” range from 30% to upwards of three to four times the employee’s annual salary. Whatever the actual dollar amount, hiring the wrong person for the job can lead to substantial losses for an organization. The true cost of a bad hire will depend upon the position, your industry, and frankly your culture.

As a starting point to understand the size and scope of the situation, the following are some of the costs associated with making a bad hire, illustrating the importance of investing time to get it right the first time.

Direct Financial Costs

Recruiting & Hiring Expenses

Searching for a replacement requires a number of recruitment activities including re-advertising the position, conducting interviews, and time spent onboarding another new hire. The estimated cost for hiring a new employee is about $4,700 on average according to the Society for Human Resource Management (SHRM).

Salary & Benefits

Regardless of the employee’s fit within an organization, they were compensated while employed, earning benefits, and incurring other employment expenses.

Training & Onboarding

Organizations spend thousands of dollars on onboarding new hires which includes not only the materials and training resources but the time that staff spends on the process. Consider all of the activities in a good onboarding program and keep in mind that these are costs that cannot be recovered if the hire does not work out.

Legal & Compliance Risks

Bad hires can sometimes lead to potential legal costs. Whether it is a claim of wrongful termination or even discrimination, legal fees can add up quickly, potentially exceeding six figures.

Lost Revenue

Regardless of the role, a bad hire can result in lost revenue for the organization. Whether it’s due to delays in making the product or delivery, or services not being provided on time, the financial consequences can be significant.

Indirect Costs

Reduced Productivity / Incomplete Projects

Aside from the financial impact of reduced productivity, there is the emotional impact to coworkers. New hires who aren’t able to carry their share of the workload create bottlenecks, force coworkers to pick up the slack, and delay project timelines. This can negatively impact the team’s performance, and bad habits could be adopted by otherwise productive employees.

Increased Turnover

A bad hire can drive away top performers, leading to inflated hiring expenses and lost productivity. One bad hire may not make a difference, but if you continuously make the wrong hire and are not effectively interviewing candidates, those left behind may leave resulting in additional cost.

Strain on Management Time

Bad hires force managers to concentrate time on performance coaching, documenting issues, and reassigning work, which distracts them from focusing on business goals.

Reputational Damage

Bad hires can contribute to not meeting deadlines or client deliverables, ultimately resulting in poor customer reviews and a lack of confidence in your brand. A bad hire in a customer-facing role can also potentially damage relationships with your customers and vendors.

The financial, legal, and reputational costs of hiring quickly without proper vetting is just not worth it. Yes, someone will be “on the floor” or “in the seat,” but if they do not work out, the costs can be extensive. Investing time and effort in the hiring process is essential to avoid the need for costly replacements and to ensure the new hire is a great fit!