the cost of a bad hire goes way beyond the cost of recruitment and onboarding.

The Cost of a Bad Hire & The Warning Signs To Look Out For

Most hiring managers wade into the hiring process with a positive attitude. They may expect relief from the work crunch they’re suffering. They may be hoping for fresh talent and expertise to take their operation to the next level. They may imagine a new employee will bring fresh energy to the team.

If they do their job well, a hiring manager’s wishes may come true. Usually, the results are a mix of finding someone who is skilled in some areas and needs development in others. Unfortunately, statistics tell us about half the time the hire is a genuinely bad fit. That hiring mistake falls on your process and maybe even your expectations.

As we covered in an earlier blog, you have a number of costs associated with a new hire. Some of them are obvious, many are not. But the cost of a bad hire is a multiple of these expenses. You already spent a considerable sum to get them onboard. Now you must spend more to sever them. Then you need to spend it all again to replace them. And that doesn’t even address all of the costs.   

What Exactly is a Bad Hire?

Hiring managers will often try to imagine a candidate in the open position, wishfully seeing positive qualities as evidence that the candidate is the right person for the job. This can obscure the hiring managers’ view of the person in front of them.   

A hire can be a bad fit in any number of ways. They may not be capable of performing the work the job requires. This is not uncommon when some people see “fake it till you make it” as an acceptable career path. They might misrepresent their experience and not understand your industry or the full scope of work required for the position. They may lack professional personal qualities such diligence, attention to detail, self-discipline, or self-motivation. Or, they may lack certain social skills which are a subjective but very real key to success in roles like sales or customer service as well as collaboration with colleagues.

A bad hire is someone who is never going to meet the expectations of your company or the requirements for their role. As a result, the business suffers and, if the disruption or shortfall is serious enough, the entire company suffers, especially other personnel. Recovering from that situation compounds the cost of a poor hire.

The Hidden Costs of a Bad Hire

The U.S. Department of Labor calculates the average cost of a bad hire to be up to 30% of the employee’s annual salary. According to CareerBuilder, that average cost is $17,000. The most obvious expense is talent acquisition. But to understand the true costs of a bad hire, you need to look at all the additional expenses that go with it.

The total cost can be broken into four categories:

Recruiting & Onboarding Expenses

How many hours per week does each person involved in recruitment and hiring spend on those tasks? Now multiply that by their average hourly pay rate. Next, figure how much time the new employee’s manager and cohorts spend getting them up to speed in their role, plus whatever time IT spent setting up their systems. The Society for Human Resource Management (SHRM) put this cost at $4,700 in 2022. Now double that amount in order to fill the position with yet another new hire if the first one doesn’t work out.

Productivity & Revenue Loss

If you’re lucky, the wrong hire may at least get some work done. But how much time did managers spend trying to get it into acceptable shape? Did someone else have to re-do that work? If that work couldn’t be used and can be directly correlated to revenue and profitability, there’s another set of losses you’ll have to account for. SHRM put those costs at 150% of the recruitment number. If you weren’t so lucky, their work may be a total loss.

Low Morale & Employee Turnover

This may be the biggest expense, and the hardest to quantify. Even if the bad hire wasn’t a toxic personality, the stress and disruption of having to work around their deficiencies will take a toll on the rest of the staff. Whether it’s having to compensate for their shortfall or mistakes, or having to repair relations that were strained by their presence, these ultimately affect work volume and quality. Whatever harmony you had before that episode will take extra effort to restore. That takes time, and time is money.

Damage to Reputation

Obviously, a bad hire in a customer-facing role runs the risk of driving away customers or valued partners. But even a mismatch in a back-office role can adversely impact customer service or product quality that will reflect badly on the entire company and your brand.

Warning Signs of a Bad Hire

Instead of entering the hiring process with subjective expectations, you need to apply a list of specific requirements for the position, ideally ones you can quantify. Your vetting process should be the way you identify how each candidate matches up to these objective requirements. Establishing these criteria with the various stakeholders assures alignment on the qualifications for recruitment and what to probe for during the vetting process. Most of all, it can help you avoid the expense of a bad choice.

If a position requires technical skills, make sure the candidate can supply evidence they possess those skills. At a minimum, include one of your current experts in the interviews to probe for deep knowledge of the skill. An inability or unwillingness to provide satisfactory evidence is a big red flag.

Finding objective metrics for softer skills is harder, but not impossible. How people handle themselves with colleagues or customers involves certain behaviors you can probe during the interview process. Likewise, you can explore skills like organization or attention to detail through questions about specific behaviors. Here also, how candid and comfortable they are in their answers will tell you a lot about who they are as people as well as their skill level.

The best source of information about any candidate is from credible references. If a reference will speak with you about a candidate, you can use the opportunity to validate the candidate’s answers. If the references are not relevant – not former colleagues or supervisors, but more “character witnesses” – that should be a source of concern. And if references decline to speak with you, that’s the biggest red flag of all.

Bad Hire and Employee Turnover Statistics

Unfortunately, employee turnover is inevitable at every level of an organization.

The same CareerBuilder study cited above found:

  • 2/3 of workers had accepted a job that they later realized was a poor fit.
  • 50% of those workers quit within six months.
  • 74% of employers said they made a bad hiring decision

And, according to Dr. John Sullivan, a recognized thought leader in HR metrics:

  • 50% of all hourly employees quit or are fired in their first 6 months (Source: Humetrics)
  • 40-60% of management new hires fail within 18 months (Source: Harvard Business Review)
  • 50% of executive new hires fail within 18 months (Source: The Corporate Leadership Council)
  • Only 19% of all new hires can be considered unequivocal successes (Source: Center for Creative Leadership)

You Can’t Afford Bad Hires!

A hiring mistake is obviously a problem for the entire company, not just for HR or their department. The bottom line suffers, along with some portion of the other employees. By turning your expectations into objective criteria for placement, you can avoid the expense and disruption.

If you’re still having trouble finding excellent candidates to fill your open roles, maybe you need to look farther afield. Solvo provides simplified recruiting solutions with qualified nearshore professionals. Solvo helps businesses of all sizes in virtually any industry find the people they need at all skill levels.

Solvo drives business growth by connecting North American companies with exceptional remote workers and AI-powered tools. Our unique nearshoring model ensures efficient collaboration in the same time zone, reducing turnover, and driving cost efficiencies. With a focus on fostering a great work environment, Solvo is dedicated to attracting top talent, ensuring our partners never have to choose between cost and quality.   

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