Can Your Company Afford the Cost of a Bad Hire?

Written by Freddie Rohner, iHire
Exhausted HR representative upset over hiring mistake and wondering how to overcome the cost of a bad hire

When it comes to talent acquisition, a lot of time and effort is spent searching for the perfect hire. Depending upon the nature of the position in question, however, finding the perfect candidate may be almost impossible.

A lot of things can impact the caliber of applicants, such as the level of competition for talent within the industry, the demand for a specific set of skills, the attractiveness of the role, and the long-term opportunities offered by a potential employer.

More often than not, a recruiter or hiring manager is forced to abandon the search for the “perfect” hire and instead settle for a “great” or even “pretty good” applicant. Or worse, they resort to poor hiring practices and end up with a bad candidate that can have drastic consequences in the near term and far into the future.

Whether it’s out of necessity, urgency, or desperation, even the best HR leaders are capable of making hiring mistakes. These bad hires can lead to numerous negative impacts including lost productivity, wasted overhead, and squandered training expenses. But what is the real cost of a bad hire?

In many ways, the answer depends entirely on who is being asked.

  • The US Department of Labor put the cost of a bad hire at 30% of the employee’s first-year salary*, but that figure is from more than 10 years ago.
  • The Society for Human Resource Management offers a more recent take, estimating that replacing technical or management personnel can range from 50% to 200% of the person’s annual compensation.
  • For more specific projections, we can look to the Recruiting Times, which calculated the cost of a bad hire to be $7,000 for a salaried employee, $10,000 for a mid-level team member, and $40,000 to replace a senior executive.
  • One source even put the estimate at $840,000 once hiring costs, total compensation, disruption expenses, severance, mistakes, and missed business opportunities were accounted for.

The true cost of a bad hire goes far beyond dollar figures, however. Hiring mistakes and talent acquisition efforts that result in bad hires can have lasting effects on employee morale and productivity.

Plus, regardless of the expenses associated with hiring decisions that don’t pan out, the time it takes to replace a bad candidate can range from five weeks for staff-level positions to nearly eight weeks for managerial roles. Time is one thing a business owner can’t get back, and having an important position remain vacant for one or two months can make a big difference for a small or medium-sized business.

With the amount of candidate assessments, culture-based hiring techniques, behavioral interviewing strategies, and recruiting tools available nowadays, it would seem that hiring mistakes would be easily avoided. It’s not always poor hiring practices that cause a company to get stuck with a bad candidate.

Talent acquisition specialists are human like the rest of us, and they’re capable of making hiring mistakes. By performing proper due diligence to make informed hiring decisions these errors can be minimized and the cost of a bad hire—whatever it may be—can be averted.

 

Sources:

Jörgen Sundberg – What is the True Cost of Hiring a Bad Employee?

Rebekah Cardenas – What’s the Real Cost of a Bad Hire?

Robert Half® – The Cost of a Bad Hire Can Be Surprisingly High

Roy Maurer – Morale, Productivity Suffer from Bad Hires

*Wall Street Journal, 2003