Unhappy manager reviewing work of bad hire

Can Your Company Afford the Cost of a Bad Hire?

When it comes to talent acquisition, avoiding the inconvenience and cost of a bad hire requires a great deal of time and effort. Depending upon the nature of the position in question, however, finding the perfect candidate may be almost impossible.

Many factors 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 a negative impact in the near term and far into the future.

 

Job candidate participating in a panel interview

 

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 negative business impacts, including lost productivity, wasted overhead, and squandered training expenses. But what is the real cost of a bad hire?

According to the Society for Human Resource Management (SHRM), it takes on average 42 days and $4,129 to fill a position. If you make a hiring mistake, you’re at risk of doubling those figures to find another person for the role – and that’s only accounting for your basic recruiting costs like advertising fees and time resources spent.

Here are just a handful of perspectives from employment experts on how expensive a bad hire may be:

  • The U.S. Department of Labor puts the cost of a bad hire at 30% of the employee’s first-year salary.
  • Some estimates say that replacing technical or management personnel can range from 150-200% of the person’s annual compensation.
  • When considering compensation, training, mistakes, missed business opportunities, and more over time, Jörgen Sundberg, Founder of Undercover Recruiter and CEO of LinkHumans, places the potential cost of a bad hire at $840,000.

 

Man burning a dollar bill

 

To estimate the real cost of a bad hire for any position, consider the following factors in the hiring process:

  • Staffing, advertising, and recruiting event fees
  • Time spent recruiting
  • Employee referral bonuses/incentives
  • Relocation expenses
  • Training and onboarding time and expenses
  • Time spent managing poor performance
  • Lost customers and business opportunities
  • Lost productivity and money due to unfinished projects and mistakes
  • Total compensation
  • Outplacement fees and severance

 

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The true negative impact of a bad hire goes far beyond dollar figures, however. Talent acquisition errors 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 hire 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 company.

 

Stressed manager resting head on laptop

 

With the number of candidate assessments, behavioral interviewing strategies, and recruiting tools available nowadays, hiring mistakes can be more easily avoided. However, 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 sometimes make mistakes in the hiring process. By doing your 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. However, if you do end up making a mistake, follow these expert tips on how to handle a bad hire.

 

by: Freddie Rohner
March 25, 2022