Four Big Costs of Bad Hires (or “Be Thankful for Your Good Hires”)

by Laura Pokrzywa

As our country’s economy struggles to make headway, millions of Americans remain unemployed or “underemployed”, while business taxes and expenses continue to rise. Business owners must keep a tight watch on budgets across their organizations. Since one of the biggest slices of that pie is payroll, now is not the time to get lax with your hiring practices.

Your people are your greatest asset. Every dollar spent on payroll should promise a return on investment. Consider your star performers. A study of computer programmers Ribbonat Bell Laboratories showed that their stars outperformed their less-than-stellar teammates by a margin of 8-1. That’s like getting eight employees for the price of one! Talk about a great return on your payroll investment.

Granted, performers like that don’t usually come into your organization at top speed. They must be nurtured and developed (that is an issue for another post). But you have to start with a candidate that truly fits your organization and your open position; be it skills, attitude, aptitude or experience. And that requires a careful approach to hiring.

Before you fill your next open position, consider the very real costs of a bad hire:

1.   Decline in employee morale: If your new hire does not have the skills required to do the job well, the rest of the team will be forced to shoulder the weight of extra work or suffer a hit to their work flow. That workload is bound to ramp up even more while you search to fill the position again. A bad hire may also result in a loss of respect for the decision makers.
2.   Damage to customer relations: Depending on the new hire’s role, your customers may feel the pain of a bad hire as the quality of customer service may be impacted.
3.   Apprehension among candidates: Job seekers who are actively searching job boards know when a job has be re-posted. Posting and re-posting the same position will cause some good candidates to be apprehensive about pursuing a position with your company. They may jump to conclusions about why you cannot retain a new hire.
4.   A hard hit to your bottom line:  A 2012 CareerBuilder survey showed 25% of respondents estimated they had paid more than $50,000 in expenses due to a bad hire. More than 40% reported a bad hiring decision had cost their company more than $25,000. A similar survey conducted by the Society for Human Resources Management (SHRM) found that those expenses increase the longer that bad hire remains employed and the greater his/her wages.  These costs stem from advertising, interviewing (candidate travel and interviewer time), pre-employment testing, training and orientation of the new hire. Once you determine that new hire was a bad hire, the expenses continue. Consider COBRA, unemployment compensation, and the potential costs of litigation should your bad hire decide not to leave quietly. And we can’t forget lost productivity.

If you would like help with your recruiting needs or if you have questions about your hiring process, contact our HR team by emailing us at hrhelpline@eastcoastrm.com.

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