Why You Can't Afford to Hire the Wrong Employee

by Terri Williams on August 9, 2013
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“If you don’t have time to do it right, when will you have time to do it over?”

This cautionary quote, from legendary basketball coach John Wooden, emphasizes the importance of hiring the right employee — the first time. Hiring the wrong employee wastes time and money and causes unnecessary frustration for everyone involved.

Small-business owners often aren’t afforded the luxury of having a human resources department to handle recruitment, interviewing, hiring, and training, so they may be prone to missteps.

Turnover Costs

How much can a bad hire cost you? The Center for American Progress analyzed 30 case studies from 1992 and 2007 and discovered that the average U.S. business spends one-fifth of an employee’s annual salary to replace that individual when he or she leaves.

Direct costs include:

  • Separation costs — exit interviews, severance pay, higher unemployment taxes
  • Temporary staffing — overtime pay for other employees to perform the former employee’s duties, or the cost of hiring someone from a temporary staffing agency
  • Replacement spending — advertising, agency and search fees, drug testing and background checks, employment testing, travel and relocation costs
  • Training — orientation, certifications, on-the-job training, uniforms

Indirect costs include:

  • Lost productivity — the departing employee spends his or her last days performing poorly or completing exit interviews, etc.
  • Reduced work quality — the new employee must learn the job
  • Lost clients — a result of customer service gaps
  • Reduced morale — the change’s impact on remaining employees
  • Loss of institutional knowledge

CareerBuilder conducted a 2011 survey of 2,696 employers in which 41 percent of respondents stated that a bad hire cost them more than $25,000. One in four respondents priced the amount at more than $50,000.

Even before an employee leaves, you may lose money with a bad hire. For example, if this person is not a good worker, the manager will spend valuable time micromanaging the employee’s work. Other employees may resent working hard while another employee fails to shoulder his fair share of the workload. In addition, if the employee interacts with customers, her poor performance may result in dissatisfied customers who take their business elsewhere.

CareerBuilder also notes that bad employees usually fail to work well with others, maintain a negative attitude, and have a high absenteeism rate.

Best Practices

So what can you do to limit your chances of making a bad hire? Learn from the mistakes of others.

Of the respondents in CareerBuilder’s survey who admitted to making bad hiring decisions, 38 percent stated that they were rushed and needed to fill the open position as soon as possible. Another 21 percent admitted that they didn’t know enough about the job candidates. In addition, 11 percent failed to perform reference checks.

Robert Half Management Resources recommends creating an effective job description that lists specific job duties, as well as the hard and soft skills needed. For example, instead of “management abilities,” the job description should state “must be able to supervise a team of staff and entry-level workers and provide feedback on their performance.” Education and experience should reflect requirements that determine the ability to perform the duties of the job and not just the hiring manager’s preferences.

Effective interviews are also a critical part of the hiring process. Robert Half offers the following advice:

  • Conduct 10- to 15-minute phone interviews to screen candidates and determine which ones to invite to in-person interviews
  • Prepare a list of specific questions that address problem-solving abilities, interpersonal skills, or other factors crucial to the position
  • Pay attention to the applicant’s answers instead of trying to formulate the next question
  • Rephrase questions if the answers are vague or insufficient
  • Take notes during the interview process

Also, don’t place more weight on skills and abilities than on character. The world is full of talented people with nasty attitudes and a poor work ethic. And don’t be swayed by extraneous factors: Attending the same college, pledging the same fraternity or sorority, or having kids on the same softball team are irrelevant to choosing the best person for the job.

When reviewing resumes, remember that professional resume writers can make anyone look good on paper. Regardless of how busy you are, checking references is not optional — and should include more than verifying dates of employment. Ask about job duties and titles, to ensure they line up with what’s on the resume.

It may seem like a lot of work to hire someone, but if you don’t have time to do it right, when will you have time to do it over?

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