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The Cost of Hiring the Wrong Employee

Hiring the wrong employee can be costly for business in more ways than one. Here are some ways that a bad hiring decision may impact your business, and what you can do to avoid it.

Consultancy firm The Retail Solution recently reported that staff turnover in the first 12 months is costing $3.8 billion in lost productivity across Australia.

What’s more, the Australian Human Resources Institute recently found that nearly seven out of 10 survey respondents (69 per cent) said that their organisation does not measure the cost of employee turnover.

The survey of 603 businesses also found that 58.5 per cent of respondents surveyed believed that turnover had a negative impact on workplace performance.

These studies ultimately show that making a poor hiring choice can not only have a devastating financial impact on a business but can also transpire to other areas of the business, such as its performance, brand and reputation, and systemic workplace culture.

Lost Productivity

Hiring the wrong employee can impact your business productivity. Think about the time it takes to:

  • Research, advertise, interview and recruit a new employee
  • Complete and lodge necessary paperwork (for example, PAYG information)
  • Establish training manuals and procedure
  • Train and skill the new employee
  • Restructure the existing team
  • Allow the employee time to settle into his or her new role.

Even after going through these processes, you may have to deal with a staff’s resignation, termination or performance management process. So, it’s a huge strain on existing business operations and the time of those involved. These are productivity costs you can’t recover, and can only chalk down to experience.

Financial Loss

There are obvious financial losses associated with making a poor hiring decision. Aside from the cost of wasted productivity, there are administrative costs, potential legal costs and flow-on performance costs.

By using a turnover cost calculator, you can see how much a recent turnover financially has impacted your business. Also, if you think about having invested that money in the right talent, it pays to do some research and planning before you hire.

Brand and Reputation

Your employees are your loudest brand ambassadors and advocates. Their positive vibes resonate strongly with existing and new customers, leading to referrals, repeat customers and new business.

When a company lets go of staff, disengagement occurs. This can have a serious impact on a company’s brand and reputation. Suddenly, the decisions of management become the attitudes and values of the company itself, and how these are perceived can have a devastating effect. As more and more individuals take to social media to vent their grievances, this can have a serious impact on a small business’s brand and reputation.

Staff Morale and Workplace Culture

The loss or dismissal of a new employee can have an impact on workplace culture and morale, leading to an undermining of employee trust and disengagement. Employee engagement is essential to good business because it links to improved retention, customer loyalty, revenue, sales and profit, according to research by PWC.

Making the Right Hiring Decision

So, how do you avoid the traps and make the right hiring decision the first time round?

According to PWC, the solution involves a new way of thinking:

  • Role vs Person Focus : Firstly, rather than seeking ‘the right person’ or a ‘key player’, focus your efforts instead on creating a pivotal and meaningful role. “Focusing on engaging pivotal roles, not just key people, can help improve retention, while also improving company performance,” the PWC report states.
  • Incentivise Employees : Long gone are the days where an employee joins to a company for life. These days they need the right incentives to stay motivated – it’s loyalty at a price. Businesses need to understand what people in pivotal roles want so they can find creative ways to motivate them. In some cases, non-financial incentives (such as a better culture or flexible working arrangements) can work better than more money.
  • Value Employee Engagement: Engagement surveys can give you an insight into any disharmonies or issues before they become critical. It also creates transparency of communication, which is valued within an organisation.
  • Embrace Change : If your business is experiencing a high staff turnover, take an honest look at what needs to change. Perhaps it’s something simple such as repairing management relationships through training and education, or perhaps it is something more complex, such as overhauling a systemic negative workplace culture.
  • Enable Employees : Give employees the right tools and resources to maximise their capability. For example, technological advances, new ideas and innovations can cement an employee’s loyalty as well as their value within an organisation. Also, if your employees suggest a faster or more efficient way of getting things done, listen.
  • Recognise and Reward : All employees want to feel valued, so treat their time at work as a valuable contribution to the company, rather than a paid service. Recognise and reward excellence and find ways to invest in your existing talent.

The costs of hiring an employee can be both insurmountable and difficult to identify. However, the cost of investing in the right talent can pay dividends in achieving your company’s strategic goals. For more tips, visit our  Small Business Centre today.

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