February 17, 2015 Hiring, Recruiting and HR en_US A bad hire can impact your revenue, your clients, your other employees, and you in a variety of ways. Read more to learn how to avoid a bad hire. https://quickbooks.intuit.com/cas/dam/IMAGE/A6Qv5lgB3/d67f61192ae924325efef42a50aeacfb.png https://quickbooks.intuit.com/r/hiring-and-recruiting/the-true-costs-of-a-bad-hire/ The true costs of a bad hire and how to avoid making the mistake
Hiring, Recruiting and HR

The true costs of a bad hire and how to avoid making the mistake

By Megan Sullivan February 17, 2015

In a perfect world, employers would be able to hire people based on a what you see is what you get approach. Unfortunately, the warning signs of a bad employee are notoriously difficult to ferret out in a 30-minute interview. Worse—whether your business is just getting started or growing to the next level—many owners underestimate how much a bad hire costs.

At the financial level, 40% of employers surveyed by CareerBuilder estimate it’s at least $25,000 over the course of a year. For small businesses, where employees are expected to do many different jobs, that number can balloon up to $190,000 per year.

But what are the true costs of a bad hire? Is it simply the amount of money you might have spent advertising the position or time lost sifting through resumes?

If only it were that simple.

Let’s examine some of the more intangible costs and find ways to avoid making this mistake.

What does a bad hire really cost?

1. Productivity

This might be one of the hardest costs to quantify, but it could also be the most impactful. If an employee isn’t well-suited for the job, has a bad attitude or is simply incompetent, the time they spend not working could significantly affect your bottom line.

One way to quantify this is to use their salary as a measure; however, if other employees regularly rely on him or her to provide them with information they need to do their jobs, the impact can be far-reaching, as other employees may end up relying on a weak link.

2. Employee morale

In the same CareerBuilder study, 95% of surveyed employers stated that a bad hire negatively impacted workplace morale. If you run a small company, this negativity can quickly spread and make coming to work a chore for your valuable employees as well. Also, if you have a substandard employee on payroll and don’t do anything about it, you can easily demoralize your engaged employees. And the last thing you need is to jeopardize the work of your good employees due to inaction.

3. Additional supervision

Employers polled also stated that a bad hire forces supervisors to spend 17% more time overseeing the employee’s work, as opposed to doing other tasks. This could mean taking high-level employees away from revenue-generating activities and employee mentorships in order to focus on coaching under-performers.

4. Damaged reputation

While your client relationships may be strong enough to withstand a bad hire, failing to deliever good customer service can damage your wider reputation and make clients reluctant to recommend you—even if they stick around. What’s more, high turnover gives customers the impression your business isn’t stable.

5. Lost revenue

At the end of the day, the biggest costs of a bad hire involve the revenues that he or she is not generating. By not being able to perform the job, close the sale or manage the process, this employee is costing you money.

How can you avoid a bad hire?

1. Don’t rush it

While you may feel that business needs dictate immediately hiring someone for an open position, keep in mind what you might sacrifice by hiring the wrong person (see above). Also, there are added costs of hiring a second employee and re-training them if you make the wrong decision the first time.

If you’re concerned about your other employees and the additional workload they might undertake while you search for the right candidate, honesty is the best policy. If possible, meet with the department, and let them know that you’re aware of the additional work and that you understand it might be causing stress. If you can, extend some type of concession to this group—maybe a catered lunch once a week or the flexibility to work from home for a few days—until the team is back at full strength. By acknowledging the issue, you’ll engender employee loyalty while keeping your business productive.

2. Check references

It may seem like an extra step, but in many cases, references, especially professional references, are the best chances you have at gauging whether someone can perform the job in question.

And when speaking to those references, ask the right questions, namely, “If you had the chance, would you hire this person again?” Their response should be illuminating.

3. Give them a try

While it can be tricky to negotiate, one of your best options for really determining if a hire is the right fit is to bring them on board for a short-term assignment. It may take some upfront negotiation, but see how open the candidate might be to give the job a test drive. It’s best to bring them on for a short-term assignment or project, as this will give you a chance to assess their abilities very closely.

4. Mine your rolodex

Chances are you’ve met people throughout the course of your career that you’d like to work with. When you have open positions, don’t hesitate to reach out to these folks and see if they might be interested in the position. If they aren’t, see if they might know someone who is. Another good idea is to solicit recommendations from your top employees, as current employees will likely avoid tarnishing their reputations by giving bad referrals.

Building a strong company starts with a solid foundation of dedicated and talented employees. By following the steps above, you can ensure that you’re hiring the right people to make your company a success.

Megan Sullivan

Megan Sullivan is a writer with experience in the advertising and digital media space. Read more