True Cost of a Bad Hire

Most organisations acknowledge that talent is an important means by which competitive advantage is gained. Hiring the right people is critical to gaining this competitive edge. Hiring the wrong person for the job is extremely costly. It is much more expensive than most employers think.

In fact, in 2017 a study by the Recruitment and Employment Confederation found that 33% of those hiring the wrong people think that it does not cost the business anything! 85% of HR decision makers stated in this study that their company had hired someone who was wrong for the job.

The problem is that the costs of a bad hire are often not immediately obvious. They are hidden, and include money spent on managers and HR time during the hiring process, training time, and lower productivity while the wrong person is in the job, or while the post is vacant after the bad hire leaves. While others in the team end up covering for the missing role, no job ends up being done properly, which also has cost ramifications.

When you consider that it takes a new recruit on average 28 weeks to reach optimal productivity and there is time spent on hiring someone new as well, that’s a lot of time wasted. While bad hires are still with the firm they often have higher absentee levels due to their lack of engagement. There are also more insidious reasons for higher costs, such as the negative impact the bad hire may have on the morale of the team. You may even end up paying severance to get rid of a bad hire! These types of figures or costs are rarely considered or measured, and so the cost of a bad hire is not transparent.

A major problem is that hiring decision makers often consider employee turnover figures in the wrong way. They applaud themselves for getting it right three-quarters of the time, while not looking for ways to improve for the 25% of the time or more that they get it wrong. Putting some numbers on this can help quantify the cost and the extent of the problem.

The Recruitment and Employment Confederation showed that the cost of a bad hire of an individual who is paid £42,000 can amount to £132,000. That is more than three times the cost of their annual salary! Let’s say your business hires 10 people a year, earning £30,000. This will cost your business almost £1 million or in other words, a million good reasons for putting it right. It is worth noting that three times the cost of the annual salary is a very conservative estimate of the costs of a bad hire. Some have reported costs as high as 40 times the person’s salary.

One way to improve the hiring process and reduce the chances of making a bad hire is improving recruitment and selection. This may mean refining the process and including psychometric testing or group tests to pinpoint the right people. Alternatively, it might mean simply providing better training to those that are doing the hiring so there is a greater chance of finding the right hires in the first place.

Another way to improve your chances of finding the right person and not ending up with a bad hire is to go through an agency. Agencies have skilled recruitment staff, specialised in the industry that can identify the people that have the right competencies for the job. While the costs of using an agency may initially seem off-putting, they are certainly a lot cheaper than getting it wrong.

Take a look at how much a bad hire may be costing your business with our Free Bad Hire Calculator