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The True Cost of A Bad Hire (And How To Avoid One)

by Diana Lane on Feb 22, 2022 10:45:43 AM

With unemployment at a low of 3.9% in January 2022, the tight labor market may prompt you to rush the hiring process to avoid losing out on a candidate. But despite scarce workers, it’s critical to not panic and to take your time choosing the right candidate since the true cost of a bad hire can be significant on your business.

At Complete Payroll Solutions, we provide outsourced recruiting services to thousands of companies of all sizes and in all industries. We know how important it is to find the right fit for your open positions to avoid a hit to your culture, satisfaction, and service. To help you understand the real price of a bad hire and the importance of finding the ideal candidate, here we’ll discuss:

  • What is a bad hire
  • The impact of a bad hire on the workplace
  • What to do if you make a bad hire
  • Steps to avoid a bad hire

After reading this article, you’ll know what to do to ensure you hire the best person for your open positions that will help – and not hurt – your business.

What is a bad hire?

A bad hire means different things to different people. But there are generally a few red flags that you’ve onboarded the wrong person. These include:

  1. The worker misses deadlines
  2. They don’t produce the quality of work needed
  3. They don’t have the knowledge or abilities they claimed to have
  4. The employee has a persistent negative attitude or criticizes the company often
  5. They can’t get along with their colleagues
  6. The worker regularly shows up late – or misses work altogether
  7. There are frequent complaints about the employee
  8. They don’t take ownership or responsibility for their mistakes or failures

Sometimes, especially today amid the great resignation, candidates are hired before they’re fully vetted. For instance, you may skip checking references or credentials. Or you could overlook things, like skill gaps, that you hope you can address once a worker is on board. In fact, many bad hires are made out of desperation. No matter the reason, the effects can be significant.

What is the cost of a bad hire in the workplace?

When you make a bad hire, there are several costs your business will incur, both financial – the DOL estimates the cost of a bad hire can equal 30% of their first-year salary – and more intangible in nature. These include:

  • Loss of morale and motivation among employees, resulting in a drop in productivity or performance
  • A risk to the growth of your business because of the effect on key relationships, customer service, and sales
  • Higher turnover if problematic behavior causes other workers to seek job satisfaction elsewhere
  • Reputational problems, especially if dissatisfied customers share bad feedback or reviews
  • Additional resources required in extra supervision, management, or training

In addition, if you end up letting the employee go, you’ll face several added financial costs as well, such as possible severance pay, vacation day payout, and the cost of conducting another search to hire a replacement.

What should I do if I make a bad hire?

Nearly every company, at some point or another, makes a bad hire. In fact, three out of 4 managers admit to making a bad hire. But while bringing on a wrong person at some point may be inevitable, there are things you can do to minimize the damage to your company.

  • If the issues are cultural, such as punctuality or attitude, have a conversation about expectations
  • When job performance is an issue, jointly discuss how to solve the problems – and have this dialogue as soon as possible before things get out of control
  • If the employee isn’t learning fast enough, offer potential tools and resources that could benefit the new hire to ensure they’re properly trained
  • In cases where the employee simply isn’t the right fit for the job, but is otherwise great, consider shifting them into another role that suits them better
  • If all else fails and your efforts to help the employee work out aren’t successful, don’t be afraid to terminate the relationship and cut your losses.

How can I avoid a bad hire?

Especially in the current labor market, it can be challenging to hire talent. But that doesn’t mean you should skip steps. While there’s no guarantee you’ll avoid a poor fit, there are several steps you can take to reduce your chances and spare your business the cost of a bad hire, including:

  • Develop a clear recruitment process and stick to it. Whether you decide to hold structured interviews, behavioral assessments, or ability tests, define the steps for hiring and don’t skip them. And always conduct a pre-employment background check.
  • Don’t rush. Even though you may be short-staffed, take the time to find the right candidate. If necessary, use temporary help in the meantime. Remember, it’s more important to hire well than quickly.
  • Understand and clearly define the job’s role and responsibilities. Being aware of what you need will help you better evaluate a candidate and their skills to find the right match. This step will also help you avoid getting sidetracked during the recruitment process by other factors such as likeability instead of those essential to the position.
  • Provide proper onboarding. Rather than just focusing on paperwork, be sure to give your hires the start they need, such as a mentor or training. One way to avoid a bad hire is to train the right candidate rather than hire the wrong-but-experienced one.
  • Share your company’s culture accurately. Since 92% of employees rate overall culture and teamwork in their department as important, be sure you advertise your workplace correctly. That way, you’ll establish realistic expectations for job seekers, who can better determine if they’ll fit within your organization.

Sparing Yourself The Cost Of A Bad Hire With Outsourcing 

One of the most difficult tasks for any company is hiring new employees. Not only can it be a time-consuming process that detracts from your core focus, but it can be hard to know how to find the right candidate for your position and culture. That’s why about 44% of companies use an outsourced recruitment agency for the hiring process.

Outsourced recruiting involves teaming with an HR provider or other recruiting partner to help you attract, select, and hire candidates. The agency will act as an extension of your company and handle all or part of the entire recruiting function.

If outsourcing your recruitment seems like the right move for your business, learn the things you should consider when outsourcing your recruitment. If you think Complete Payroll Solutions may be a good fit, read our blog to learn more about the recruiting services we offer.


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