What Is The Cost Of A Bad Hire?
What is the real cost of a bad hire? Why is it important to choose who you hire carefully, and how much money and revenue can you lose if you hire the wrong person?
The average cost of a bad hire is up to 30% of the employee’s first-year earnings according to the U.S. Department of Labor. However, one report from the CEO of Link humans put the average cost as high as $240,000 in expenses. The costs broken down relate to hiring, retention, and pay.
Poor hires can result in lost productivity and expenses in hiring, recruiting, and training replacements.
In this article, we will explore the true cost of a bad hire, on average, and the extra expenses you might be faced with if you hire the wrong person during the interview process.
This Is How Much a Bad Hire Will Cost You
The United States Department of Labor puts the cost of a bad hire at up to 30% of the employee’s wages for the first year. In the event that you take an employee with a yearly pay of $80,000, the expense to the employer would be as high as $24,000.
This might not seem like a lot to a business, but if you are a small business and have a small budget, this amounts to a lot of wasted money that can hurt your bottom line.
One bad hire costs employers nearly $17,000 on average, according to the CareerBuilder survey, 75 percent of whom have hired the wrong person for a position in the past year.
However, it is not just the money that you will lose. In a study, 34% of CFOs said that not only do bad hires cost them productivity, but managers also have to spend 17% of their time supervising poorly-performing employees.
For a standard workweek, that translates to almost a full wasted day that could have been spent on actual work!
However, some reports put the average cost of a bad hire much higher. Recruiter Jörgen Sundberg, CEO of Link Humans, puts the cost of hiring and onboarding new employees at $240,000.
This means that if you spend money on an employee who turns out to be a bad hire, you can waste up to $240,000 in total costs. That’s a significant amount of money!
According to CareerBuilder, almost three-quarters of companies who made a bad hire reported an average of $14,900 in wasted money. With 74% of employers stating they hired the wrong person for the job.
Research by Gallup estimates that actively disengaged employees in the United States cost businesses anywhere from $450 billion to $550 billion in lost productivity each year.
In the next section, we will drill deeper into how a bad hire can end up costing your business a lot of money.
How Hiring Bad Employee Costs You Money
A bad hiring decision can cost you money in ways you did not even think of. Let’s go through the top ways you can lose money by hiring the wrong employee.
Lost Productivity
This is the biggest problem with hiring the wrong person. Bad hires may be lazy and unproductive, which can cause you to face slowdowns in reaching your goals.
You may have projects that have deadlines, but if all of your employees are not on board and working together, you may miss those deadlines and have to face unsatisfied clients.
Lost Clients
If an employee is not doing a good job and being as productive as possible, your customers may be unsatisfied. Even if they get their work on time, if it is not of good quality, they may end up leaving you. One bad hire can lead to quite a few lost clients.
Damaged Reputation with clients
It is not just existing clients who you might lose but new clients as well. This is because disgruntled former clients may end up writing bad reviews about you, which can affect your reputation and your ability to attract new clients.
Damaged Employer Reputation
Not only that, but a bad employee who is disgruntled because you fired them for not being productive may end up writing a bad review on a job hiring site such as Glassdoor reducing your company ratings, which could hinder your efforts to replace them not to mention damaging your employer brand.
This is something that most managers don’t think about.
Decreased Teamwork
One bad apple ruins the bunch, as they say. When all of your team members work together and focus on the same missions, goals, and values, your company will be able to be productive and get things done.
On the other hand, if there is one unproductive and undedicated employee, they can end up bringing down the entire work environment while having a negative impact on your bottom line.
Lost Time Supervising a Bad Hire
You may not fire that bad hire right away. Many managers first try to get their employees to be more productive and get on board with the team. However, this can result in lost time and employee turnover.
The time you spend supervising bad employees could have been used for more important things. Time is money.
Recruitment Costs
Whether it is the lost money you spend on recruiting that wrong hire, conducting interviews or the extra money you will now have to spend to find a replacement quickly, hiring costs can add up. The effort and time a hiring manager spends interviewing replacements can result in lost revenue.
Some of the costs in the recruiting process include: