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WHAT ARE THE COSTS OF A BAD HIRE?

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Posted by: David Garcia January 06, 2023
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The costs of a bad hire can be tremendous. According to the U.S. Department of Labor in 2021, the financial costs can be up to $240,000. Earlier DoL research showed the financial costs can be up to 30% of that hire’s first-year earnings. And that’s not including how hiring the wrong candidate for a job can incur setbacks in time, productivity, and quality of company teamwork.

It’s always best to remove a bad hire as soon as you’ve assessed their poor quality. They can cost companies untold thousands of dollars if kept on the payroll. 

There are signs you can learn to spot early on that suggest poor candidate performance. But even before that, you can take action to reduce the odds of hiring the wrong candidate. Know the risks you take with a bad hire and strategies to avoid a costly hiring decision.

What Are Some of the Consequences of a Bad Hire?

The hiring process is an expensive one, even if everything goes right. The Human Capital Benchmarking Survey has found that the average hire costs $4,700. That includes the roughly 42 days it usually takes to find the right candidate and factors in the average annual turnover rate of 19%.

Imagine how that price increases when a new hire turns out to be a problem that takes time, energy, and money to solve. Beyond the cost of simply hiring a candidate and eventually letting them go, retaining a bad hire can cost you in several ways.

Loss of Productivity

Bad hires can incur costs at the company’s expense in many ways, but none more evident than lost productivity. 

Running a company effectively always entails managing multiple tasks simultaneously. You need dedicated, innovative, hardworking people in roles that suit their skills, and these team members need to mesh and work well together. It’s a difficult balance to strike, and if you’ve ever struck it, you know how terrifying the process of breaking it is.

That’s precisely what a bad hire can do: disrupt workflow with poor or lazy performance, interrupt normal daily operations with needless questions and requests, and cause strife and division amongst teams who once worked harmoniously. 

If they’re at the management level, a bad hire can make your best, most loyal employees leave in droves. It creates a domino effect that makes your productivity levels plummet.

Lost Clients

Building a core roster of loyal clients is one of the most challenging parts of running any business—and one of the most crucial. Even if a bad hire doesn’t work in a client-facing role, they can still jeopardize your company’s good standing with your clients by causing delays in project submission and turning over sloppy work.

A damaged reputation with one client can go a long way toward damaging your standing with all your clients. It is a very serious potential cost of hiring the wrong candidate.

Time and Money on Advertising

A Leadership IQ study found that 46% of new hires failed during their 18-month evaluation. Of course, every company has different criteria for “failure” and “success,” and a lot can change in 18 months. Sometimes, it’s a company’s fault for mishandling a good hire.

But imagine all the time and money you spend on advertising for open roles, and multiply it by all the candidates you may have to re-advertise for if they turn out to be poor fits. Creating job descriptions, scouring internal referral lists, researching job sites, and creating a sorting system for all the applications are part of advertising for a single role. It’s too much work to replace a candidate who won’t even work out.

Recruiting Costs

After the advertising stage comes the recruiting stage: interviews, meetings about interviewees, background checks, contacting references, onboarding, and training. 

Recruitment takes the most time and money of the entire hiring process. Learning to spot bad candidates from the start will result in a significant cost savings.

Potential Legal Fees

Litigious applicants aren’t common, but they do exist. Protections against discrimination exist for a good reason, but some people will take advantage of them.

You may not have rejected a candidate for their age or physical ability. It may be because of a bad attitude. But you need to be able to protect yourself against litigious applicants.

The best protection? Weeding them out before you even come face to face with them.

How to Reduce the Odds of a Bad Hire

It’s time to stop hiring based on impressive experience and a favorable interview performance alone. You can implement several measures to improve the strength of your hiring process. Weed out problem candidates before they even make it to the interview stage, and save yourself time, trouble, and money.

Implement a Thorough Background Screening System

Background screenings are the most critical part of the hiring process. Background checks do more than just tell you which applicants are felons and who lied about going to Yale. They can show you who’s honest, who is reliable, and who you can trust. 

Beyond criminal record checks, you can order education and experience verification checks, credit history checks, driving record checks, drug and alcohol screening, and more. By ordering a background screening, you can develop a substantial profile of a person’s life history. Decide from there whether they’re worth your time.

Develop a Strict Selection Process

Make sure the applicants you’re ordering background checks for are even worth it. This assessment begins with the job listing. If a candidate turned in a great cover letter and their resume fits what you’re looking for, excellent. 

But did they answer the questions you specifically laid out? Did they claim to have the qualities you listed in the job posting on their resume? You’re looking for someone who listens to what is being asked of them and reacts accordingly. 

If you conduct pre-interviews, implement a behavioral-based interview style, which poses hypothetical questions to the interviewee. You’ll learn about how they reacted to situations in the past, which will tell you exactly how they would act in the future at your company.

Tailor Your Job Posts

You can attract bad candidates by posting an incomplete or misleading job advertisement. They aren’t even bad workers; they’re just applying for a job that doesn’t suit their skills.

Always Contact References

Make sure you let the background check servicer you contract know that you want each candidate’s references contacted. Some applicants list individuals who weren’t their supervisors or list their friends and deputize them to act as their former bosses. Some references you contact will tell you unsavory, honest things about the applicant.

In any case, you want to know how honest and qualified each candidate is.

Keep and Review Internal Records of Past Hires

Build a database of what went right with good hires and what went wrong with bad ones. When did you notice red flags? How long was it until you noticed them? What stood out as good qualities in the interview?

Keep track of all this data to optimize future candidate searches.

Avoid the Costs Associated With a Bad Hire

ScoutLogic can help you advance only the best candidates to the final round of the hiring process. With our dedicated Scout service model, you’ll always have a trained professional to answer questions, vet candidates, and execute background screenings. Contact ScoutLogic and take the first step in reducing the risks of a bad hire. 

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