Written by Hannah Asbury, Senior Consulting Associate
There are few things that are universal across varying industries and companies, but one thing they all share is the need to hire new employees. While the frequency and amount may differ from one organization to the next, they each spend a large amount of money every year on the recruitment and effective hiring of new employees.
To minimize wasted expenditures and ultimately save on hiring costs, it is imperative that companies focus on putting the right person in the job the first time around. When an employee is a bad fit for a role, there are not only negative fiscal ramifications, but other less obvious costs as well. A bad hire can increase turnover costs, reduce productivity, and lower overall morale. With the cost a bad hire threatening to impact more than just your bottom line, can your company afford to miss the mark?
What is the average cost of a bad hire?
Needless to say, hiring a new employee is very costly. According to the Society for Human Resource Management (SHRM), the average cost to hire an employee can be three or four times the position’s salary. And that’s just to get someone in the door. If the employee turns out to be a bad hire, the company has lost both recruitment and training costs, and now has to start the process over again to fill the position.
Realistically, companies may spend thousands of dollars to identify one hire who is a good fit for the role. On top of that, time and productivity losses occur when a bad hire turns over. This is especially noticeable if the employee was brought on to work on a project that has an approaching deadline or specific deliverable. So what are some of the biggest consequences that your organization can experience as a result of a bad hire?
3 ways the cost of a bad hire impacts your organization
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Lower productivity levels
If cutting costs isn’t reason enough, a bad hire will also reduce productivity levels. Those who aren’t a good fit for the role will likely produce work and deliverables that are not up to par and require additional review, feedback, and development. Other employees are forced to take on the work that is not being completed – or is not being completed to your company’s standards – which puts additional strain on overall capacity and productivity.
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Higher turnover costs
SHRM estimates that the total cost of a bad hire is typically about 40% of the individual’s salary. To put that into perspective, if the employee’s base salary is $50,000 annually, that’s a $20,000 loss. Furthermore, if the bad hire is in a customer-facing role that’s visible to your customers, it can result in confusion, uncertainty, or even a lack of trust in your brand.
Read more: 5 tips for creating a realistic job preview that will reduce turnover
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Reduce organizational morale
Finally, a bad hire can lower organizational morale. Hires who are not a good fit with other personalities in the organization leads to tension and strain within a team. That tension ultimately affects existing employees’ attitudes toward their jobs, other co-workers, or the company itself. Similarly, when staff has to help pick up the slack from a bad hire, they are working harder and longer with no additional compensation or change in job title. At times, these employees find themselves working on projects with which they are unfamiliar and were not originally hired to do. These are prime conditions for negative impacts on job satisfaction, employee engagement, and overall morale.
How to avoid the cost of a bad hire
Higher turnover costs, reduced productivity levels, and lower organizational morale are just three possible impacts of bad hiring practices. The simplest way to avoid the cost of a bad hire is to put extra time and effort into hiring a good fit on the first try. Investing in finding the right fit results in numerous benefits for your organization and for your existing employees. There are many different tools available that your organization can invest in to help you prevent bad hiring practices and ensure you’re finding good hires. These tools include behavioral-based interview guides, cognitive assessments, or personality-based assessments. It can also be beneficial to ask Motivational Fit questions in your interview, which provide additional insight into whether or not the candidate’s beliefs about work and the position are consistent with your organization’s values.
The cost of a bad hire can be intimidating when you look at the full picture, but the good news is that with a little extra work it can be avoided. The time and effort that you invest into hiring new, quality employees up front will pay off in the long run. Not only will your organization avoid the financial cost of a bad hire, but you’ll also reduce overall hiring costs, minimize turnover, and maintain positive productivity.
