The Cost of a Bad Hire and Ways to Avoid It

Hiring employees is an essential part of expanding your business. The need to get more manpower for your office is often a sign that your business is growing.

However, hiring new employees can be very costly for a company. Statistics from 2016 show that the average cost of hiring just one new employee in the United States is about $4,129.

This amount is nothing to scoff at, especially for small-to-medium businesses or start-ups since the first few hires that a start-up makes often significantly impacts the company.

Hiring bad employees, on the other hand, can be even more expensive. Although one bad employee will certainly affect a company negatively, the actual cost of a bad hire often goes under the radar.

There are plenty of resources that go into the recruitment process that can go to waste because of one error in judgment on the HR department’s part.

Here are all of the things that can be affected by a single bad hire to help place this potential situation into perspective and some tips on how to avoid them as much as possible.

Recruitment Costs

The time and resources that your company spends on recruiting new employees can be relatively large.

Although the actual amount of money and the duration of active recruiting efforts can vary between small enterprises and multinational establishments, the potential risk is enough to cause some concern.

Recruitment is where it all starts; marketing collaterals will be sent out into the wild, candidates will be screened and job offers will be given.

A bad hire won’t necessarily disrupt an active recruitment campaign, but the hiring process decides whether or not a poor-performer gets inside your company.

If they do, the tangible resources you spent on hiring as well as the opportunity cost incurred for that one particular employee have already gone to waste.

This precedent reinforces the importance of having a proper hiring process; one that does not discriminate but also does not compromise.

To prevent a bad hire from costing your company any more valuable resources down the line, then you should be able to detect the signs of a problematic employee before you even take them on board.

Training Costs

The amount of resources you spend on training fresh employees can be pretty steep. According to a study, the average cost of training new hires in companies with 100-999 employees was roughly $1,000 per employee.

While companies can stand to gain advantages by investing in their employees through training sessions and seminars, there is always the risk of hiring a bad employee that can net your company some losses.

The training period is usually where you can identify whether or not a new hire will make for a good or bad addition to your company. You’ll be able to gauge what one individual is fully capable of offering your company through insights that wouldn’t be available in screening exams and interviews.

In 2019, the average amount of time that companies spend on training new hires is about 40.8 hours per employee. This amount varied depending on the type of service offered.

A new employee who performs poorly will ultimately end up wasting the resources you invest in training them as well as a portion of your total recruitment budget that was spent on screening them if they don’t pass the training stage.

An employee’s performance isn’t the only way to tell if they’re good or bad for the company. However, even if an employee passes the initial screening and training stages, there is no guarantee that they will be a good fit for the company.

Productivity Costs

An employee’s worth goes beyond their technical skills and professional expertise. Their attitudes and personalities also play key roles in determining whether or not they will be good additions to your company.

Your company’s culture plays an important role in employee engagement. If your employees are happy in the office and if they enjoy the work they’re doing, then they’re going to be more productive.

Furthermore, keeping employees engaged and satisfied with their jobs increases retention rates and improves your company’s reputation as an employer.

Your office’s culture drives employee morale and cares for their mental health.

This is where cultural fit comes in. If an employee doesn’t fit in with the rest of the office, whether it be because of a social, psychological or emotional issue, then that employee likely won’t be as engaged or as productive as the rest.

Employees who are less engaged are more likely to leave the company, leading to an increase in voluntary turnover.

Making sure that your new hires fit well in your company is the key to avoiding this. By putting an emphasis on attitude and perspective instead of raw skills, you can weed out candidates who just want to work for a paycheck from the ones who genuinely want to grow with you.

Opportunity Costs

Hiring the wrong employee can also mean that you’ll miss out on the opportunity to hire a better one. This is especially true if you’re hiring for a limited amount of positions that need to be filled.

Hastily hiring candidates means you’ll be able to fill in the gaps in your company’s structure faster but it’ll also mean that you won’t be able to screen other candidates who may be better than the one you chose.

Of course, there’s no guarantee that people will apply for your company’s job vacancy unless you actively seek out candidates via online campaigns, job board postings, and emails. There will always be that element of risk whenever urgency is demanded.

Filling a position with a bad hire comes with all of the usual consequences that an ineffective employee brings. However, it also comes with the probability of losing a potential candidate who could have been much more qualified.

Inevitable, but Manageable

The truth about hiring bad employees is that there is no surefire way to avoid them. Even the most experienced of recruiters will still make this mistake.

The best way to handle bad hires, however, is to mitigate their impact on your company. This can be achieved by implementing stricter training policies or by employing probationary periods that will let you gauge whether or not an employee will be detrimental to employee productivity.

Perhaps the best way to mitigate the impact of bad hires is to improve the way your company handles the hiring process. The more thorough your hiring process is when looking for new employees, the lower your chances of getting a bad hire that can harm your organization.

Monitoring new hires and conducting assessments can help with this risk. While you won’t necessarily have to let them go immediately, the faster you correct them, the more resources you’ll be able to save and spend elsewhere.