The costs of a bad hire


Have you ever asked yourself what it costs to hire an employee who doesn't turn out to be right for your business?

The U.S. Department of Labor says it costs you at least 30% of your employee's first-year earnings if they're a bad hire. For many startups, losing five figures because you hired the wrong person may mean the difference between success and failure.

Let's take a look at the costs of a bad hire, so you can avoid the devastating consequences to your startup. 

Initial hiring costs

You want to factor in the costs of not only recruiting, interviewing and vetting your new hire but the costs of onboarding as well. Some estimate these costs can run as high as $240,000.

Consider some of the items that go into that rather large figure:

  • Recruitment – advertising fees, staff time, recruiter costs
  • Relocation Fees
  • Training fees and time 

Bad hires impact your team

When you hire the wrong person, it can negatively affect your whole company culture.

You might have a negative staff member or one who underperforms. Either way, the impact on your team is detrimental to your entire startup.

Your "good" employees have to deal with negativity and work extra hard to make up for the lack of productive work from your bad hire.

Resentment sets in, and your solid team suffers. Morale turns bad, and your best employees may even quit. 

Bad hires impact your customers

These employees often don't really care about your customers because they may not care about their job.

And, even if they do care, but they are just not qualified for their job, your customer relationships deteriorate.

Perhaps your bad hire provides sub-par customer service, and you lose customers and positive brand recognition.

As your reputation suffers, so will your revenue stream. 

Bad hires undermine productivity

Your bad hire takes time away from your duties and those of your managers. Why?

Management staff is busy trying to train and retrain your bad hire. Or, they're trying to manage conflict between staff members and the bad hire. Perhaps they're trying to stay on top of the bad hire's work to make sure it gets done.

Because your leadership team is spending so much time with the bad hire, they're productivity takes a dive. 

Bad hires reduce profits

Hiring poorly means you're paying someone a salary who isn't up to par.

If they aren't meeting your expectations, you might even decide to provide additional training. This costs money.

When you have to let the bad hire go, you are not only out the hiring costs, but you're now out the extra training costs.

In addition, you may be on the hook for severance pay or unemployment in addition to the costs you'll incur to find someone suitable. 

Final thoughts

The best thing you can do when looking for team members is to make a hiring plan. Make sure you know exactly what you're looking for. That means hard skills like education and experience as well as soft skills like leadership, work ethic, and the ability to work as a team.

You want to do everything you can to hire the right person.

Be completely upfront during the hiring process. Begin with your job postings. Create them in such a way that you are attracting and tapping the best talent.

Bottom line? Take your time, make a plan, create effective job postings, interview well, and provide excellent onboarding.

Doing these things will help you avoid the costs of a bad hire. 

 Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.

Image: Nik MacMillan on Unsplash

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