The High Costs of a Bad Hire
The answer to that question can be pretty alarming, particularly if you’re working in a tightly competitive marketplace like the Greater Seattle area (including Seattle, Tacoma, Everett, the Eastside and all places in between). For those of us in the marketplace full time, we know how costly and time consuming it is to find and hire great employees. If all that work needs to be redone because something went wrong after the hire, costs go up exponentially.
There have been many articles written attempting to quantify the costs of a bad hire. We’ve seen numbers ranging from 1 to 5 times the targeted employee’s annual wage. At first glance these numbers seem exaggerated, but may not be. The hard costs of starting over may be nothing compared to the soft costs that result directly from having the wrong peron in the job.
Here are some factors to think about – hard and soft:
HR/Recruiting Costs Will Increase.
Whether you do it yourself, have access to internal HR services or pay a third party recruiter to do the HR components of hiring on your behalf, there is considerable “process management” time and energy that goes into each hire – particularly in a tight labor market like we are currently experiencing in the Greater Seattle marketplace.
To understand the costs of a hiring error, think about how much HR time and energy goes into the hiring process in the first place and what will need to be repeated if you have to do it again. We look at the HR components of the hiring process as the work that is done to…
- Create a “preferred candidate profile” – to identify the skills, experience, and other key requirements you want to find in a potential job candidate
- Prepare a recruiting strategy; to post your job opening on the right job boards, each with its own set of costs
- Review incoming resumes, including all the resumes from candidate wannabees just to find the qualified few
- Prepare for and conduct screening interviews
- Background and reference check candidate finalists
- Prepare the right offer packet – making sure the candidate selected will accept the offer
- Prepare the “Glad we met you ” letters for candidates not selected
- Maintain files and records of all candidates in the event a candidate believes they have been unfairly treated
Management’s time will be diverted.
Even with great HR support, the hiring process takes time away from a manager’s regular work. It almost always takes more time than managers want to spend to …
- Interview candidates
- Decide who to hire and what to pay them
- Prepare the team (and their customers) for a team member change
- Orient and train the new employee
…and that’s just the basics. As any manager knows, bringing in a new employee can bring other work to a stand still.
Overtime Pay will Increase.
Needless to say when a team is short-staffed, overtime is often required of other team members. And more overtime not only increases a team’s direct costs, but adds to the risk of additional turnover.
The Costs of Mitigating Risk.
When a “bad hire” is terminated or quits, there is an increased risk to the organization that they will find some reason to levy a claim against you or your company for some form of “perceived mistreatment.” In some cases an “out of policy” severance package is needed just to avoid a claim of wrongful termination, harassment, or discrimination.
Increases in Statutory Costs are always Exponential.
Employee turnover, whether stemming from a bad hire or other factors, can be costly when it is occurring at a rate that will impact your company’s unemployment experience rating. Most employees who are terminated because they were not the right fit for the job, will file for unemployment, and in today’s regulatory environment will almost always be guaranteed a “win.” Every successful claim for unemployment compensation impacts your company’s experience rating which in turn, impacts the tax rate you pay on all staff wages –iow, exponential impact.
If you’re a small employer dealing with frequent turnover, one or two high cost unemployment claims can have significant impact.
The Most Significant Costs often Stem from Lost Opportunities.
Being short staffed or having the wrong person in a high impact job generates costs that only get discovered over time as managers get their arms around the full impact of less than optimal hiring decisions:
- Work that was started but didn’t get completed
- A high impact project that stalled or failed
- A relationship with a customer or other key stakeholders that went south
- The penalties for missed deadlines
- Work that didn’t even get started because you didn’t have the talent you needed in place.
- Unwanted team member turnover (We’ve seen teams lose star team members when a new hire didn’t work out as planned)
Unfortuantely, the “soft costs” associated with hiring errors are always worse than anticipated. We think these “soft” costs are what is most significant to our clients over time, and why the PACE Staffing Network has spent 35+ years perfecting all steps in the hiring process – to minimize our client’s hiring errors, to optimize the results they achieving by hiring right.
We’re proud to see the many candidates we’ve helped our clients find and hire who have not only grown their own careers as a result of our placement services, but have directly contributed to our client’s operational performance.
And for those jobs where it’s not always possible to select a winner without trying them out on the job first, we’ve creating a variety of auditioning or temp to hire services that strategically minimize their costs of hiring mistakes.
For more information on all of our Hiring Help options or to get a copy of our Interviewing Guide that helps our clients avoid hiring mistakes in the first place, contact our Partnership Development team at firstname.lastname@example.org or call us at 425-637-3312.
Jeanne Knutzen is the owner, President, and founder of the PACE Staffing Network, an award winning staffing company doing business in the Greater Seattle job market for over 35 years. For a complementary and confidential consult on how to get your company or department better prepared for a very changed recruiting marketplace in 2016, contact Jeanne at email@example.com