How Does the Cost of a Bad Hire Impact Your Business?

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Most companies recognize that a single bad hire comes with a cost, but some underestimate exactly how damaging a lackluster employee can be to the organization financially. While the precise price tag varies, an estimate by the Department of Labor suggests that the expense equals at least 30 percent of the worker’s first-year earnings. For a small company with limited capital, that can be a significant threat.

However, there are actually two costs you have to examine. First, there are direct costs such as recruitment and hiring expenses. Second, there are the hidden costs associated with lost productivity.

Recruitment and Hiring Costs

The most obvious costs associated with a bad hire fall into the recruitment and hiring category. Not only did your business spend money to recruit, onboard, and pay the new hire that isn’t working out, but you’ll have to manage those expenses again to find a suitable replacement.

Additionally, the longer you hold on to a bad hire, the higher these costs get. Along with additional wages, the delay means your previous talent pool from the original job announcement may diminish. As your pipeline shrinks, the more effort, time and money you have to put into finding a great candidate.

Productivity Costs

Nearly every bad hire is a subpar performer. You ultimately don’t derive as much value from the position as you could have simply because they aren’t as productive as a candidate who turns out to be great. This creates losses that your business has to shoulder.

However, a bad hire also drags down the productivity level of their entire team. Their manager and coworkers may have to spend time micromanaging the new hire or correcting their mistakes, taking them away from their other duties.

Increase in Poor Performance Across Your Team

Additionally, the frustration of having a less than stellar cohort means morale can suffer, increasing disengagement and stress levels across the board. The longer this goes on, the more likely your top performers will become frustrated. If left in place long enough, your best and brightest may even burn out as a result or seek out opportunities elsewhere as a means of escaping the situation, leaving you shorthanded and stuck doing more hiring than you originally hoped.

A bad hire that is left in place effectively lowers the bar when it comes to what is acceptable. This allows poor habits to spread to others in the organization or complacency to spread like a virus. Then, even if you let the poor performing worker go, you still have to deal with additional damage control, as it can take time to get everyone back to previous levels.

Ultimately, a single bad hire can be incredibly damaging, so companies need to make it a priority to find the idea candidate each and every time. If you would like to learn more about the cost a bad hire or would like to partner with recruitment professionals to ensure you can secure the top talent you need to succeed, the professionals at VB can help. Contact us to speak with one of our knowledgeable team members today and see how our hiring expertise can benefit you.

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