Could a Bad Hire Cost my Company Money?

Hiring the wrong person for a position is something that companies avoid for many reasons, but are you aware of how significant the impact of this mistake can be on your bottom line?

The monetary costs of a bad hire are actually more significant than many people might expect, and often end up costing a company thousands of dollars.

 

What are the Costs of a Bad Hire?

Here is an example to show just how quickly the costs of a poor hire can add up.

A company hires a new employee on an average salary of $60,000 per year. It generally takes six months or more to realize that you have made the wrong hiring decision unless it is glaringly obvious, so let’s say you decide to let the person go after six months on the job.

First, there is the employee’s salary, which would come to $30,000 after six months.

You must also consider the time that was invested by other employees to train this individual. Say one person at ¼ of their time, or $7,500.

On top of that, new hires are typically only half as productive, and so you must consider the cost of their reduced productivity – in this case, $15,000.

This reduced efficiency would also lead to potential business loss. This number is dependent on the industry and billable rates, but 25% of the salary can be used as a conservative number. So, add another $15,000.

The cost of terminating the employee, which is two weeks’ severance pay, is $2,300.

Things add up pretty quickly, don’t they? Once you add on the costs of re-advertising the role and finding a new employee to fit the position, the costs can run upwards of $100,000.

The financial hit that a business takes when they hire the wrong person for an important position is significant, but it’s not the only one to consider.

 

What Could a Bad Hire Cost my Business Other than Money?

The costs of a bad hire aren’t just monetary. Hiring the wrong person can also cost you time, energy and even good employees.

If the poor hire is unqualified or has poor work ethic, then some of their workload will likely fall on others, which is frustrating for other employees who are already doing their part.

If the hire has a negative attitude, that negativity can quickly spread to other employees and cause disengagement or turnover.

While British Columbia’s natural beauty and ideal conditions make it a sought-after place to live and work, there is a surprising scarcity of quality candidates for any role (and an abundance of poorly qualified people!). Having a proper plan in place to help navigate this minefield of challenges, especially when hiring for managerial or other key positions, is paramount. Putting the extra effort in at the start will end up saving you more than just money in the long run.

If you need assistance with your recruiting process in the Thompson Okanagan, B.C. Interior or beyond, contact Xilium Recruiters – we would be happy to help!

One thought on “Could a Bad Hire Cost my Company Money?

  1. Alf Kempf Reply

    Just a slight addition to this very good analysis – the cost of the termination most often exceeds two weeks’ severance pay. The common law would supplement the severance pay by up to 6 months ($30k in this case) even for a short term employee unless the employer has invested in and used an employment agreement. There may also be legal expense involved in defending the dismissal claim.

    Additionally, dismissed employees often disparage the business and abuse confidential information they have required. These costs are hard to estimate.

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