What are the costs of a bad hire and how to reduce them?

Table of content:

1. What is a bad hire?
2. What is the cost of a bad hire?
3. How to limit casting errors? 5 tips

You have just finished your recruitment process and found your new employee. But problems and complaints from your team soon arise. You notice that this new employee is not the right person for you after all.

Every year, companies lose money and time because they didn’t hire the right candidate or because the candidate left before he or she was even productive. According to the Harvard Business Review, 80% of the employee turnover in a company is due to bad recruitment decisions.

A bad hire has a cost, not only financially, but also on your business, your company’s image, and your team’s productivity. We explain to you in this blog article, how you can avoid bad hires in recruitment.

What is a bad hire?

According to the Harvard Business Review, 23% of new employees leave the company within a year. Recruitment is considered a bad hire when the new employee leaves the company within 12 months of being hired, during or after the probationary period.

But why is that? The majority of recruitment errors are due to the difficulties companies have in properly assessing candidates. To ask the right questions about their skills and qualities. And to recognise unnatural behaviour or lies during the interview.

An infographic from Learn Trakstar gives 4 main reasons for bad hiring:

1. The company needed to find a new employee too quickly
2. It just didn’t work out with the candidate
3. The company didn’t sufficiently test and verify the candidate’s skills
4. The company did not properly check the candidate’s references

According to the same infographic, the majority of badly recruited employees had these same characteristics:

• They do not produce quality work
• They do not get along with the team
• They have a negative attitude, show no motivation, and are critical of everything
• They are already causing problems within the company
• Clients complain about their work
• They do not meet deadlines

What is the cost of a bad hire?

Bad hire not only has financial costs but also has an impact on your company’s image. On the productivity of your employees. And on the atmosphere within the company.

Therefore, the cost of hiring the wrong person is not just the salary and the cost of recruiting that person – it goes far beyond that. According to the Harvard Business Review, the organisational costs of employee turnover are estimated to be between 100% and 300% of the salary of the replaced employee.

They distinguish themselves between direct and indirect costs:

Direct financial costs:

• Recruitment costs: salary of the recruiter or recruitment agency, profile search, cost of software…
• Salary of the new employee: salary, bonuses, benefits, charges, etc.
• Costs in case of legal disputes and/or departure costs (if outside the probation period)
• Replacement of the new employee: all costs must be doubled as the whole process has to be redone from the beginning

Financial costs can vary depending on the level of responsibility, the nature of the position, and the time the employee has spent in the position as well as their pay.

Indirect costs:

• Integration: onboarding, training, possible business travels
• Potential loss of business
• Impact on customers and company image
• Overloading of other employees: loss of productivity, motivation, and time lost
• A bad atmosphere at work and impact on team’s mood

How to limit casting errors? 5 tips

By keeping a few points in mind beforehand, you can avoid making the wrong decision in the recruiting process:

1. Make a clear and honest job offer:

Your job advertisement is your company’s showcase. Make sure you are clear and honest and include all the information about the job and your company. It should reflect a positive image.

If the new employees find themselves doing tasks that were not mentioned or planned during the interview, they can quickly lose their motivation. They will lose confidence in your company because they have missed out on several important aspects of the job.

2. Interview with the right questions:

You can also use a recruitment agency. The consultants will find the right candidates for your needs.

3. Check the candidate’s references:

Prepare your questions well in advance. But also remember to respect the candidates’ privacy, and inform them of your calls. They may not have told their employer that they are looking for a job yet.

4. Start the onboarding before the first day at work:

A bad welcome can also have a very negative impact on the candidates’ opinion of your company and their decision to work for you.

If you want to know more about the importance of good onboarding, you can read our previous article “Employee onboarding: meaning, benefits and examples“.

5. Take your time

Don’t hire an employee just because you need to fill a position. Take the time to think carefully about what profile you need and what skills will be required.

It is better to recruit slowly and be sure you have found the right candidates than to go too fast and have to let them go before their probation period. In the long run, you will save time and money. 

In the majority of cases, bad hires are due to poorly prepared interviews and decisions are taken too quickly.

If you rush your recruitment without really taking the time to think through the profiles you are looking for. And if you don’t take the time to analyse and understand the skills and qualities of the candidates you interview, you will make mistakes. These mistakes are costly and can be avoided.

Recruit slowly and move on quickly from the wrong candidates if necessary, to minimise costs.

But if your candidates fit the profile you were looking for, take care of them, guide them and train them for the long term to enhance their value.

LHC International is specialised in recruitment since 2013 and our consultants are experts in their industries. They can advise you, guide you in defining the profile(s) you are looking for, and help you recruit candidates for your company.

Do not hesitate to contact us if you have any questions.