Coin Dropping Into Piggy Bank

Have you ever wondered or even considered the costs associated with hiring the wrong employee? The Harvard Business Review previously stated that 80% of employee turnover is due to poor hiring decisions. It is crucial to consider these costs when thinking about your business practices.

From a monetary standpoint, the cost of hiring the wrong employee can run a business into the hundreds of thousands, and at the height of the costs, into the millions. However, the costs of hiring the wrong employee can go well beyond a monetary disadvantage into having a negative impact on employee morale, a business’ reputation and the productivity of a business. It is important to know where these costs stem from and how to avoid hiring the wrong employee to protect a business from the disadvantages involved.

The Costs Add Up

The Department of Labor concluded that on average the costs involved with replacing a new hire will equal one-third of that employee’s yearly salary, a hefty price tag the higher up you go into an organization. Other experts state that if a business recognizes a hiring mistake within six months, then it will cost the business two and a half times the employee’s yearly salary. Therefore, if a business was required to replace an employee with a yearly salary of $50,000, it would cost the business a total of $125,000.

The Reasons behind High Costs

Costs involved with replacing employees derive from a variety of categories including interview/hiring expenses, termination expenses, and relocation expenses. Items included in interview/hiring expenses are comprised of travel, employment testing, training, and orientation. Items included in termination expenses can develop from Cobra and unemployment; in addition to litigation costs should the employee pursue a wrongful termination suit. However, the largest portion of these costs is due to being required to repeat the entire hiring process.

The high costs are further increased due to less tangible costs involved in hiring the wrong employee and the repetition of the hiring process. The intangible costs can include low employee morale, customer dissatisfaction, decreased productivity, lost hours of employees involved in the hiring process and lost sales.

What Leads to a Wrong Hire

A multitude of reasons can be behind what led to a business hiring the wrong person, but a majority of experts pinpoint it down to four reasons: performance issues with the employee, a poor skills match, unclear performance objectives and a rushed hiring process.

Often hiring managers feel hurried in the hiring process of a replacement, leading to two of the other reasons behind wrong hires. It is important for hiring managers to dedicate the necessary time in order to properly describe the job, including ensuring the performance objective is evident to all applicants and then find the right individual who has the skills necessary to properly do the job.