What is the true cost of a bad hire?

Can you afford to lose 4 months in productivity on an underperforming employee?

This is hardly surprising. A failed recruit can have brutal and long-lasting effects right through your business In this period of instability where resources are spread thin and growth is essential these effects can be all the more difficult to recover from.

“During periods of change and uncertainty, the cost of a bad hire is magnified. Businesses are prioritising growth and recovery initiatives, often without fully rebuilding their staff headcount to pre-pandemic levels so resources are spread thin. This is resulting in less of a ‘buffer’ between underperforming employees and their impact on the business – particularly in smaller organisation,” says Nicole Gorton, Director from Robert Half.

Bad hires are costly but they’re not uncommon. 95% of business leaders surveyed admitted to making a bad hire each year.

What are the costs of a bad hire?

Just one bad hire can cost anywhere between 20 – 150% of the candidate’s annual salary – depending on the role, the level of training required, seniority etc.

An underperforming employee doesn’t appear immediately. On average it takes 10 weeks to identify a bad hire and another 6 weeks to replace them. That’s 4 months of lost productivity to your business!

Believe it or not this is just the beginning. The true cost of can be seen in the additional side effects that can result in just one bad hire.

Side effects of a bad hire

Unfortunately, a new recruit that doesn’t pull their weight can have a ripple effect throughout the whole organisation creating negative side effects including:

LOW PRODUCTIVITY OF FELLOW EMPLOYEES:
Fellow employees are often required to pick up the slack of the underperformer which takes them away from their own work often resulting in a loss of productivity in several roles.

LOST INVESTMENT IN TRAINING
Depending on the role training can be costly and time consuming and often involves external organisations. This training is wasted on a bad hire and needs to be invested all over again during the rehiring process.

MANAGEMENT TIME LOST
Managing an underperformer is time consuming and stressful. Management time is sucked up not only managing the bad hire but also the effects on the rest of their team. Think of the opportunity cost of how that managers time could be better spent growing the business?

IMPACT ON STAFF MORALE
With the uncertainty of the past 2 years, staff morale is already at an all-time low. Making up for an incompetent employee can be time consuming and stressful for the staff around them. The result can have a further significant impact on staff morale as they become exhausted, resentful and disillusioned.

LOSS OF SALES
A bad hire inevitably leads to a drop in service levels having a detrimental impact on your reputation in the market, sales and your bottom line.

RISK OF REPERCUSSION
Once you have realised you have hired the wrong employee it becomes clear that you need to let them go as soon as possible. You need to make sure you follow a strict process for terminating someone’s employment as set out by Fair Work Australia. If this process is not followed you run the risk of an unfair dismissal case.

It’s fair to say we have driven our point home that it costs your business A LOT every time you make a bad hire. But why do bad hires keep happening and how can we avoid them?

How do bad hires happen?

Time constraints: Often employers put off recruiting a new person while they get on with getting the work done themselves. By the time they get around to it they need them like yesterday! This can mean cutting corners in the recruitment process and settling for someone that meets some of the criteria just to take the pressure off.

Tight labour market: the perfect employees are few and far between at the moment and finding one that suits your business values and culture as well as having the technical skills has never been so challenging. In today’s candidate-driven labour market a successful acquisition strategy requires a range of tools and techniques, insight into the labour market, expertise, and thinking outside the box. For employers needing to focus on their business this can be one step too far and they end up settling for what they can get.

Inadequate recruitment process: Obviously if you’re a cabinet maker recruitment isn’t your core business. But it’s not rocket science right? You advertise the job, do a few interviews and pick the one that you think best suits the job. Actually, there is a lot more to it. In fact a recent study found 76% of bad hires came from an inadequate recruitment process that didn’t assess candidates’ skills adequately, failed to pick up lies on resumes and didn’t do adequate reference checking.

How to avoid a bad hire

CULTURE FIT RECRUITMENT

Culture fit recruitment ensures your new starter has the right soft skills to align with your company’s core values and culture as well as the technical skills to perform the role. You need to ensure your recruitment process has the tools ro assess these skill sets and get the balance right.

STRONG RECRUITMENT PROCESS
From job description to reference checks your recruitment process needs to be tight and thorough, ensuring each step is designed to attract the best possible applicant for the job. It needs to include

clear measurable job descriptions,
a thorough interview process that addresses ALL aspects of the role and uses a variety of strategies to test the candidates competencies;
access to a strong pool of candidates;
a range of skills assessment tools
thorough reference checking.

REFERENCE CHECKS
Don’t assume that just because someone put a referee on their CV it’s a done deal. Take to time to thoroughly reference check. A few minutes on the phone could mean the difference between a nightmare and a star employee.

FORMALISED INDUCTION AND ONBOARDING PROCESS
What if your bad hire could have been a good hire? As your business grows you need an onboarding process for new starters so they can smoothly integrate into the role; understand exactly what is expected of them and get support where they need it. This not only sets the employee up for success but also warns of any red flags or inadequacies early on that can be rectified quickly. Without this process in place you run the risk of repeat bad hires.

You’ve heard it before and you’ll hear it again (because it’s true) – your people are you biggest investment. The right people will give you your competitive edge but the wrong ones will cost your bottom line and hold back growth.

“In a candidate driven market where competition for top talent is high, it is pertinent that companies put in place efficient recruitment processes. Companies can minimise their risk of a bad hire and the consequential costs by reviewing and evolving their recruiting processes, making sure hiring methods have been adapted to recent markets changes. Companies should also ensure they work closely with their HR department and a specialised recruiter to establish a well developed recruitment strategy.” David Jones, Senior Managing Director, Robert Half Asia Pacific.

Top Draft Group specialise in culture fit recruitment, drafter training and remote drafting. We have a proven successful recruitment process formulated to get the right fit for your team, first time.

We offer a range of bespoke training options customised to your growing business today. And while we’re getting your perfect employee we offer a remote drafting service to keep you going and fill in the gaps.