Most business owners view recruitment as a simple transaction: you pay a fee, you get a person, and you pay their salary. But when a hire doesn’t work out the way that you wanted or was sold in the interview, you can’t just go ahead and ask for a refund. In some places with ‘workers' rights’, it may cost you more to ask the employee to leave the company. Research on the hidden cost of a bad hire states that it can be up to 3x the employee’s annual salary.
While that might seem shocking, there is evidence that backs this appalling figure. While the salary paid is visibly lost, especially if they haven’t contributed anything of value to the company to offset this, the true damage lies beneath the surface in the ‘hidden’ costs that follow. Here is a breakdown of the financial impact a bad hire can have on a business.
Hidden Cost of a Bad Hire Revealed
Productivity Gap
Not only is the new hire likely underperforming compared to expectations, but your high-performing staff have the added pressure of resolving issues or picking up the slack, which can strain their performance if they are juggling more than they are required to do.
There is a clear knock-on effect, and this can lead to clients being underserved, clients leaving, and a drop in overall revenue as a result of a productivity gap.
Wasted Training Resources
The weeks or months spent onboarding, setting up tech, paying for additional things such as computers, laptops, additional company benefits, training, and a large amount of time from other employees spent training the employee.
Recruitment Fees & Advertising
Spending money on job advertisements on multiple platforms, recruitment fees if you decide to hire their suggestion and everything in between have already been paid. This will then need to be redone to onboard their replacement in a short period of time, which is very expensive.
Cultural Contagion
The most dangerous hidden cost is the negative aura this can have on the current team. It can create tension, lead to others thinking of handing in their notice, increase stress and a range of other feelings, which is overall more expensive if they leave or if it impacts their work motivation.
Sponsorship & Compliance Risks
When hiring internationally, the ‘bad hire’ cost escalates quickly. If a business sponsors a worker who doesn't work out, you lose the high costs of the Certificate of Sponsorship (CoS) and the Immigration Skills Charge.
To mitigate this risk, many savvy employers look for candidates who already hold Indefinite Leave to Remain. Hiring someone with ILR status means they have the permanent right to work in the UK without the need for costly sponsorship, removing the financial risk and administrative "red tape" if the role needs to be re-evaluated.
3 Ways to Avoid a Bad Hire
References
References are important because employers can’t technically say anything negative about their former employee, but they can still be honest. Overall, you should not settle for one reference unless they haven’t had any other previous job (which, overall, is a good sign if they have not jumped from job to job). Having more than one backup that a potential candidate is reliable, hardworking, and trustworthy is a much better indication that they won’t be a bad hire for the role.
Implement Tasks
After the interview process, there is an opportunity to add additional stages to rule out any ‘blaggers’ and time-wasters. As you interview hundreds of candidates, you might like many of them, but in some cases, personality is only a small part of the job, and their ability to be trustworthy in the role and their abilities need to be tested and demonstrated.
It’s not uncommon for companies to ask employees to complete a small task or some to review their capabilities and potential for the role. This not only shows their understanding, skills, and experience but also gives you a clear idea of what you are getting yourself into. Those who complete a difficult task are very unlikely to become a bad hire, therefore you can avoid the hidden cost.
In the same breath, asking for potential work samples is also a great way to assess their work skills, ethics, and ability to perform well. This may only be suitable for some job roles, but regardless, there are ways to ask for ‘proof’ of some things.
Company Values Questions
As mentioned above, personality is a small part of the interview and hiring process, but that doesn't minimise its importance, as you want to ensure they are a team player who will fit well with other employees in the office. Therefore, including questions that reveal their characteristics and personality is a great way to understand whether their values, interests, and so forth will mesh well with the current office dynamic.
It’s also important not to be biased or to base decisions on top-of-the-head opinions, but to gauge the person's character and demeanour during the interview process.
Written by Damian Woods