Ways to Calculate the Cost of a Bad Hire

Ways to Calculate the Cost of a Bad Hire

The perfect hire can bring teams together, drive results and fuel higher productivity rates all while empowering a new level of collaboration. But what about the wrong hire? Bad hires can hurt team morale, stall corporate initiatives, increase turnover and cost employers big money. How big?

Zappos discovered they were losing $100M on bad hires. The company was so committed to reducing costs related to hiring the wrong employees they now offer employees a $3,000 separation bonus to exit if they aren’t loving the organization within their first few months.

And according to the U.S. Department of Labor, the average cost for each bad hire can add up to 30% of the employee’s annual income.

Here are three ways to calculate the cost of a bad hire:

1. See how much time you’re dedicating to recruiting.

When it comes to hiring costs, the most immediate and one of the more challenging costs to put a number on is the expense of recruiting efforts. Recruiting efforts include the amount of company hours and resources your hiring managers and human resources department rack up in locating, interviewing and ultimately hiring candidates that just can’t be recuperated.

To really pin down a specific amount, ask yourself the following questions:

How many employee hours were spent on hiring the wrong candidate? Drill down to who is interviewing and spending time on recruiting efforts—figure out exactly how much time—and then calculate it out with the hourly cost of each employee.

Add up all the hours allocated to screening candidate resumes, scheduling phone interviews and in-persons, interviewing and making an offer or negotiating.

On top of that, include the cost of background checks and drug screens and the days spent training the new hire.

Finally, include any investment you made in advertising the position on LinkedIn or other job site. Put all these amounts together and you have that magic number.

2. Think about initial onboarding costs.

Now think about what your initial onboarding expenses for the position are. Usually when you first bring a new employee into your ranks, you spend a significant amount of employee hours and money to get them acclimated, trained and in sync with your company culture.

Estimate how many salaried hours of peers, trainers, hiring managers and human resources professionals will be invested getting your employee fully on-boarded. And, don’t forget any necessary costs for compliance training—whether that’s educating your new hire on HIPAA laws or giving them preventative sexual harassment trainings. If the new hire can’t get up to speed, then all of those costs are lost.

3. Examine productivity killers.

One of the most unfortunate tolls of the wrong hire is that they are one of the biggest productivity killers in the workplace. Because when you have a weak hire, the rest of the team will be compensating for it. From taking on added tasks to backing initiatives outside of their area, your loyal, long-term employees will be stretched thin. That hurts team morale (which can trigger turnover) while impacting efficiency and ultimately keeping your organization from achieving company goals.

So, how can you prevent a bad hire?

It’s all about the details—the right job description, interview questions that can help gauge cultural fit and the hiring strategies that attract killer talent.

Not sure where to start? Staffing Strong can help you find the right hire the first time. Contact us to get started!

Meet the Author

Evelyn Vega is the Founder and President at Staffing Strong and the Past President of the Phoenix American Marketing Association. Since 1999, she’s made her career about supporting her clients in building meaningful careers and partnering with businesses in finding quality hires. In her free time, Evelyn sits on various advisory boards and enjoys practicing on her drum kit!