Hiring the wrong employee is an expensive mistake.
For example, let’s say a professional services firm recruits and hires a new customer service representative (CSR). After 2 months, the manager realizes he made a bad decision. The employee is terminated.
This is the example used in a recent report by McLean & Company. They placed the cost of hiring the wrong employee at about $12,000. Here’s how they derived the estimate. The analysis McLean & Company used is not very different from the multitude of other articles and forms available with a simple Google search. But it’s a good reminder about the high cost of hiring poor performers, especially since hiring trends are up and many hiring managers are unprepared.
|Advertising (2 online job boards, 1 alumni job board)||$ 1,950|
|Recruiters (20 hours spend x $25 hourly rate)||$ 500|
|Administrator (7 hours spend x $20 hourly rate)||$ 140|
|Candidate travel costs (airfare, hotel, etc.)||$ 0|
|Interviews (interviewer’s time spent)||$ 246|
|Background checks||$ 100|
Salary and Benefits
|Monthly salary x # of months employed (2 months @ $3,350)||$ 6,700|
|Estimated benefits (35% salary)||$ 0|
|Signing bonus||$ 0|
Other Significant Costs
|Training and orientation (trainer, manager & and other employees’ time spent)||$ 1,224|
|Training materials||$ 50|
|Relocation costs||$ 0|
|Set-up costs (computer, phone, etc.)||$ 960|
|Litigation costs (if applicable)||$ 0|
Total Cost of a Bad Hire
|+ Salary & Benefits||$ 6,700|
|+ Other costs||$ 2,234|
You should notice that these costs might just be the tip of the iceberg and rise when candidate travel costs, relocation costs, signing bonuses, litigation costs, and benefits are incurred.
Hiring the wrong employee is also the mistake that keeps on giving.
After this CSR (or any other employee) is let go, the organization has to start recruiting all over again. The cost to replace this employee just keeps mounting even after he or she is gone. In addition to the recruiting costs ($3,000), there are a number of soft and opportunity costs that add up.
- Manager’s time spent dealing with HR about the under-performing employee, discussions with the employee, and documenting his or her performance.
- HR’s time spend coaching and advising the manager about performance management and legal implications of termination.
- Lost productivity due to missed deadlines, unfinished projects, and missed sales.
- Disjointed customer service. Customer fulfillment, engagement, and service is disrupted or less then desirable when management and HR’s energy is redirected toward poor performing employees instead of top performers and customers.
- Damage to reputation. The terminated employee will almost certainly spin a different story than the one told by the employer. And word of mouth travels fast, especially if the employee is active on social network sites.