How Much Are Bad Hires Costing You?

A few bad hires can be a big blow to the company budget. 

According to the U.S. Department of Labor, “it’s estimated that the average cost of a bad hiring decision can equal 30 percent of the individual’s first-year potential earnings.” That means that a $20 per hour bad hire could cost you $12,500. And if you make a few of those bad hires in a row, you are starting to feel some real pain. 

But is the potential for loss even higher than that?! 

Let’s take a look at some specific areas of cost where you might be losing money if you have acquired the “bad hire habit.“.

1. Recruiting – The process of recruiting costs time and money, and once you have committed it, it’s gone. It includes writing and posting ads on online job boards, reviewing resumes and pursuing candidates, taking time out of yours and your managers’ schedules to interview candidates, checking references, and performing background checks and drug tests
2. Training – Bad hires consume more training time and money than a good hire. Why? You guessed it. Their progress is slow and they continue to never “get it.” Training costs appear in the form of time spent by managers and employees to train the new hires, and equipment and materials consumed, wasted or destroyed in the process of training.    
3. Direct Employee Costs – This category is generally money poorly spent. It’s what you paid to have the employee provide you with unproductive labor. These costs include salary, payroll taxes, workers comp and unemployment insurance and any benefits. If only we could ask the employee to pay these back!
4. Service/Production Delays – We obviously hired the employee for a reason and generally this is either to expand production or fill a gap in production. By not hiring the right person the first time, many companies slip behind on production schedules and are forced to use overtime to play catch up. Over a prolonged period these delays could mean unhappy or lost customers as well as overworked employees.
5. Injuries – Our experience shows that most work-related injuries occur in the first few weeks of new employment when the employee is not fully trained and most likely to do something “dumb” while “over doing it” to impress the boss. We all know that injuries can be devastating in terms of cost (i.e. a lot more than $12,500!) and can negatively impact your workers’ comp rates for years to come.
6. Unemployment – Many employers wait way too long to let a bad hire go, end up paying significant unemployment claims and have to deal with unemployment hearings and paperwork. Not anyone’s favorite activity.
7. Bad Worker Morale – Always, when hiring becomes a stumbling block, the burden falls on your current employees. This burden comes in the form of time spent away from their main responsibilities, time spent fixing mistakes, and excessive overtime for current employees to pick up the slack. These situations also provide mixed messages to employees that 1) nobody good wants to work for the company or 2) the company doesn’t care enough to hire quality workers.    
8. Crushed Growth Goals – A pattern of failed hiring can result in diminished growth plans, loss of clients and business, and even questions regarding the long-term viability of the branch, its management and the business itself. Yes. We’ve seen it happen.  

Like the saying, “You are what you eat.” We believe that “You are who you hire.” When you think of bad hires as a “cancer” within your organization, you can start to get a sense of how quickly these destructive costs can accumulate.

Don’t panic. You are not the first person or company to deal with this issue. In fact, it’s the eternal struggle, especially in a very tight job market.

Here are 5 tips that have helped many of our industrial clients improve their hiring from bad to good.

1.  Take Your Time– It is worth your time to take the hiring process slowly, define exactly the type of candidate you are looking for, have that person meet the right people in the company and then hire the right person. You can see from the costs above, it’s better to not hire, than make a bad hire.
2. Be Special – This advice may sound enormously cheesy, but if you haven’t thought about why your company is different than the competition, now is the time. Remember that you are not only competing for customers out there, you are also competing for talent.
3. Pay Enough– If you want good employees, you need to pay at or above market value. Great talent know what they are worth and want to be valued by the company they work for.
4. Be A Great Employer– Your employees must know you have their back. Whether it’s culture or benefits, show interested candidates that your company is the kind of company that they can be proud to work for.
5. Don’t Go It Alone– While most staffing and recruiting companies are not worth the paper their cards are printed on, there are some exceptions. Leveraging the expertise of professional recruiters, who are truly willing to understand your company’s unique positions and culture, can help stop the cycle of bad hiring. An added benefit is that many recruiters are willing to guarantee aspects of their services and protect you from the costs associated with recruiting, injuries and unemployment.        

About Industrial Trades Pros

Industrial Trades Pros provides career resources as well as recruiting services to top industrial trades professionals and the companies that employ them in manufacturing, transportation, energy, automation/robotics and industrial services. We enable machinists, mechanics, welders, fabricators, electricians, installers, quality control techs, service techs and other related tradespeople to find great opportunities and achieve their greatest potential in their fields.