The Cost of Recruiting (And How to Avoid Bad Hires)

In a turbulent and competitive job market, having strong recruiting practices and a unified team is crucial for retention, productivity, and so much more. The cost of recruiting, hiring, and onboarding new employees is increasingly expensive; most organizations can’t afford to make too many bad hiring decisions.

Because of how costly hiring a candidate can be, when teams are a revolving door with their members they can expect to suffer greatly in both time and money. Understanding the costs associated with hiring a candidate or making a poor hiring decision, and learning how to identify bad hires early on, can be a valuable tool in navigating your recruiting and hiring processes and improving retention.

How much does it cost to hire a candidate?

When hiring a new employee, you should expect to spend more than just a salary. You’ll need to consider both the employee’s salary and associated benefits, which typically will cost 1.25-1.4 times a base salary range. These numbers also don’t include all of the other expenses associated with bringing a new employee on board. Additional costs, including internal and external recruiting costs, advertising and job board posting fees, sign-on or referral bonus fees, branding, travel, and relocation expenses, all factor into your total cost to hire.

Costs will also vary depending on the industry, role, and the number of new hires you need to make. For example, the more employees you hire at once, the less amount you will spend per hire due to the scale in your recruiting funnel. Likewise, if you work in an industry like STEM and are looking to hire a new and qualified engineer, it may take longer to make a hire--acquiring higher costs along the way. A standard formula, created by the Society for Human Resource Management, outlines how to calculate cost-per-hire:

To determine the total cost, consider the expenses associated with recruiting, hiring, and onboarding new employees in relation to total HR spending over an allotted period. According to a study done by OPSDOG, that number is commonly around 25% or more of total costs.

It is advantageous to determine your company’s average cost-per-hire and keep it in mind when developing or tracking your recruiting budgets.

In addition to the financial expenses related to hiring a new employee, be sure to acknowledge that new hires also cost time. According to SHRM, onboarding is a comprehensive process that can last up to twelve months. Another study found that a new employee will only perform at 25% productivity within the first month and likely won’t reach full productivity until around month five. When a new employee joins the team, there will be a period of workplace integration that will delay their overall return.

The cost of a bad hire

According to the U.S. Bureau of Labor Statistics, a bad hire could cost an organization 30% of the employee’s first-year wages. If you take an employee hired with a $70,000 salary, the cost to the company could be up to $21,000. These numbers include recruiting, hiring, onboarding, and maintaining an employee--but often, a bad hire can cost an organization more. When an organization has to replace a bad hire, it also has to revert funding to its recruiting efforts to refill the position and train a new employee again. Understanding this cost can help your team navigate candidates who are on the fence.

Risks associated with bad hires

In addition to monetary losses, bad hires can negatively impact an organizations’ time, resources, culture, and reputation. A study conducted by SHRM found that bringing on board a bad hire resulted in a 41% loss in worker productivity, 40% lost time in recruiting and training a replacement, and a 22% negative impact on client engagement. Other risks associated with bad hires include:

• A negative impact on team morale and performance
• Bad online reviews
• A more significant workload for other employees
• Stress
• Potential for legal costs

While it might seem challenging to determine if a candidate is a bad hire, there are steps you can take upfront to identify red flags.

How to identify a bad hire early

A bad hire doesn’t always start that way; being proactive and observant with new hires will allow you to identify poor fits sooner rather than later. Here are some red flags to look out for when determining whether or not a new employee may be a bad hire:

• Can’t keep up with work after training
• Doesn’t work well with other team members
• Is unable to meet deadlines
• Immediate or consistent problems with attendance
• Negative attitude
• Continuous mistakes
• Consistently underperforming
• Missing skills stated on their resume

The more thorough you are before extending a job offer, the less likely you will end up with a bad hire. Before and during the interview, be on the lookout for these signs:

• Doesn’t seem to know what the job is about
• No previous record of achievements
• Insufficient references or CV
• Negative reason for leaving their previous job

How to plan for bad hires

Despite your best efforts, sometimes a bad hire is inevitable. If a bad hire does happen, you can take actions to course-correct before replacing them altogether. First, revisit the initial goals and expectations set forth and assess whether they were too ambitious or advanced. You may wish to reconfigure your expectations better to suit the position and abilities of the employee. Another option is to provide more training or training in a different configuration or format. An employee may respond better to training that is presented using a different approach than initially offered.

Another conducive practice is that of giving and receiving feedback frequently. Keep the lines of communication open so that your hire may ask questions and communicate to you when something isn’t working for them or they aren’t grasping a concept. Utilizing Integrated DISC can help you make these conversations more productive earlier on in the onboarding process. Doing so will allow you to be aware of problems sooner as they arise and offer guidance and instruction as they navigate their new role. You can get started using DISC in your recruiting and hiring process by clicking here.

Key Takeaways

Today’s job market is a candidate’s market, and recruiting top talent is increasingly difficult. In such a highly competitive market, it is essential not to underestimate the necessity of having strong recruiting practices. If organizations fail to do so, they risk potentially large financial losses and wasted time.

 Taking cautionary steps throughout the recruitment process can help ensure that bad hires are avoided, and only the most qualified and aligned candidates are chosen. With strong practices, companies can reduce the costs associated with recruiting and focus their efforts on other important priorities.

Learn about your candidates by having them fill out a personality assessment.