How Much Are Bad Hires Really Costing You?

5 minutes

The tech industry is booming. While that is good news, it means that the war for talent is raging on with no sign of subsiding.  Highly skilled IT professionals are finding that they have their pick of jobs, and no matter how great the perks found across the tech industry are, tech organisations (even the giants of the industry) can’t totally avoid the job-hopping nature of today’s workforce.

While talent shortage is set to be the single biggest hurdle faced by recruiters across almost all industries, a recent PayScale report shows that the employee turnover rate among Fortune 500 companies in the IT industry is the highest among industries surveyed.

Chances are that employee retention is an issue in your business. And you’re not alone. Nearly half of all employees across the UK are worried they won’t be able to find the talent they need with over three quarters saying they are struggling to find relevant candidates.

With employers so keen to fill tech roles quickly, there is a temptation to just hire on instinct (or in some cases, desperation), making bad hires a growing issue across the industry.

What is a bad hire? 

We define a bad hire as somebody who leaves your business within the first year of their employment. But it is also someone who just doesn’t have the skills to fulfil their role, who underperforms and doesn’t fit seamlessly into the rest of the team.

According to the REC’s latest report, 85% of HR decision-makers admit their business has made a bad hire. 1 in 3 HR decision-makers also think it didn’t cost the business anything when they hired the wrong person, while 1 in 5 stated that they don’t know what the cost of a bad hire is.

What is the true cost of a bad hire? 

Everyone knows that hiring is expensive. But so is re-recruiting to replace people who turned out to be bad hires. There’s the cost of creating job descriptions, advertising roles, reading through CVs, and carrying out interviews all over again. And it doesn’t stop there. After a new hire joins the business, you need to facture in onboarding costs and training.

In most cases, the true cost works out to be roughly 3.5 x their annual salary which, clearly has a negative impact on business. 

What are the consequences of a bad hire?

Apart from the substantial monetary cost, a bad hire can affect team morale and lead to low productivity. They also have a detrimental effect on your brand reputation over time as they are likely to interact with your customers.

Poor performers lower the bar for other employees and bad habits spread like a virus. If an employee is not working to their full capacity, there is bound to be a knock-on effect on the rest of the team. According to Agency Central, 39% of hiring managers said poor hires had cost them productivity. When a team is struggling with lost productivity they may be urged to start assuming additional duties that aren’t really part of their role. In addition to impacting their own performance, it will also affect their ability to meet deadlines and targets.

The negative change in the team’s morale will almost always be one of the first indicators of a bad hire. Disengagement is contagious, and the resulting toxic atmosphere puts your remaining employees at risk of leaving also. 

In the long run, it’s more difficult for managers and their teams to accommodate a poor performer than it is to invest in recruiting quality candidates. It’s clear that the cost of not firing a bad employee far outweighs the cost of keeping a bad hire in your business. 

How to avoid bad hires 

While there’s no obvious formula to avoid making bad hires, there are ways to retain employees for longer and conquer the battle of talent.

Businesses can start with promoting a flexible and inclusive workforce, implementing soft skills assessment tools and properly inducting new recruits.

Low pay, lack of clear career progression opportunities and no flexible working solutions are the main reasons why employees leave. By boosting these, businesses can increase engagement, productivity and teamwork, while also retaining talent for longer.

Investing in learning opportunities and innovative training provides a better and more immersive experience to employees while also developing the next generation of leaders. A recent study by Udemy uncovered that 46% of employees cite limited opportunities to learn new skills as the top reason why they’re bored in their current roles and looking for a change.

For more tips on how to fix your recruitment process check out this blog.

Tools you can use 

Using a specialist recruitment agency can dramatically reduce the risk involved in taking on a new employee. Consultants are experienced in matching the right candidates to the right employer daily and are skilled to spot the tell-tale signs of a bad fit from the get go.

Dale Swords, Managing Director Understanding Recruitment, recently told the Global Recruiter: “We have a responsibility to our clients to make sure that we offer the solution to an industry wide problem. Ultimately, finding the talent others can’t is what separates the good from the great recruiters.”