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The High Cost of a Bad Hire

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No manager relishes the idea of taking on a new employee only to watch the promising new hire crash and burn a short time later. This is awkward for everyone, and since the hiring process can be long and full of uncertainty, it’s never fun to jump right back into it as soon as it comes to an end. But on top of the hassle, inconvenience, and embarrassment of a hiring mistake, this kind of error can come with a staggering financial price tag. Consider these hidden and not-so-hidden costs before you take a chance on a long shot hire, or decide to replace a struggling employee instead of coaching him in a better direction.

The Opportunity Costs of an Open Position

As long as the necessary position stands unoccupied, work slows down and the company loses money. But this net loss doesn’t end on a new employee’s first day. In fact, it gets worse—sometimes much worse—before the tide turns and the new employee starts functioning as a financial asset rather than a liability. The new hire will be paid starting on his first day, but until he can independently take the wheel, somebody else still has to drive.

Training also costs money. Not only will the new hire be unreliable until he’s ready to fly solo, but the person or people training him will be called away from their regular responsibilities. So as his first days and weeks tick by, the position he holds will actually cost far more than the rate of his own salary.

Releasing an Employee Takes a Toll on the Workplace

Letting go of a weak hire can generate a ripple effect that moves beyond one position, one project, and one department. While some managers mistakenly believe that an occasional firing keeps remaining employees on their toes, the opposite is actually true. Letting employees go drains morale on two levels: It shows poor decision making ability on the part of those in leadership roles, and it weakens employee loyalty. If you find it easy to sever ties with your employees, they’ll feel the same way, and they won’t hesitate to jump ship when a better opportunity comes along.

Hiring Costs Increase as Salary Decreases

As a proportion of salary, hiring costs drop as pay rates go up. Replacing a minimum wage employee just once or twice per year may cost up to 75 percent of the annual salary for the position. This proportional cost goes down as salary rises, but not by much, since high-paying, highly skilled positions are often far more difficult to staff and require longer searches with a wider geographic range (which means travel expenses).

Keep in mind that the best way to avoid the cost of a new hire is to select the right candidate in the first place. For sourcing and staffing help for positions at every level, reach out to the Little Rock experts at CSS.

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