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What is the True Cost of a Bad Hire?

Feb 01 , 2022

Dismissing a bad hire.

Hiring new talent isn't cheap. But, what's the cost of a bad hire? It can be pretty steep.

The U.S. Department of Labor puts the cost of a bad hire at up to 30% of the employee's first-year salary. But experts have put the actual cost of a bad hire much higher than that. In a 2017 Careerbuilder survey, 74% of employers surveyed said they had made a bad hire in the previous year, so this is a common problem.

Recruiter Jörgen Sundberg, CEO of Link Humans, puts the cost of hiring and onboarding a new employee at $240,000. This means your bad hire could be exponentially more costly than you initially thought. 

Certainly, a bad hire will cost you whatever you spent on recruiting, either in-house through your HR or recruiting staff or the cost of an outsourced recruiter. 

Then there is the salary cost for the time it takes to figure out it was a bad hire. Supervision is another cost of a bad hire, but these are only the tip of the iceberg of the true costs. Here are some other costs of a bad hire that you may not have considered. 

Lowered Productivity

One of the biggest indications of a bad hire is a lack of productivity. Maybe the hire doesn't know what they're doing or just doesn't take direction very well. Sometimes the bad hire is just lazy and doesn't try very hard. Not only is a bad hire unproductive, but that lack of productivity can bleed over to their entire team and bring everyone down. 

Holding gears together.

Lost Business/Damaged Reputation

It will not take your clients very long to figure out you made a bad hire. And if you don't fix it fast, they may decide to move on to another company. Once they leave, they will not likely be quiet about why they left, either. Soon your company's reputation is damaged, which will drive up your cost of getting new clients or making new sales going forward. 

Increase in HR Costs

In some cases, the process of firing someone has grown cumbersome, taking many hours of your HR department's time to document and build a case for the termination. And since time is money, those lost hours increase the cost of your bad hire even more.

Legal Fees and/or Settlement Costs

Sometimes bad hires will accept their firing gracefully. But it's possible that they will prompt a legal challenge to the firing and attempt to get a settlement or judgment against the company. This scenario will add the cost of legal fees and possibly a settlement to the total cost of your bad hire--and this could be expensive, whether your company decides to fight the suit or pay for it to go away. 

If you have experienced a recent bad hire and want help to do better, GDH can offer all the recruiting services you need to make a better hire next time around. Contact us for information on all we can offer and how we have successfully helped other companies like yours.