Costs Associated with Hiring The Wrong Candidate

Hiring the wrong candidates comes at a high cost

Hiring the wrong candidate is a common complaint shared by many employers; can it be avoided or is it inevitable? That's debatable!

If you’re a recruiter or an HR decision maker, it is really important to understand the costs associated with a bad hire.

Published projections

There are various projections on how much a bad hire could cost an employer. As stated by some US-based figures:

• According to the US Bureau of Labor Statistics, a wrong candidate can cost the employer as much as 30% of the first year income of the employee. Meaning, if your employee would earn $36,000 in the first year, the company stands to lose at least $9,000.
• The Undercover Recruiter pegs losses arising from hiring the wrong candidate at a whopping $240,000. This amount is lost on hiring related costs, wages and perks for retention.
• Employers lose up to $14,000 per wrong candidate, says CareerBuilder.com.
• Harvard Business Review, notes that about 80% of employee attrition occurs due to hiring the wrong candidate and could happen at any level junior, mid or senior.

What are the associated costs?

The numbers that I’ve mentioned above, could be higher as there could be other hidden costs. Let’s dive deeper and create a list of all the possible costs associated with hiring the wrong candidate:

1. Lawsuits

There are various scenarios where an employer can face an expensive lawsuit due to wrong hiring. One way of avoiding such situations is by conducting a thorough reference check. 

While a candidate can look promising at the time of an interview, a reference check on pre-employment history, school and educational documentation, character, ethics and skills can make an impact on the final decision. 

Sometimes it's too late to withdraw the job offer to the candidate. The next step would be to continue with the employee or terminate them. Due to employee protection laws, there’s every chance that your company could be saddled with a lawsuit citing reasons such as lost opportunities and damage to the career path. Read more on how you can avoid bad hires.

2. Demotivated Employees

Another hidden cost of a bad hire stems from demotivation among other employees. One wrong hire can damage the morale of an entire team. At times, this could occur because your organisation hires someone at a higher position, expecting better leadership and productivity.

A bad hire invariably ends up demotivating others by working less, giving wrong directions, or incorrect staff deployment to name a few. The result can be disastrous. You’ll begin witnessing a drop in performance levels due to otherwise inexplicable reasons.

3. Training Costs

Most organisations conduct in-house training for their staff or outsource their training to external providers which is always an added expense. There are two ways you could be at a loss. One, training is conducted during work hours which means that regular tasks get delayed and if an employee decides to quit no cost can be recovered. 

Two, if a bad hire on your team is trained, though the intent of the organisation is right, it is still an unrecoverable cost if the candidate is not able to deliver the desired performance. 

4. Retarded Growth

This might sound unbelievable but a wrong candidate can retard the growth and expansion of an organisation drastically. Every organisation hires candidates for specific locations and tasks when they’re looking at expanding into new markets. 

Hire a wrong candidate and you’ll  not get the desired results.

5. Information Leakage

While there are rules and laws regarding leaking confidential information from one organisation to another, many such leaks go undetected. A bad hire can easily disclose heaps of sensitive information about your company to a rival.  Sensitive information can range from details of clients, proposed launches, internal revamp through to hiring strategies.

Though there are no studies to prove how much damage a wrong candidate can cause for leaking information the possibilities exist and cannot be denied. 

4 Things you could do to avoid hiring the wrong candidate

At a pre-hiring stage, here are some tips to consider to reduce the chances of hiring the wrong candidate:

1. Ensure the recruiter understands the job role and the indispensable skills required. While it's hard to find the perfect candidate and in many cases finding a combination of skills, certification and experience is tough, there are some ‘must haves’ which should be a part of the job role brief.
2. Check if the candidate would be a cultural fit by involving the team the candidate would be in. Many hiring managers schedule an interview round with their team to check if the candidate will blend in well with the team and organisations culture. 
3. Review their LinkedIn profile. Additionally, if you’re getting started with LinkedIn, here is an article on how you can make your job posting stand out LinkedIn can help save a lot of costs 
4. Reference checking is a good way to find out more about your candidate. Online reference checking solutions like Xref offer additional insights that could make your hiring decisions more efficient.  Read more on this topic.

In Conclusion

As you can see from the examples highlighted above the actual costs associated with hiring the wrong candidate can run very high and are often incalculable. While experts base their calculations on largely tangible factors, it is worth considering the hidden costs such as the existing team morale, dependency on each team member and the inability to perform as a team. Building trust in a team is a challenging task and it can get affected when the wrong candidate is hired. Consider doing your due diligence to help your recruiting process thrive in the longer run.