How Much Does a Bad Hire Cost?

It’s something that’s happened to most companies. You’re going through the recruitment process and you think you’ve found the one. Unfortunately, once the dust has settled, you realise the fit is not as good as you thought it was. 

With recruitment often a frustrating and timely process, it’s understandable that many companies make hasty decisions they come to regret – after all, not everyone has the experience or resources to properly vet a candidate.

Which brings us to this article. How much could a bad hire cost you? As a business, hiring involves numerous expenses that you might not have even considered, all of which can result in a waste if the new candidate doesn’t work out.

Below we explore the average cost of a bad hire, the warning signs of a bad hire and the costings involved in the average recruitment process.

What is the average cost of a bad hire?

According to research by the Small Business Administration (SBA), the cost to hire a new worker is around 1.25 to 1.4 times their base salary. So, while you might be paying them a base salary, your actual costs are higher. With this in mind, the following would be applicable:

– The average cost of a bad hire on a salary of £25,000 would be between £31,250 and £35,000.

– The average cost of a bad hire on a salary of £50,000 would be between £62,500 and £70,000.

– The average cost of a bad hire on a salary of £100,000 would be between £125,000 and a whopping £140,000.

It’s important to note that this is a rough estimate based on a number of variables and includes mandatory employment costs such as taxes or employer contributions but can also include things such as loss of productivity, new equipment, bonuses and other considerations.

At its core, the average cost also includes time and resources spent on: onboarding, training, the recruitment process, existing employee time and loss of productivity.

Other than money – however – a bad hire may also cause your company to lose current clients and potential future clients, cause discontent amongst employees or even lead to negative customer reviews.

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What is the average recruitment cost of a worker?

So we know how much a bad hire costs per year but how much does the average recruitment process cost for a new employee?

This is an expense that can be difficult to quantify when you’re going through the process as it includes things such as employee time alongside measurable costs such as advertising.

That said, every worker comes with a base recruitment cost, regardless of whether they turn out to be ‘good’ or ‘bad’ hires. 

Research by Oxford Economics suggests that the average recruitment process costs around £4,960 for a new hire, which can be broken down into the following:

– HR time & resources: £200

– Management time & resources during interviewing: £760

– Advertising: £400

– Temporary worker replacements: £3,600

So that’s the better part of £5,000 already spent and you still have to rely on your own vetting process resulting in the ideal hire, all while fulfilling your normal responsibilities. This is why choosing a local recruitment agent is a common choice for many companies that want to leverage their experience and wider talent pool.

Common reasons companies make a bad hire

So, why do companies make a bad hire if it costs this much money? If you’ve ever led an in-house recruitment project, some of these points may seem extremely relatable. According to a report by the Recruitment and Employment Confederation (REC):

– 30% of respondents said the bad hire occurred because the company needed to fill the position as quickly as possible.

– 30% of respondents said the bad hire occurred because the company didn’t have a wide enough pool of talent.

– 20% of respondents admitted they weren’t sure how much their bad hire cost.

A simple truth to ‘why companies make a bad hire’ is that many simply don’t have the time, experience or resources to do a complete vetting service.

This might include inadequate background checks, a lack of understanding about references or how to quickly evaluate a candidate’s skill set.

Likewise, running the process in-house often results in reaching a smaller talent pool and completely shuts out the passive market, which a recruitment agency is often in touch with.

Finally, companies running the hiring process themselves often can’t help but let emotions get involved. People naturally have biases because they know they’ll be working with the hire and this can sometimes impact more logical judgement.

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How can you spot a bad hire?

Spotting a ‘bad’ hire can be difficult, especially if it’s not an immediate red flag that appears during the recruitment process. That said, there are some tell-tale signs you may notice during the early days of screening or employment that tip you off. 

– An overly negative attitude, particularly about a previous employer. 

– Not being able to demonstrate skills mentioned in their CV or the job description.

– Lack of research during the interview process.

– Lack of flexibility in work style.

– A lack of punctuality, particularly during the interview process.

– Unable to provide accountability.

– Frequent unexplained breaks in career history. 

– Unprofessionally formatted documents.

– Interview presentation and hygiene.

While everyone is different and some ‘issues’ may simply be nerves, these are all potential indicators that an employee is not overly committed to working for a company and may become a ‘bad hire’.

How can working with a local recruitment agency avoid a bad hire?

One of the key reasons for working alongside a recruitment agency is the support they can provide at every level of the recruitment process.

A local recruitment agency is able to provide a wealth of experience – ensuring that all candidates are properly vetted – whilst offering access to a much deeper talent pool that commonly includes the passive market.

We have both Guernsey and Jersey recruitment agencies, for example, which means we have access to an extensive database of both candidates and clients across the Channel Islands that you might not be in direct contact with.

When you couple this with our focused social media channels and the job sector pages we have on our website, a local recruitment agency such as AD Offshore can be an incredibly useful partner.

To continue the analogy, a local Channel Islands recruitment agency will have a better understanding of the wider market than a single company in a single industry on just one of the islands.

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Ready to find a new job? Take a look at the vacancies that we have available across the Channel Islands.