How Much Does a Bad Hire Cost?

Every company has experienced a ‘bad’ hire. If you’re hiring employees for long enough, it’s something you’ll probably come across.

With recruitment often a timely – and sometimes frustrating – process, it’s understandable that companies sometimes make hasty decisions they come to regret, especially if you don’t have the resources or experience to properly vet a candidate.

But how much does a bad hire really cost? For a business, hiring an employee brings with it a number of expenses that you might not have initially considered, all of which go to waste if the candidate doesn’t work out in the long term. 

With this in mind, we’re looking at how much a bad hire costs, the costs you can expect during the recruitment process and the signs that your new hire might not be the best fit over the long term. 

How much does a bad hire cost?

Let’s start with the basics. Data from the Small Business Administration (SBA) suggests that the average cost to hire a new employee is between 1.25 and 1.4 times their base salary. It’s important to remember that while you’re hiring based on a set salary, the actual costs of hiring are higher: 

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 £120,000 and £140,000.

At this point, we should mention that this is an estimate based on several variables including mandatory costs such as taxes and employer contributions alongside training, new equipment, bonuses or loss of productivity.

A bad hire can impact more than just your bottom line, however. It might lead to negative customer feedback, a drop in team morale or even result in losing current or future clients, which all have an additional financial impact.

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How much does it cost to recruit a new employee?

So if we know how much a bad hire costs, how much does it cost to hire a new employee in general?

As an expense, it can be difficult to quantify the entire cost of hiring as it may include harder-to-measure concepts such as employee time.

That said, research from Oxford Economics suggests that the average cost to recruit a new employee is around £4,960. If we break this down into individual costings it works out to:

• HR time & resources: £200

• Management time & resources during interviewing: £760

• Advertising: £400

• Temporary worker replacements: £3,600

So before you even start considering costs associated with a new hire, you’ve spent the better part of £5,000. You then have to start thinking about vetting your hire and any standard responsibilities post-recruitment.

With this in mind, you can see why working alongside a local recruiter is a great choice for companies that don’t have the time or resources to recruit themselves. 

Why do companies make bad hires?

At this point, you may be asking yourself, If it costs this much for a bad hire, why aren’t companies more careful? The thing is, if you’ve ever been involved in the in-house recruitment process, the reasoning may seem a lot more relatable. Data from the ‘Recruitment and Employment Confederation’ (REC) suggests the top reasons for a bad hire include:

• 30% said that a bad hire came about because of the need to fill a vacancy as quickly as possible.

• 30% said that a bad hire occurred because the company had to recruit from a smaller pool of talent. 

• 20% of respondents said that they weren’t sure how much their bad hire cost overall.

Put simply, a bad hire often occurs because a company doesn’t have the time, resources or experience to properly vet a candidate. 

This vetting process might include a lack of understanding around referencing, how to properly vet a candidate’s skill set or a lack of thought about how they fit into the company culture. 

Similarly, running the process in-house often restricts the company to a smaller talent pool. Usually, a company will rely on social channels or job boards, which completely shuts out the passive market and doesn’t facilitate the more personal approach a recruitment company can apply.

Companies hiring in-house also often let emotions get involved. They may have a biased opinion which clouds their judgement and stops them making the logical choice.

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What are the signs of a bad hire?

So if you’re in the recruitment process or thinking about hiring, how can you spot a bad hire? This is easier said than done, especially if there’s no immediate red flags during the application process. Your best bet is to look for some tell-tale signs during the screening process. Signs may be:

• A negative attitude about a previous employer. 

• Failing to demonstrate or expand on the skills mentioned in their CV. 

• Lack of research during the application process. 

• Lack of punctuality. 

• Frequent, unexplainable breaks in career history. 

• Unprofessional conduct or application documentation.

Just remember that everyone is different and some apparent ‘red flags’ may be nerves. Ultimately its up to you to make a judgement call based on both their skill set and suitability in terms of your company culture.

How can you avoid bad hires?

One of the best ways to reduce the chance of a bad hire is by working with a recruitment agency. 

While we might be a tad biased, fundamentally a recruitment agency is able to provide support at every level of the process. They can offer a wealth of experience around hiring and screening, provide access to a much deeper talent pool (including the passive market) and ensure a more personal level of support.

This is especially true for a recruitment agency with a specific specialisation such as AD Finance. We’ve made it our business to be the very best recruitment option across the finance and accountancy sector in the Midlands. 

As a local Birmingham recruitment agency, we have access to an extensive network of candidates and clients in the region that you wouldn’t otherwise be able to access. Our specialisation mean we’re perfectly suited to hire for both ‘generic’ and more technical roles across both industries.

When you couple this with focused social media channels, recruitment consultants that have experience working in the sector and our close links with companies across the Midlands, you can see why a local recruitment agency such as AD Finance can be so beneficial. 

Remember – a Midlands recruitment agency local to the area will have a better understanding of their local job market than a single, nationwide company that covers multiple areas.

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