The True Cost of Bad Hiring Decisions

The cost of Bad Hiring Decisions for non executive positions in Australia is estimated to range from

30% – 150% of annual salary

(re-hiring costs, lost productivity, lost manager time, lost training investment, training of replacement)

Bad hires are the biggest hidden cost in your business. Hiring the wrong people who perform poorly and disrupt your team’s productivity is estimated to cost from 30%-150% of their annual salary everytime. It’s a huge expense but because it is mainly non-cash in nature it is easily overlooked. In fact unless you are a trained HR professional this may be the first time you have actually considered how much of your profit is literally walking out the door every time you make a bad hiring decision. For SME’s and startups the hiring decisions you make will literally define the success or failure of your business. No pressure then…

So why is this estimated cost of bad hires so high?

Well you need to consider how much time you’re spending screening, interviewing, training new employees. Add on the oncosts of having employees in the first place and then consider the disruption to the rest of the team of a poor performer. Let’s go into more detail below.

Cost of Filling a Position

  • Advertising to source candidates
  • Screening and candidate management
  • HR Interview and advice
  • Manager interviews and decision making
  • Skills & psychological assessments
  • Background and reference checks

Induction, Training & Oncosts

  • Training investment in time and materials
  • Business cards, IT setup and incidentals
  • Employee oncosts – super, annual leave, payroll tax, office space

Lost Productivity & Termination

  • Salary of poor performers while they are employed by you
  • New employees are estimated at 50% productivity for first three months (or longer)
  • Team Productivity – assisting poor performer
  • Manager productivity – have to focus on poor performer instead of business
  • HR termination advice – performance management or termination payout
  • Repeat the initial hiring process and train the new employee!

Intangible Costs

  • Poor customer experience
  • Negative effect on team engagement levels
  • Lost employee knowledge

Many CFO’s actually consider the biggest cost of bad hires to be to their employee engagement levels. Disengagement can spread like an infectious disease and one bad employee can have a massive negative effect on the rest of the business. The more senior the position the larger negative effect. When you hire a bad manager not only will you have to replace them but you run the risk of having your best employees leave because they can’t stand working for them. It doesn’t get more serious. Your business is run by people and if you don’t choose the right ones it will cost you a fortune.

Actual Cost of Bad Hire Calculator

To help you understand in more detail how much bad hires are costing your business we have built an Actual Cost of Bad Hire Calculator. It’s simple enough to be easy to use but detailed enough to give your some real insights on your specific situation. Investing in Harrison Assessments’ systematic process to supplement your hiring decisions with accurate data will save your business money and boost the quality of hire.