Bad Hires – What Do They Cost? How To Avoid?

September 18, 2014

Guest Blog by James Randisi, Randisi & Associates, Associate Members of Maryland Nonprofits

Join James for a special webinar Tuesday, September 30th to learn “How to Select Quality Employees and Volunteers.”

Read the original blog here.

A Bad Hire can cost your company tens of thousands. Some common sense steps can help you avoid these bad hires.

What are the steps your organization performs when it is going to spend a large amount of money, say $100,000, on a piece of equipment? I bet the process is pretty intense. Probably, several providers are contacted, testimonials are obtained, and perhaps the new product is used on a trial basis.

Now, contrast this process with the process used to hire a new person. Managers are screaming at the recruiting department to get people into the firm. I often heard the qualification described as, “if they can fog a mirror, then get them hired and on the job”.

If you are responsible for hiring people in your firm, you need to talk the same language as your senior executive officers talk. Once you explain how much bad hires are costing your firm and how you can help fix the problem, you will deliver value to your firm. And, you will enhance your own capabilities and increase your value.

And remember that when it comes to prior employer verifications, you can’t find out what you don’t ask. It is important to at least make the attempt. You will most likely just discover very basic information. But even that basic information is important. You quite possibly will find out if the applicant overstated the prior job level and responsibilities.

Verifying prior employment verification can provide support for a tort of negligent referrals against the prior employer. That is if the prior employer didn’t provide you with truthful, factual information about particularly egregious behavior on the part of the applicant.

Below is a summary of an article by Curt Finch dated April 27, 2014 that presents the important steps to take. Read the entire article here.

Hiring the wrong person for a position is an expensive mistake for a company to make. In a recent Career Builder survey, 42% of companies reported that a bad hire cost them at least $25,000 in the past year, and 25% reported a loss of at least $50,000.

But for small companies, where every employee often juggles many important responsibilities, the cost of a bad hire can be even more devastating – up to $190,000 according to a report by the Association of Certified Fraud Examiners.

The Cost of a Bad Hire

Besides the direct costs like salary and benefits, ill-fitting employees also rack up indirect costs in lost productivity and the eventual need to recruit and hire a replacement employee.

These employees also require more supervision; CFOs reported that supervisors waste 17% of their time managing under-performing employees. That’s almost a day a week.

Additionally, 95% of those polled reported that a bad hire negatively affects workplace morale. In small companies, a bad employee can easily poison the working environment for everyone.

To avoid hiring the wrong person, there are several crucial steps you should take before you commit to hiring.

Keep Your References Close

In the aforementioned Career Builder survey, 21% of companies admitted that they hired poorly because they didn’t take the time to properly test and research the employee’s skills.

While almost all companies interview before hiring, this is not the best indicator of what an employee will actually bring to your company. Resumes tend to be even less indicative of future performance.

References can give you real insight into your job applicants. Prior employers will usually be willing to at least tell you the person’s employment dates, rates of pay, and work habits (including their ability to work with others). You can also check the validity of the skills and experience the potential employee claimed to have during the interview.

Be Proactive

Don’t just wait for the perfect employee to come to you – go out and look for them.

Figure out where your top candidates are likely to be spending their time, whether that’s a certain conference, trade show, or even a niche interest group and spend your time there, too. Allyson Downey, the CEO of weeSpring, also advises companies to keep a ready supply of potential employees always at hand.

Kick Those Tires

It’s almost impossible to know how an employee will work within your company until he or she is actually placed into that environment. That’s why it is often a good idea to hire a top candidate on a temporary basis before fully committing.

Put them in charge of a test project or let them work on an existing project in a reduced capacity. This will allow you to accurately assess the candidate’s skills, and see whether or not they work well with your team.

While many small businesses may feel like they need to fill a position quickly, it pays to take the time to fully vet applicants or seek out better talent. It’ll save you a lot of money and headache in the long run, and make your company a happier and more productive place to work.

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