Key Takeaways

• A bad hire creates costs far beyond wages. These can include lost productivity, rework, management time, and potential customer or quality issues.
• An open position costs money as well. This means employers need to understand when the cost of waiting outweighs the risk of making the wrong hire.
• Flexible staffing and temp-to-hire options can reduce that tradeoff. These solutions give employers faster access to screened talent without forcing an immediate permanent hiring decision.

 

Although maintaining short time-to-hire is an important goal for many organizations, hiring quickly can increase the risk of a bad hire, which introduces significant costs later on. It’s a common issue in modern organizations, especially those that depend on workers with niche skills and experience.

The pressures of the busy season, a growing backlog of work, discontent and burnout due to extended employee vacancies, and many other issues can prompt organizations to recruiter faster. Sometimes this happens at the expense of candidate quality, which leads hiring managers to avoid critical steps that are necessary for long-term, sustainable, and productive hiring.

Cutting corners to fill an open role might work out in the short term. But problems soon start to emerge. The new hire may not be equipped or skilled enough for the role, leading to errors, rework, wasted materials, and supervisors spending precious time fixing their mistakes. Suddenly, your stopgap hire is costing you resources, and you need to start the process over again.

In this article, we’ll walk through the various costs of a bad hire, direct and indirect, and how it can often carry a heftier price tag than an extended vacancy. In other words, it’s just as important to hire right as it is to hire fast.

The Real Price Tag of a Bad Hire

The challenge starts when organizations raise the immediate benefits above the potential medium- and long-term costs of a bad hire. It’s reasonable to want to solve the problems in front of you as quickly as possible, but rushing can end up eating into whatever gains you make (and then some).

Here are some of the long-term costs that can pile up in the weeks and months after a rushed hire starts working.

Direct hiring costs

A bad hire creates immediate costs before productivity even enters the equation. Wages paid during the employee’s time in the role, payroll taxes and benefits, recruiting expenses, and onboarding and training costs can all become sunk costs if the employee ultimately needs to be replaced.

Productivity costs

Hiring someone without adequate experience can have downstream effects on production, as the rest of the team must take time to correct their errors. For teams already working beyond their normal hours, this can lead to even more overtime spend, which can cost as much as 2.5x their hourly wage. For those hired to fill in during high-demand periods, this effect can undo the benefits of filling the role in the first place. This is particularly problematic in industrial contexts, where a mistake in one phase of production can have negative effects down the line.

Management and team costs

Although a new hire might temporarily lift team morale and ease their workload, if they aren’t a good fit, they could end up making the problem worse undoing those benefits. This can also impact management, since hiring managers and other supervisors will need to spend extra time working with the new hire to get them up to speed.

Customer and reputation costs

If your new hire doesn’t meaningfully increase production or negatively impacts product quality or reliability, this can reduce your reputation in the eyes of customers. Because you’re paying an extra person to produce without getting results, you end up paying more per unit for a lower quality product and negative reputation.

Replacement costs

If the employee ultimately leaves or needs to be replaced, the organization has to absorb another round of recruiting, screening, interviewing, onboarding, and training expenses. Separation costs may also come into play, depending on the circumstances. This can also impact team morale, as it makes people doubt the investment and competence of the hiring manager who made a mistake in the first place.

That means the organization is not simply paying for one unsuccessful hire. It may effectively be paying twice to fill the same position.

Which cost center is putting more pressure on your organization?
Use our free Workforce Cost Comparison Guide to compare the estimated cost of a poor hire with the cost of leaving a position open. You don’t need exact figures. The goal is to understand where the greater financial and operational risks may lie.

Download the Workforce Cost Comparison Guide

 

How Too Much Urgency Leads to the Wrong Hire

Having a gap in the workforce can create overtime, lost productivity, and added pressure on managers and employees. Gallup estimates that replacing an employee can cost from one-half to two times that employee’s annual salary. This can lead organizations to compress or skip important screening and evaluation steps:

• You may skip crucial stages like skill tests, reference calls, team interviews, and background checks
• You may lower the bar for what “good” looks like, opening the door to less-experienced hires who need more training
• You may limit yourself to just the people you can get to respond in a few days, rather than expanding your search

 

While “taking a chance” on an inexperienced or less-qualified hire is not always the wrong decision, it still presents significant risk that many organizations aren’t equipped to absorb. For dangerous, high-skill, or customer-facing work, these risks are heightened, as the potential costs of a mistake can be difficult to correct.

None of this means organizations should simply leave critical positions vacant indefinitely. An open role can create its own compounding costs through overtime premiums, lost production or revenue, delays, customer issues, and the hours managers and recruiters continue spending on the search. But rushing to hire just to “close the gap” can be equally costly.

A Third Option Between Waiting and Settling

If hiring too fast is risky but hiring too slow is costly, what’s the answer? Organizations and recruiting partners have helped address this challenge by identifying opportunities for flexibility that allow organizations to fill positions without incurring excessive risk.

Temp-to-hire

Recruiting partners can connect organizations with pre-vetted temp-to-hire candidates, who are given an opportunity to perform in the role without a commitment. In addition to filling the gap in the short term, this also allows the hiring organization to decide while knowing that their recruiting partner can provide other pre-vetted candidates.

Temporary coverage

Partners can also help you with a temporary stopgap hire, which removes the cost- and morale-based urgency. Your team is freed up to take their time identifying the best possible candidate while still meeting production goals.

Pre-screened candidate pipeline

Ethan Allen’s recruiters interview candidates continuously and specialize in the industries they serve. That gives employers access to a pipeline of screened candidates without having to start every search from scratch. Temporary and temp-to-hire options can also provide faster coverage while giving employers time to evaluate a candidate’s performance and fit before making a permanent hiring decision.

Final Thoughts on the True Cost of a Bad Hire

Time-to-hire is a critical consideration that should be top of mind for every hiring manager. However, making it the sole metric for hiring can introduce large and unnecessary risks to your hiring strategy and set you up for much higher costs.

Working with a locally rooted staffing partner can reduce these risks, as they can reduce time-to-hire by taking critical steps off your plate, and can work to build a list of qualified candidates during periods when you aren’t hiring that you can draw from as needed.

Ethan Allen’s temp-to-hire program can fill in staffing gaps, which allows you to assess temps based on their quality of work before you make a commitment. If you’d like to learn more about our services, please reach out to us.

See how the two cost centers compare for your organization.

Use our free Workforce Cost Comparison Guide to estimate the impact of a poor hire alongside the cost of an extended vacancy. Exact figures aren’t necessary. The exercise is designed to help you identify where your greater workforce risk may lie.

Download the Workforce Cost Comparison Guide

If you need help improving hiring speed without sacrificing candidate quality, Ethan Allen Workforce Solutions can help you explore temporary, temp-to-hire, and direct hire options based on your workforce needs.

Contact Ethan Allen Workforce Solutions

 

FAQs on the Cost of a Bad Hire

Which costs more: an extended vacancy or a bad hire?

It’s impossible to give a generalized answer for whether an extended vacancy or bad hire costs more. The answer will depend on a myriad of details that are specific to each business. Extended vacancies often burden teams with overwork, hurting both productivity and morale. But bad hires can lead to costly errors, rework, wasted materials, and wasted supervisor time correcting mistakes. Both are cost centers, and it’s important to weigh them as such when making strategic workforce decisions.

If no quality hires are available, what are my options?

If your initial attempt to fill a critical role resulted in an underqualified talent pool, you have plenty of options. First, there is always the option of extending your search timeline until you find the right person. You can also consider a temp-to-hire option to evaluate someone before making a permanent offer. If you’re dealing with any (or all) of these challenges, a staffing partner can leverage their recruitment processes and talent relationships to make things work faster.