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The True Costs of Hiring the Wrong Person

For 28 percent of small business owners, hiring additional staff to improve productivity and efficiency is high on the agenda for 2018, according to a new Kabbage survey. For employers trying to make the most of this investment, hiring the “wrong” employee can quickly dwindle your budget and leave you back at square one.

Bringing on an employee who isn’t well-suited for the job or company culture is expensive — not only in terms of time and money, but morale and productivity too. Here is a look at the true cost of hiring the wrong person and how you can avoid making these mistakes.

Financial Implications

In my experience, it’s common for business owners to underestimate the financial impact of poor hiring decisions, perhaps in part, because some level of turnover is expected. But particularly in the hospitality industry, where turnover rates continue to top 70 percent, the financial implications can be astounding and absolutely cripple your ability to gain any traction.

There are definitely legitimate reasons why restaurants have higher turnover rates, including employment of seasonal and temporary staff as well as first-time job seekers like teenagers. However, turnover associated with poor hiring decisions is something all business owners should seek to avoid or minimize as the costs are significant.

One Robert Half International survey found that hiring the wrong employee led to noticeable drops in productivity and sales. Findings included:

  • 11 percent of respondents reported fewer sales;
  • 39 percent of hiring managers reported drops in productivity due to supervisors spending nearly one full day each week managing poorly-performing employees; and
  • 41 percent of respondents estimated the cost of a failed hire to be in the thousands of dollars.

A 2016 CareerBuilder survey found similar outcomes, estimating the annual cost of a bad hire is $11,000 for companies with fewer than 500 employees. Overall costs doubled for companies with more than 500 employees.

Cultural Implications

In addition to the substantial monetary and productivity losses, there are also cultural implications associated with hiring the wrong person. If you are fortunate enough to catch the mistake and dismiss the employee early on in the process — let’s say during the onboarding process or shortly thereafter — you can likely avoid much of the negative cultural impact.

Unfortunately though, many employers report that the process to terminate an ill-fitting employee takes much longer. According to another Robert Half survey, 58 percent of employers realize their mistake within one month of hire. However, they report that the termination process takes nearly nine weeks and it’s an additional five weeks before a replacement can begin working.

In the meantime, existing teammates often pick up the extra workload resulting in a:

  • 53 percent increase in stress on the remaining team;
  • 37 percent increase in stress on the manager; and
  • 20 percent decrease in employee confidence regarding management’s ability to make favorable hiring decisions.

Best Hiring Practices

While it’s important to be aware of the true cost of hiring the wrong person (you can try out this calculator to estimate just how much it may be costing your company), the last thing you want to do is let that paralyze your decision-making process. Inaction on either side of the hiring equation isn’t helpful.

First, you’ll want to drill down to the core characteristics and values that the company, and ultimately, your employees should exhibit. Creating this well-defined culture makes it easier to determine if potential candidates are a good fit for the job and company.

Next, focus your energies on establishing hiring systems and identifying and developing employees for leadership roles. Leadership is equally as important as systems because you’ll need these individuals to be heavily involved in screening and hiring employees as well as recognizing when a hiring mistake has been made and taking the appropriate course of action.

Beyond that, you’ll need to have processes and systems in place regarding:

  • Talent recruitment;
  • Interviewing and screening;
  • New employee onboarding and training;
  • Introduction of company culture and behavioral expectations;
  • Performance management; and
  • Termination.

Although this entails a fair share of energy and effort, having this groundwork in place can go a long way toward ensuring that you hire the best employees for your culture while also limiting the potential damages associated with poor hiring decisions.

Carrie Luxem is a human resources professional specializing in the restaurant industry. In 2010, she founded Restaurant HR Group where she partners with dozens of restaurateurs to take care of their greatest assets — their people. With a career that has spanned nearly 20 years, Carrie is frequently sought out for her modern, yet simple and effective advice and has been featured in Entrepreneur, Restaurant News, and Independent Restauranteur. Connect with her on social media or learn more at CarrieLuxem.com 

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