Hiring for a replacement role can be a stressful and costly time for any small (or large) business. There’s sometimes an urgency to fill the role quickly, so that normal business can resume. With this, mistakes can be made. Or even for businesses who take their time and follow the right approach for hiring for a replacement role – they can simply hire the wrong candidate and not realize until 12 months later.
It’s a mistake to assume that the cost of a failed hire is simply the salary and recruitment costs spent on the new hire. It can often be much deeper, and much more costly.
Cost to recruit
As with any new hire, whether for a new role or a replacement role, there is a cost which comes with hiring a candidate. This is mostly made up of people’s time – time spent by the HR team in creating the job advert, publishing online, dealing with CVs and arranging countless interviews. When it’s all added up, these costs begin to mount.
And it’s not just the HR team members time. It’s also the hiring manager who sits in on the interview. It’s the admin assistant who processes the paperwork and checks references. It’s the department manager who signs off on prospective candidates. Streamlining the hiring process with HR systems can help to reduce costs, but ultimately a lot of people’s time goes into recruitment, so it’s vital to get it right.
Once the new hire has been recruited and has accepted the job offer, the cost of the salary kicks in. This is an anticipated cost in most cases, except for when a candidate requests a higher salary – which can happen in many cases.
As well as salary, most new hires will usually require some form of training or investment, which again is lost revenue if they turn out to be a failed hire.
However it can often take up to 24 months for a business to truly know if an employee has been a failed hire or not, by which time, they’ve spent 2 years worth of a potentially increased salary on the hire. This doesn’t even factor in performance and company bonuses, which can sometimes be up to as much as 10% of the failed hires salary.
Once area of the cost of failed hires which often goes unnoticed is the actual cost to business productivity. If you’ve just lost a star employee, it will certainly have a knock on effect on productivity, at least for the department they worked in.
Calculating the exact cost in terms of lost revenue from a dip in productivity can be difficult, but it does happen, and should be factored in when considering how much failed hires are costing your business.
Not only do you have the drop in business productivity due to the team member leaving and not having an adequate replacement, there can also be a knock on effect for other team members, who may notice the drop in productivity, or may have been inspired by the former employee.