The Cost of a Bad Hire: Why Jumping the Gun Leads to Wasted Resources

Wednesday, March 20, 2019

Right now, job seekers continue to own the labor market. We kicked-off 2019 with the country’s longest consecutive run of continued job growth – and according to the Bureau of Labor Statistics – the official unemployment rate decreased to 3.8 percent in February and average hourly earnings have grown by 3.4 percent (the fastest clip in nearly a decade).  Complicating the issue further is a dwindling talent pool – baby boomers make up a huge percentage of our workforce, but as they reach retirement age, not enough of the new workers are obtaining the skills or education required to fill open roles.

Employers struggle to fill roles in the current landscape.
Decreasing unemployment, a shrinking talent pool and increasing job growth are creating the perfect storm of market pressures, giving employees the power to quickly find jobs, with even more choice in where they want to work. As a result, organizations may be eager to fill open positions, but jumping the gun and hiring the wrong candidate can come with a significant financial hit.

There’re always direct and indirect costs associated with employee turnover, whether the worker leaves voluntarily or not. Direct costs involve exit processing, administrative time, separation/benefit pay, vacation/sick pay and unemployment tax. Replacement costs also fall under the direct cost category and include communication of vacancy, pre-employment administration, selection interviews, testing, background checks and relocation expenses. There’re also the costs associated with training new employees, like orientation, materials and equipment that add up quickly and directly impact the organization.

The indirect costs of turnover, often referred to as “productivity costs,” stem from lost institutional knowledge, the time required to find a replacement and the time it takes for that new worker to become fully productive.

Taking all these factors into account, Work Institute estimates that a total average cost of turnover per employee is $15,000 – and it could be even more in highly skilled or technical roles.

A bad hire can cost an organization even more due to the fact that it may take employees upwards of three to six months on the job before they have added enough value to offset the cost of their hiring. When employees leave soon after that period, or even within their first year of employment, employers may never realize a positive return on those hires.

This is why it’s critical that organizations deploy strategies that enable them to find the right people from the outset and avoid these issues and costs altogether. First and foremost, organizations should start the recruiting process by building talent communities who engage with the brand even before the organization is hiring for specific roles. Attracting talent and nurturing candidates with the organization’s culture and expectations well in advance of the screening process leads hiring managers to access higher quality candidates for better decision making down the road: a candidate in a talent community has already shown interest, is more likely to respond to recruitment outreach and is also more likely to accept a position – and stay longer term with a company.

In addition to starting the process early, a comprehensive background screening program helps organizations ensure they are making the right decisions upfront, minimizing risk while maximizing their workforce investment. Ideally, such programs would leverage AI and advanced data to identify anomalies, patterns of behavior, including insight gleaned from public social media postings, and other indicators of potential issues – from a concealed criminal past to a fraudulent education record.

Hiring managers can also look to Artificial Intelligence (AI) to help them make smarter and faster hiring decisions by using “match” algorithms to find the most qualified candidate on a variety of hard and soft skills. These algorithms can match candidates built on fact-based requirements like years of experience or education, as well as softer skills, such as cultural fit. This means HR or procurement no longer needs to spend countless hours sorting through resumes and CVs and instead, focus on reviewing the candidates that predictive workforce management AI identifies – leading to getting better qualified candidates in the door to interview faster by leveraging the combination of AI and human insights.

Beyond the hiring stage, there are several best practices organizations can implement to increase retention. Investing in training and development of employees is critical. If employees are not able to continuously advance and learn new skills, they will be more inclined to leave. Ensuring proper treatment of employees is also crucial when it comes to retention. In fact, according to the Society for Human Resource Management’s Employee Job and Satisfaction and Engagement survey, respectful treatment of all employees at all levels was a top contributor to overall employee job satisfaction. Developing and sustaining employee engagement is another strategy employers should consider. Engaged employees enjoy their work, take pride in the company and believe their contributions are valuable. Such employees are much less likely to quit than those who are not engaged.

Today’s hiring landscape is incredibly challenging, and it’s never been more important to ensure candidate selections lead to the best possible outcomes. This is especially true when you factor in the cost of a bad hire, or turnover in general.

There’s a lot of uncertainty around where the economy is headed in 2019. Today we are in a tight labor market, tomorrow we may be facing an economic slowdown. Hiring on either end of the spectrum is tough. Whether employees are staying in current positions in anticipation of a recession, or shopping their skills around to the highest bidder, the best thing hiring managers can do is make smart decisions upfront. The right strategies, coupled with AI-enabled technology, can ease the process, while a focus on employee retention can help avoid turnover costs all together.

HR and procurement teams should use an intelligent workforce management solution to hire the right talent, the first time. Read more about Workforce Logiq CMO David Trachtenberg’s thoughts on the role Artificial Intelligence (AI) will play in the future of hiring in Future of Sourcing

Fatime Doczi is Chief Human Resources Officer for Workforce Logiq. She is responsible for preserving the organization’s culture of positive engagement, driving a culture of continuous improvement and operational excellence strengthening the HR function’s alignment to business strategy. As a key member of the executive team, she provides strategic leadership and direction in the areas of organizational effectiveness, succession planning, performance management, talent acquisition, total rewards, and diversity and inclusion.

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