The Cost of a Bad Hire

Worker on his phone, bad hire, LabourGains recruiting

Hiring the wrong candidate is frustrating and more than a little aggravating; after all, they tricked you into thinking they were something that they are not, didn't they? And remember, it's not just a poor employee that creates this frustration, but also a strong one who is always searching for their next upgrade. But it's more than just the hassle of having to sift through resumes and to put aside your valuable time for interviews, there is a very real associated financial and cultural cost to you and your business.

Financial

What is your time worth? This is not only a question of what do you pay yourself, but what is the cost to your business for your time being taken away from running the show; generating sales, creating goods, fostering client relationships, etc. For your knowledge and the sake of this analysis however, the average small business owner in Canada earns between $50,000 and $60,000 per year (let's say $55,000). We will pretend that you only work 40 hours per week (the real number is closer to double), which gives us an hourly wage of $27. The average hiring campaign lasts 20-30 hours (let's say 25). Quick and dirty math tells us that it costs your company around $675 in your direct wages per campaign.

Employee wages. You get 3 months to assess your employee's fit with your company. I don't have to tell you that most employees aren't really making you much money in the first few months as they learn the job, so if they are let go at the end of their probationary period, these wages may as well be flushed. Here's where bad goes to worse; you can also put the wages of your employee(s) who trains them during this time into the toilet bowl as well. We determined that your hourly wage is $27; the average entry level wage in Canada is around $20. Generally, at least a quarter of a training employee's shift is spent on training a new employee (2 hours out of 8), so the total amount of wages thrown away is about $5640 (if you train them) or $4800 (if you have an entry level worker train them).

Productivity loss. Workplace turnover, and cancerous forces within the workplace, lead to productivity loss amongst current staff. How much productivity loss? Studies show that disheartened workers are around 10% less productive than their counterparts. So what is the bottom line effect on your business financials? If you have a sales staff or a production worker, that is a little easier to calculate (their output in dollars/their number of hours worked); if you have employees who provide a service (especially ones that aren't compensated based on production) however, this can be a little more challenging, but it can be done! For example, if a construction worker is 10% less productive, then you can assume it will take 10% longer to do the job. If you've given a hard quote, this comes right out of the profit. On average, a kitchen renovation takes 8 weeks and the customer pays $30,000; the average employee of a contractor makes $26/hr. This means that immediately, this employee's wage eats about $8,320. If they are disinterested add 10% or more (mistakes chewing up materials). In this 8 week example (which would turn into 9), the added cost to the employer is $832.

Cultural

A poisonous workplace. Workplace culture is a precarious thing. It takes a long time and intention to build one, but it can be ruined with a fraction of the effort. In the Productivity Loss section, we discussed that disinterested employees are 10% less productive, but it gets even worse than that for employers that make a bad hire. A sour attitude is contagious, and even a small business with a strong positive culture can have it all come crashing down by hiring a bad apple.

I have seen an individual hired, and within 3 months file a WCB Bullying & Harassment complaint, and then a Human Rights complaint, and then an Employment Standards complaint. All of the claims were completely frivolous and denied, and the employee was let go within their probationary period, so in theory, the financial cost to the employer was nil, but the cumulative effects of employees having to train an employee with a poor attitude, work harder to make up for his mistakes, ultimately getting into arguments with him, the employer having to investigate every claim internally, and each government body performing their own external investigation, drove a handful of the best employees to seek other jobs. The business is still running, but it is struggling to recover from having to replace their star workers (it may never).

The Tally

Finding the right candidate can be challenging. Even a candidate who checks all the skills, experience, and education boxes isn't a sure thing. Knowing what to look for in resumes and then knowing the right questions to ask to weed out the pretenders from the contenders is critical. When we look at the direct financial impact to the business, it's pretty serious, considering that the money and time invested amounted to nothing; here's the damage:

Hiring costs - $675

Training costs - $4800 to $5640

Productivity loss - 10%

Total - $5475 to $6315 + 10% productivity loss among your other staff

There's a saying in the trades, "if you think hiring a professional is expensive, try hiring an amateur." I would argue the same rings true for recruiters and DIY business owners as well.

#recruiting #hiring #humanresources #skilledtrades #smallbusiness #labourgains