The Cost Of A Bad Hire [2023]: How Bad Hires Impact Business

Research Summary. The process of hiring a new employee can be strenuous and expensive, but it’s worth taking the time to do it right the first time because a bad hire will cost your company even more. Here are some statistics on the costs of a bad hire:

• The average cost of a bad hire is 30% of that hire’s annual salary.

• A single bad hire costs companies an average of $14,900.

• For some companies the cost of a bad hire can be as high as $240,000.

• The average cost to hire an employee is $4,425.

• It generally takes at least six months for companies to break even on new hires.

For further analysis, we broke down the data in the following ways:
Company Size | Job Level | Other Costs | Bad Hire Prevention

Hiring Cost Statistics

• It can cost more than $3,500 to recruit and hire a new employee.

  This doesn’t include onboarding the employee; it only includes the advertising for the job opening and the time and staff it takes to review resumes, screen applicants, conduct interviews, and perform background checks.

  This number is based on an employee who earns just $8 an hour, so it’s likely to increase as you start filling mid-and-high-level positions.

  Some experts estimate that it costs about 15% of a position’s annual salary to recruit a new hire to fill it. For a position that earns $50,000 a year, that’s $7,500.

• Companies spend an average of $1,286 per year on training for one employee.

  This is the average across the board, from seasoned employees who complete a few annual training and professional development programs to new employees who need initial job training. Because of this, the cost of training a new employee will likely be higher than $1,286.



• It takes a company 42 days to fill a position, on average.

  This was found in a survey conducted in 2016, and the amount of time includes just the time it takes to recruit, interview, screen, and hire an employee, not the time it takes to then onboard them.

  This time costs companies money as it takes time from other employees’ days to do all of this work, not to mention the direct costs of ads and other expenses.

• It can take over six months for a company to break even on hiring a new employee.

  This timeline is for a mid-level manager, so this will increase or decrease depending on the position level a company is filling.

• 76% of surveyed senior managers admit to making a bad hire.

  In addition, 64% of these senior managers said the negative impact of making a bad hire is worse than in 2019, before the COVID-19 pandemic.

  This 2020 survey involved over 2,800 senior managers from companies across the U.S. with at least 20 employees.

• Companies lost an average of $14,900 from each bad hire, as of a 2017 survey.

  That’s $14,900 for every single bad hire made in the year leading up to the survey.

  Losing a good hire was even more expensive, though, as these same companies said that losing a good employee cost them an average of $29,600.

Cost of a Bad Hire by Company Size

• Large companies with 10,000 or more employees paid an average of $722 to train each new employee in 2021.

• Midsize companies with 1,000 to 9,999 employees paid an average of $902 to train each new employee they hired in 2021.

• Small companies with under 1,000 employees paid an average of $1,433 to train each new hire in 2021.

Cost of a Bad Hire by Job Level

• Turnover in an entry-level position can cost a company 50% of the position’s salary.

  In addition to the cost of productivity loss, dips in team morale, and disruption of projects that come with any bad hire, the recruitment, and training costs of filling an entry-level position add to this amount quickly.

• Turnover in a professional, technical, or supervisory role can cost 75-150% of the position’s salary.

  This amount includes separation costs, recruitment costs, and productivity costs. These expenses are incurred not only by the person being replaced but also by the rest of the staff who then has to cover more responsibilities or spend time finding a replacement.

• Turnover in an executive role can cost up to 213% of the position’s salary.

  Due to more stringent requirements for levels of experience and education for these roles, turnover can be much more costly. Having to replace someone in a leadership position also has a much larger trickle-down effect, costing the company reduced productivity and morale and recruiting expenses.

Other Costs of a Bad Hire

• CFOs estimated that an average of 10 hours out of a manager’s 40-hour workweek is spent coaching underperforming employees, in a 2018 survey.

  This is about 26% of a manager’s time spent on tasks besides supervising a single employee.

  This answer came from a survey of over 2,000 CFOs from randomly selected companies across the U.S.

• 44% of CFOs who responded to a 2018 survey said that a bad hire greatly affects the morale of the rest of the team.

  47% of respondents said that a poor hiring decision somewhat affects morale, while just 9% said that it didn’t affect morale at all.



• According to surveyed senior managers, making a single bad hire can cost companies an average of 16 weeks or four months.

  This includes about 10 weeks to determine that the employee wasn’t going to work out and needed to be let go, plus six more weeks to find a replacement. During these 16 weeks, not only is the bad hire not productively adding to the company, but it’s also draining other monetary and human resources.

  Managers have to spend time training and overseeing the employee, coworkers have to spend time covering their responsibilities or correcting their mistakes, and recruiters have to spend time filling the position again.

How to Prevent the Costs of a Bad Hire

• Almost one in ten bad hires either quit or are let go because they don’t fit the company brand or culture.

  So, spending time making sure that you’re thoroughly communicating your company culture to candidates and that they’ll fit well with the culture is a valuable investment.

• 35% of employers who made a bad hire said they thought the candidate could learn quickly even though they didn’t have the required skills.

  Another 33% said that the candidate lied about their qualifications, 32% said they took a chance on a “nice” person whether or not they met the skill requirements, and 29% said they found it difficult to find qualified candidates.

  As a result, taking the time to test skills and prioritizing candidates who already have the qualifications you’re looking for would benefit your hiring process.



• 29% of managers who have admittedly made a bad hire said they focused more on the candidate’s skills than their attitude.

  Along those same lines, 53% of employers say that someone is a bad hire if they have a negative attitude, and 50% say they determine an employee is a bad hire if they don’t work well with other employees.

  In comparison, 54% say poor work quality makes a bad hire, which shows that the right attitude is just as important as the right skill set in a new hire.

  Find ways to test this aspect of a candidate in an interview or assessment to cut down your likelihood of making a poor hiring decision.

Cost of a Bad Hire FAQ

1. How much does a bad hire cost?

   A bad hire costs an average of $14,900. This number can vary wildly depending on the company and particular position, though.

   This cost comes from the employee’s salary, benefits, severance pay, the cost of recruiting and hiring a replacement, and the cost of lost production and reduced team morale due to the bad hire’s poor performance.

2. What is the average cost per hire?

   The average cost per hire is $4,425. However, this doesn’t include any onboarding or training expenses, which are an average of about $1,286 per year per employee.

   These numbers can vary greatly depending on the company and particular role as well.

3. What is the average time it takes to hire a new employee?

   The average time it takes to hire a new employee is 42 days. This includes recruiting, screening applications, and conducting interviews. It can take much longer to fully onboard and train an employee to the point that they’re fully productive.

4. How do you calculate the cost of a bad hire?

   You calculate the cost of a bad hire by considering all of the factors that go into hiring. For instance, the potential salary, how long it takes to fill the position, the hours spent screening and interviewing candidates, the cost of job advertisements, background checks, and drug screening, as well as the cost of lost productivity and the time, spent onboarding and training the new employee.

   The short-hand version of all these calculations is to just take the average cost of a bad hire, which works out to around 30% of an employee’s annual salary. So if you make a bad hire for a person with an annual salary of $100,000, that will cost your company about $30,000.

5. What is the impact of a bad hire?

   The impact of a bad hire includes wasted resources, lower employee morale, decreased productivity, and increased turnover. While a bad hire carries with it considerable financial waste, the impact on a team’s morale is arguably more damaging, as productivity suffers across the board with the position left unfilled or filled by someone who’s a poor fit.

   Job satisfaction can also suffer as employees lose faith that the people who make hiring decisions don’t really understand what the team needs.

Conclusion

It can be draining to spend the time it takes to make a good hiring decision. The hiring process is not for the faint of heart, from writing and rewriting the job description and requirements to screening applications to conducting interviews.

Taking this time to thoroughly vet candidates is worth it, though, as making the wrong hire can cost your company an additional 30% of the position’s salary and up to 215% of it if the bad hire is an executive.

In addition, making a poor hiring decision can reduce the rest of your team’s morale, since they’ll have to pick up the slack. This impacts the company’s productivity, which carries over to the organization’s bottom line.

For all these reasons, it’s important to thoroughly screen candidates to ensure they have the skills required, the right attitude, and the ability to meld with your company’s culture.

References

1. Investopedia. “The Cost of Hiring a New Employee.” Accessed on February 23, 2023.

2. ERE. “The Business Cost and Impact of Employee Turnover.” Accessed on September 10, 2021.

3. SHRM. “Average Cost-per-Hire for Companies is $4,129, SHRM Survey Finds.” Accessed on September 10, 2021.

4. Robert Half. “Hiring Mistakes Come at a Higher Price Amid Pandemic.” Accessed on September 10, 2021.

5. CareerBuilder. “Nearly Three in Four Employers Affected by a Bad Hire, According to a Recent CareerBuilder Survey.” Accessed on September 10, 2021.

6. Training. “2017 Training Industry Report.” Accessed on September 10, 2021.

7. Amesite. “Recruit for Potential Not Experience for Entry Level Jobs.” Accessed on September 10, 2021.

8. GA Partners. “Calculating the Cost of Employee Turnover.” Accessed on September 10, 2021.

9. Center for American Progress. “There are Significant Business Costs to Replacing Employees.” Accessed on September 10, 2021.

10. Robert Half. “The High Price of a Low Performer.” Accessed on September 10, 2021.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.