Hiring the Wrong Person is Expensive

[Phone rings]

Ann: “Cutting Edge, this is Ann.”

Customer: “Why are you SO concerned over hiring the wrong person? What’s the worst that can happen?”

Ann: “Did you REALLY ask me, ‘what’s the worst that can happen?’ Pull up a chair buddy, get comfortable. I’ll lay it out for you.” [runs to get coffee]

First, let’s consider how you might end up hiring the wrong person.

  1. They don’t actually have the employment history they claim.
  2. They don’t have the degree they claim, or maybe they didn’t graduate high school.
  3. They don’t have the CPA or nursing license you need them to have.
  4. They don’t have a valid driver’s license

You get the picture. Background checks can, in most cases, take care of verifying all of the above. So you will know if Jim was an engineer or a janitor. You’ll know if he received his bachelor’s degree or just attended extension classes (weave those underwater baskets, Jim!). Checking the state’s registries, we can verify not only the CPA or Nursing license, etc., but usually the status, issue date, and expiration date. The DMV will tell us if his driver’s license is valid or has been suspended for DUI or failure to pay child support.

SHRM predicts that every time a business replaces a salaried employee, it costs 6-9 months’ salary on average.

For a manager making $40,000 a year, that’s $20,000-$30,000 in recruiting and training expenses.

Others predict the cost can vary:

  1. 16% of annual salary for high-turnover, low-paying jobs (under $30,000 annually). For example, the cost to replace a $10/hour retail employee would $3,328.
  2. 20% of annual salary for midrange positions (earning $30,000-$50,000 annually) The cost to replace a $40,000 manager would be $8,000.
  3. Up to 213% of annual salary for highly educated executive positions. For example, the cost to replace a $100K CEO is $213,000.

What complicates predicting the true cost of employee turnover is there are many intangible and often untracked costs associated with employee turnover.

Frequent voluntary turnover has a negative impact on employee morale, productivity and company revenue. It is hard to track potential customer dissatisfaction, reduced or lost business, administrative costs, lost expertise, etc.

Hiring the wrong person is expensive—and much more so than just the dollar signs we attached to replacing them. Be diligent and hire right the first time. Doing the right background check can save you a lot of time, money, lost expertise, employee morale and then some in the future.