How Much Is That Bad Hire Really Costing Your Business?

• The average cost of a bad hire ranges from $17,000 to $240,000.
• Avoiding bad hires means favoring objectivity over subjectivity in your hiring process.
• You can avoid bad hires if you determine the new employee skill sets needed, ask ability-based interview questions, and make subjectivity a last resort.
• This article is for business owners and hiring managers looking to avoid bad hires and reduce their employee turnover.

The average cost of hiring the wrong employee is $17,000, according to 2016 research by CareerBuilder. However, depending on the role and the company, this figure can go as high as $240,000, per 2021 research from the U.S. Department of Labor. That means making the right decision the first time is essential, but how can hiring managers be sure they're bringing on the correct people? Here's how to prevent poor recruiting decisions and avoid incurring the cost of a bad hire.

How to avoid bad hires

Conventional hiring methods follow a simple process where candidates apply based on a vague job description, several are chosen for interviews, and eventually one is selected. But often what seemed like the right fit quickly becomes a hiring error. Rex Conner, human resources consultant and author of What if Common Sense Was Common Practice in Business?, told Business News Daily the fix is simple: Reduce subjectivity in the hiring process.

"The biggest obstacle to hiring the right people, onboarding them, training them, evaluating and developing them is subjectivity," Conner said. "We end up with these ridiculous conversations where an interviewer asks, 'What's your biggest weakness?' and (the response) is 'I work too much.' That doesn't tell you anything about the skills required." [Read related article: Soft Skills Every Tech Professional Should Have]

Given that CareerBuilder found nearly 60% of bad hires went wrong because the employee could not produce the level of work required by the employer, understanding the skills needed at step one is imperative to avoiding a hiring disaster. Conner offered the following advice for those rethinking the hiring process in terms of demonstrable abilities and objective measurements of candidates.

Did you know? Nearly 3 in every 5 bad hires result from employees who couldn't reach the employer's quality standards.

1. Develop and articulate two sets of skills: prerequisites and trained. 

Prerequisites are the skills that a candidate should come to the interview prepared to demonstrate. These skills are required for the job and new employees will not be trained in them. They can be as general as prior newsroom experience or as specific as expertise in an audio engineering software program. The trained skills are ones that will be learned on the job; some prior proficiency is desirable, but not necessarily required.

2. Reduce the chatter in interviews.

Make the interview more about asking the candidate to demonstrate their prerequisite skills than asking open-ended questions that ultimately give you little insight. For example, "What experience do you have coding in this language?" tells you more than "What do you do when conflicts arise at work?" Once the skills have been demonstrated, ask those other questions if you'd like, but there's no sense in using them on someone who cannot demonstrate an ability to do the work.

3. Make subjective 'soft skills' objective. 

Qualities like "cultural fit" and "team player" are somewhat subjective; every company sees a "team player" slightly differently. Conner recommends breaking these soft skills down to their components. Exactly what do you look for in a team player or in a cultural fit? Name those qualities to make them concrete, and then ask yourself if you see those traits in your candidate. Ask interview questions that help you see these components in your candidates too. [Read related article: Interview Skills to Get Hired]

4. Narrow the list with job requirements. 

Getting candidates to whittle down your list for you is key. Post the job's requirements, such as "willing to work weekends" or "willing to travel." Another great option, if applicable, is "willing to work nights." Any potential candidates unwilling to abide by these requirements will not make it through your door for an interview, thereby saving time and money and reducing the risk of making a wrong hire.

Tip: If certain aspects of your job are generally considered undesirable, list them in your job requirement to weed out bad hires.

5. Figure out what went wrong last time.

Chances are you've made a bad hire once or twice before. The mistakes you made with that individual can inform your current selection process. If the bad hire lacked certain skills key to success, ask objective questions about those aspects of the job. If the bad hire worked too slowly to meet your output needs, ask all your candidates how long certain key tasks take them. Weigh your candidates against one another on these fronts to find a good new hire.

6. Ask for references – and contact them.

A job candidate can come into an interview boasting about a skill set only to drop the ball once they're actually on your team. Avoid this catastrophe – and keep the cost of a bad hire at zero – by seeking recommendations. These reference checks can tell you the real deal behind a candidate's story. The people you contact will often be candid with you, as they know you won't tell the person what they say.

7. Don't rush your hiring process.

Hiring a new employee gradually rather than rushing to fill an opening is a great way to avoid the cost of a bad hire. Your team might be thinly spread with one fewer employee than usual, but a bad hire isn't a solution to that. A quick hire will temporarily alleviate your problems while ultimately putting you back at square one. Take your time and avoid a costly bad hire. 

Tip: You could also outsource the hiring process to a top PEO service. Read our review of Rippling for a good example.

8. Be subjective only if you're stuck.

At this point, Conner said, you've got all you need to decide. If two candidates are deadlocked after you have assessed their required skills, determined their coachability on trained skills, examined their soft skills, and explained the job requirements in detail, subjectivity still serves.

"If we start not by identifying all the job requirements, but just by identifying the specific skills a person needs on the job … the focus of the recruiting process becomes finding someone with those specific skills," Conner said. "You're saying, 'We need you to perform this task to this level and this standard, and if you can do it, then you qualify.'"

Max Freedman contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.